Who owns rights to art when a manager-artist relationship ends?

Artists and artist managers have a symbiotic relationship. Both new and established artists benefit from the experience, connections and guidance of professional managers who can propel an artist's career and establish a market for the artist's works. In turn, managers depend on artists for the continued creation of the product sold by the manager. But when the relationship terminates, who owns the intellectual property rights to the artwork and associated rights? This is a complicated question, shaped by both the contractual agreement between the manager and artist, and the overarching laws that govern the transfers of intellectual property rights. When not properly addressed from the outset, a dissolution between manager and artist can lead to a costly legal fight and uncertainty as to who owns the rights to the works.

The arrangements between artists and managers are similar to ones found in many other industries. But in the art world, partners often have little knowledge of the intellectual property principles critical to creating fair operating agreements. These kinds of partnerships tend to be ambiguous, with artists and managers often initially agreeing to split profits according to some allocation. However, without elaboration, such an agreement can be rather murky, particularly when exploitation issues materialize after the relationship ends and simple profit sharing agreements do not address the ultimate question: who has the right to exploit?

Agreements between artists and managers can take many forms. In some instances, a manager will agree to receive a commission on sales of works by the artist. The commissions are typically 10 to 20 percent for non-exclusive relationships. Alternatively, and more typically in an exclusive arrangement, a manager and an artist will organize a limited liability vehicle, such as a limited partnership or an LLC, and conduct all sales through the company.

In the latter scenario, a typical term agreement term is that all work created by the artist is to be transferred to the LLC and sold or otherwise exploited exclusively through the LLC. Although simple enough on its face, such an agreement must be weighed against the restrictive provisions of the Copyright Act to ensure validity upon scrutiny.

Specifically, Section 204(a) of the Copyright Act states: "A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent." That, in and of itself, restricts enforceability of a transfer of rights to a work. Thus, a vague agreement to "sell all of an artist's work through the company" is not likely to satisfy the restrictive requirement of a signed writing transferring a work.

Additional ambiguity arises in the exploitation of derivative works. Original works are often reprinted and monetized through hundreds of prints, etchings, lithographs, and so on,, potentially increasing the work's profits exponentially. And yet, someone must own the rights to create the derivative works in order to profit from them. This scenario is not as uncommon as one would think.

Artists typically claim that once the partnership with the manager has expired, so has any right by the manager to realize any profits from the exploitation of the work. The managers counter back that the original work as well as the spectrum of copyright rights enumerated in Section 106 belong to the partnership or the LLC. This can be a contentious issue, since the copyright of derivative works is particularly valuable; the cost of reproduction may be as little as the price of paper and ink, yet the sale price is often comparable to the price of the original work. The value of prints and etchings can also grow as the reputation of the artist grows. The outcome of that dispute will necessarily hinge upon how the deal was structured from the outset of the relationship.

Artists may not realize the importance of understanding who owns the copyrights to their work, and managers often don't want to spend thousands of dollars hiring an attorney to draft an agreement suited to their specific needs. However, generic documents will not account for the specific issues of copyright that affect the art industry, and lawsuits (which are virtually guaranteed in the event of disagreement due to the high value of art copyrights) can be avoided by drafting agreements that specify what happens in case of future dissolution. Without a solid agreement, both parties are exposed to litigation, with no guarantee that they will receive the rights and profits that rightfully belong to them.

Thus, a general LLC agreement will not deal with the copyright issue at all and, where it does, will not: (1) touch on how a painting's copyright will be transferred immediately after creation; (2) address the applicability or "opt-outs" from key sections of the Copyright Act; (3) deal with ownership of derivative rights, which may substantially exceed the value of the single original work; (4) address trademark issues and issues related to the licensing of the artist's image and likeness to be used in connection with the promotion of the works.

With an insufficient or nonexistent agreement documenting the intricacies of rights ownership, both during the relationship and upon its termination, both the manager and the artist are left vulnerable. While artists can continue to produce and sell work regardless of their representation, those rights can be tied up in litigation while managers assert an interest to either new works or to the derivative works created during the partnership's pendency. Managers, on the other hand, can also be short-changed without a proper mechanism for the preserving their rights. A technical lack of compliance with a key provision of the Copyright Act or trademark law may leave the manager without any legal rights to share in the sales, even after years of hard work and promotional efforts on behalf of an artist.

Therefore, operating agreements or partnership agreements need to be established early, ideally before the partners begin doing business. If art industry professionals wish to secure their rights, there is no better path at ensuring predictability than retaining counsel familiar with both the art world and copyright and trademark law principles. An experienced attorney can help the both artist and manager understand their desired outcomes, both during the partnership and when it ends, and formalize the agreement in a manner that serves their interests and complies with the Copyright Act and other intellectual property law, thereby avoiding disputes both during the relationship and following its conclusion.

Eugene Rome is principal and founder of the Los Angeles-based law firm Rome & Associates. He represents galleries, collectors, lenders, appraisers and consultants in litigation and transactions relating to art law and related business disputes. You can reach him at (310) 282-0690 or erome@romeandassociates.com.