Recent Developments in the Art Market – Lexology

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This article is an extract from The Art Law Review, Edition 3. Click here for the full guide.
In the second edition of The Art Law Review, we asked if this decade might be the roaring twenties of the art market despite the storms. We reflected on the market's rise against the odds. Storms are undeniably still ahead but if 2022 is any indication, the market is not only booming but reinventing itself.
Although the past decade has shown that it takes the art market longer than most industries to feel macroeconomic tremors, it is not unreasonable to expect that a looming recession, global political instability and the climate crisis will affect confidence in the market. While these events are certainly shaking the market's foundations, confidence remains impressively strong. Of the collectors surveyed for the Art Basel and UBS Global Art Market Report 2022, 78 per cent were optimistic about the art market in 2022, and spending in the first half of the year almost doubled that of the whole of 2019.² US$7.9 billion was spent on fine art at auction in the first half of 2022, which is similar to the same period in 2021.³ Beyond numbers, the latest developments in the industry indicate that this decade might see the beginning of a new and reinvented market. The impressive confidence in the trade that we noted in 2021 reflected a widespread trust that the market can adapt rather than just brace itself to survive economic and regulatory challenges. The year 2022, in turn, proved that perhaps contrary to popular belief, a large proportion of the art world has the willingness to proactively face the sociopolitical changes many have been calling for. While 2022 was just as rich in creativity and innovation as 2021, it notably showed a hunger for more systemic transparency and accountability.
The year 2022 was marked by events that challenged us to consider aspects of the market that the art industry had become uncomfortably accustomed to overlooking. An example that stood out this year is the market's attitude towards artists. Another was public institutions' responsibility towards the past. The first is of vital importance to the market for obvious reasons. The latter is of importance to the market just as much as it is to the public and stakeholders in cultural heritage protection because museums' and governments' changing attitudes to deaccessioning and restitution are inevitably, and some may argue controversially, bringing treasures back on the market.
When we wrote this chapter last year, regulatory shifts were numerous and the legislator had much to catch up with. In 2022, legislative reforms were few and far between. The trade welcomed the updated Anti-Money Laundering (AML) Guidelines published by the British Art Market Federation.⁴ The updates were timely, as His Majesty's Revenue and Customs began its enforcement efforts in summer 2022, handing out the first fines to 'art market participants'⁵ who continued to trade while unregistered.⁶ The updated Guidelines provide clarification of the definition of an intermediary, and who in a given transaction should conduct know-your-customer checks to help art market participants avoid duplication of compliance efforts. While the development of the UK's AML framework is a step closer to achieving increased transparency in the market, the US has taken two steps back. In 2021, it was widely anticipated that AML legislation tailored to the art market following the lead of the UK model was around the corner in the US.⁷ Yet, in February 2022, the Financial Crimes Enforcement Network released a report explaining that while it is cognisant of the vulnerabilities of the art market to money laundering and terrorist financing, evidence is not sufficient to make tightened oversight a priority.⁸ New York then doubled up by abolishing auction rules introduced over 30 years ago in a bid to stimulate business. Among others, the rules imposed disclosure requirements on auction houses ahead of a sale, prevented the advertisement of price estimates below the reserve price and policed a practice known as 'chandelier bidding' under which the auctioneer announces a series of fictitious bids on a lot to help build momentum in the crowd.⁹ For now, however, all major auction houses have publicly committed to continue operating as if the regulations were still in place in an effort to maintain high standards of ethics and transparency.¹⁰ Ironically, while the government thought it was helping business by loosening rules, the trade decided to keep them for the same reason. Evidently, the popular trope that market actors fear, or are desperate to resist, regulation is slowly becoming outdated, and the industry is voluntarily maintaining a degree of commitment to transparency and accountability.
With the restitution debate reaching a pressure point during 2022, we had the opportunity to witness what moral, rather than legal, rules have pushed those with a vested interest in that debate to act (or not act as the case may be). First came some internal audits by leading public institutions. Major museums geared up with teams of experts to clear the spiderwebs and examine their collections for items with tainted provenance. For example, after appointing the expert Emmanuelle Polack to investigate its collections for Nazi-looted works in 2021,¹¹ the Louvre has now also teamed up with Sotheby's for a three-year project designed to fund research of the provenance of objects acquired by the museum between 1933 and 1945.¹² In Germany, items from the Ethnological Museum of Berlin and the Museum of Asian Art are subject to ongoing research feeding into animated debates regarding provenance and possible returns,¹³ and the Bavarian State Painting Collection has been working to disclose the provenance of more than 1,200 works of art that were acquired during the Nazi era in a free online database.¹⁴ In Spain, the Prado Museum publicly announced a commitment to review its collection for items potentially seized during the Spanish Civil War, and it has already released a list of 25 works that it has identified as being potentially acquired during the Franco years.¹⁵ In the UK, in July 2022 Tristram Hunt, director of the Victoria and Albert Museum, suggested starting 'a conversation' about laws that make it difficult for UK museums to return items in their collections to their country of origin.¹⁶ Since June 2022, George Osborne, the former UK Chancellor of the Exchequer under Prime Minister David Cameron, and now the chair of the British Museum, has alluded to the possibility of 'doing a deal' with countries such as Greece and Nigeria that have been asking for the return of treasures removed by the UK during times of conflict.¹⁷ This gave hope to those who support a more open dialogue between the euphemistically called 'universal museums' and countries seeking to reclaim some of their lost heritage through iconic cultural objects. Hopes were dashed by Liz Truss who promptly ruled out a more open dialogue with Greece over the Parthenon Marbles. We remain hopeful that Rishi Sunak's government will reinvigorate a more enlightened debate on restitution. A proactive approach to self-auditing and transparency is essential to move the needle on restitution and long-overdue redress for claimants and source communities. It is our hope that more conversations such as that encouraged by the international conference on Nazi-looted art held in Venice in spring 2022¹⁸ will continue to inspire steps in the right direction.
This is a shift from a strict position that governments and public institutions have historically maintained by relying on the limitations of legal frameworks to decline restitution and repatriation claims. Recurrent arguments include the expiry of statutes of limitation, public institutions' limited powers to deaccession works from permanent collections, the old doctrine that property of the state cannot be disposed of, and the alleged danger of opening the floodgates if a couple of items are restituted or repatriated, thereby setting a precedent for thousands of similar claims to follow and deplete national collections.¹⁹ The number of repatriation and restitution claims that were honoured in 2022 show that these defences, while legally sound, have run out of steam in the face of the moral arguments and public pressure for greater accountability. A landmark bill passed by the French parliament earlier this year allowed for the restitution of 15 works from national museums, including paintings by Marc Chagall and Gustav Klimt, to the heirs of Jewish families.²⁰ This development has once more chipped away at the sacrosanct principle of inalienability of state property that has applied in France since the sixteenth century. The multi-layered process to deaccession inalienable objects from public collections in France is lined with locks and safeguards that leave the final decision in the hands of parliament rather than individual institutions. This year's restitution of 15 Nazi-looted pieces closely follows last year's equally historic deaccessioning of 27 objects from the Musée du Quai Branly's public collection, which were repatriated to Senegal and Benin. These landmark decisions prove that where the court of public opinion speaks out, governments find a way.
In the UK, the recent publication of Arts Council England's new guidance on restitution and repatriation for museums is timely.²¹ There were whispers of a provision in the new Charities Act 2022 that would allow the trustees of national institutions to seek authorisation from the Charity Commission for ex gratia deaccessioning,²² a sharp turn from a 2005 decision by the High Court in Attorney General v. Trustees of the British Museum in which the Court was categorical that trustees could not rely on moral obligations to circumvent the restriction on disposals set out in the British Museum Act 1963.²³ However, in October 2022, the government advised that it needed more time to consider the implications of the relevant sections of the new Charities Act 2022 and the granting of new discretionary powers to trustees.²⁴ On the other side of the Atlantic, a landmark change to the Association of Art Museum Directors' (AAMD) deaccessioning guidelines was confirmed this year. During the covid-19 pandemic, the AAMD loosened its guidelines on an emergency basis to permit the use of proceeds from deaccessioned work for the direct care of collections. The rule has now been made permanent, albeit redrafted with a focused scope that expressly excludes the use of sales proceeds for capital expenses or operating costs, including staff salaries or the costs to mount temporary exhibitions.²⁵ Market actors and art lawyers alike are carefully keeping track of these developments.
One topic that remains as hot in 2022 as it was last year are the expansions – both geographical and digital – of the global market. The comparison of London and Paris remains irresistible for commentators. It has been especially tempting after Paris' successful fairs in October with the transformation of the international art fair Fiac into the new Paris+, the success of Paris Internationale²⁶ and the opening of a string of global galleries in Paris over the past couple of years, including David Zwirner, Skarstedt, Mariane Ibrahim, Galleria Continua, White Cube, Gagosian and, soon, Hauser & Wirth.²⁷ Temptations aside, 2022 made us wonder whether it is still helpful to pit these two cities against each other while relying on century-old tropes? A lot has happened in recent years to show that Paris is not just chic and London not just edge. The former is certainly shedding its romantic insularity to embrace the global art scene and welcome international players. Institutions such as the Bourse de Commerce and the Louis Vuitton Foundation are curating exhibitions and showcasing contemporary talent that firmly evidences Paris' cultural renaissance. While London is still arguably a stronghold of contemporary talent, and continues to thrive despite economic and political challenges that many predicted would be fatal,²⁸ both cities are nurturing incredibly rich art scenes and continue to have something different to offer. If the rivalry remains as irresistible as it has been for the past few centuries, it will be interesting to see what one city can offer that the other cannot. As we noted in the second edition of The Art Law Review, the mighty rivals for London, Paris and New York to take stock of are now in Asia. While numbers show that the US market retained its dominance in 2022 (with 43 per cent of worldwide sales by value), the Chinese market was the second largest art market, claiming 20 per cent of worldwide sales by value, causing the UK to slip back to third place, with 17 per cent.²⁹ Big market players are not letting opportunities in booming Asian art hubs go to waste. Phillips expanded into China through a partnership with Chinese auction house Yongle,³⁰ Frieze held its first fair on the continent in Seoul,³¹ and there are now whispers that Japan's art market is poised to expand.³²
Real life dimensions aside, new intangible dimensions of the market have remained after the digital rush induced by the pandemic. However, figures show that they now simply complement traditional sales and expand the global marketplace. There was a 71.5 per cent decline in revenue from online-only fine art sales in the first half of 2022 at the top four auction houses and Artnet, compared with the first half of 2021.³³ This trend may well change with the generational shift in collectors: more than half of the boomer collectors surveyed for the annual Art Basel and UBS Global Art Market Report 2022 preferred to buy at a gallery, while only 28 per cent of Generation Z collectors shared that preference.³⁴
Events in 2022 gave strong indications that the non-fungible token (NFT) market may have flatlined. Damien Hirst is still defiantly incinerating works from his NFT collection,³⁵ but numbers show that the bubble has burst. Between May and August 2022, the average price of an NFT plummeted by 92 per cent.³⁶ The rush for NFTs in 2021 and resulting impulsive transactions and projects this inspired, did, as expected, lead to disputes that gave art lawyers plenty of opportunities to ponder the implications of tokenising the ownership of art. Often, they proved that age-old intellectual property principles are still relevant to ultra-modern technologies and that NFTs do not have the power to dissolve existing copyright protections.³⁷ Examples include multiple cases of minting reproductions of art without the right to reproduce it,³⁸ and unfortunate assumptions that ownership of art comes with an assignment of intellectual property rights.³⁹ The legislator, too, has been trying to catch up. In June 2022, the Law Commission published a consultation paper on digital assets. Under the umbrella term 'digital assets', the reform it proposes would cover non-tangible assets in digital form. Beyond NFTs, this includes databases, software, digital records, domain names, crypto-tokens and cryptocurrencies. Blockchain technology may have a promising future in the art world and certainly offers possibilities of revolutionising the shape of art transactions for artists.
After it underestimated the enthusiasm of collectors during the pandemic, the primary market is joyously nurturing the rush for the 'ultra-contemporary' (typically understood to be work by artists born after 1975).⁴⁰ The markets of so many bright stars have risen astronomically over the past year. Examples include Flora Yukhnovich, Issy Wood, Matthew Wong, Christina Quarles and Jadé Fadojutimi, to name just a few. Every layer of the industry seems to be looking for the next big hit but how much does being a big hit cost an artist? Speculation has been a bête noire of the market for years, but the pace of resale of wet paintings has never been higher. Sales of work by ultra-contemporary artists offered at auction within three years of their creation soared to US$257.4 million in 2021, from US$22.8 million in 2012.⁴¹ The key issues in this trend for artists are twofold. First, an artist typically sells their work on the primary market for a much lower price than it sells for on the secondary market, yet the artist only shares in a minimal amount of the inflation in the few jurisdictions where the capped artist's resale royalty applies. Second, steep as opposed to gradual inflation can easily damage the holding and longevity of an artist's market. Auction houses have faced criticism for enabling rapid price inflation but are they really the ones that light the fuse? Some artists have publicly expressed that the excitement from their success is tainted by the threat of a rapacious appetite for their work.⁴² The speculative rhythms of the market enable this trend, and auction houses are simply, as they have always been, the host of the beating heart of the market. There is so much to be celebrated in the roar of new talent and art that speaks to the moment so well that demand almost immediately outstrips supply. The question for lawyers advising artists and primary market galleries is, what can they do to encourage the long-term holding of emerging artist's works?
There are a few contractual tricks. One hotly debated contractual tool is the right of first refusal, also referred to as a 'right of first option' or a 'no resale' clause. This clause is typically found in contracts between primary market galleries (galleries selling work directly from the artist's studio) and their buyers. The clause allows the primary market gallery to require the buyer to give the gallery a first option to either buy or take on consignment a piece sold to the buyer should they decide to resell it within a period of years of the first purchase. The purpose of the clause is to bridle speculation or 'flipping'. It benefits the artist because it helps a gradual, sustainable escalation in pricing and it rewards the gallery because it allows it to receive a return on the effort it invested in building the artist's market. There are several bases to challenge the enforceability of these clauses. Do they constitute 'agreements to agree' in the absence of a reliable formula to agree the pricing of the work at the point of resale? Does the gallery provide valuable consideration for the restriction to what, at its core and from a strictly legal point of view, is a traditional property right? If the artist leaves their gallery, would they have a good case for claiming that the right is for their benefit, not the gallery's, and accordingly take it to their new gallery to exercise on their behalf? While cases centred on the enforceability of the right have been fought in the US, none has been considered in the UK yet. Art lawyers should probably not hold their breath until a dispute over this right of first option reaches the courts but it may be just what the primary market needs to settle years of debate. Other less traditional contractual solutions include provisions that require the collector to share a percentage of their resale profit with the artist. One difficulty with these contractual provisions is that the artist is often at the mercy of the collector's good faith and willingness to respect it, especially if the resale is done privately.
This is where new technologies may well come to the rescue. The year 2022 put a spotlight on new tech companies that have been pondering how to close the gap between the primary and secondary market and allow artists to benefit from the rise of their prices. Fairchain, for example, registers sales of art on smart contracts that can serve as both certificates of title and authenticity and allow artists to track their work and share in secondary market proceeds. Each time the work is resold, the artist automatically receives a royalty, the size of which is agreed with the dealer.⁴³ Data start-up Lobus is another example of a platform powered by blockchain allowing artists to receive 10 per cent of every resale.⁴⁴ Arcual is the newest competitor in this market, founded by Art Basel's parent company MCH Group and LUMA Foundation. This is where blockchain is also a promising solution to the limitations of the statutory artist's resale royalty, which, being capped, can seem inadequate to reward the artist in the case of steep and rapid price escalations. Another advantage of encoding royalties and contractual restrictions on the blockchain is that it makes enforcement automated. Smart contracts are not sufficient on their own. They are neither inherently smart nor contracts. They are lines of code designed to self-execute 'if-then' scenarios once a deal is negotiated and agreed in the traditional way and often supplemented by a traditional contract. The rudimentary mechanisms offered by blockchain technology could, however, aid the monitoring of resales and collectors' accountability. For example, a 'clawback' mechanism embedded in the blockchain can automatically return the title to a token to the artist's crypto wallet if the owner of the artist's work, for example, tried to transfer title within the no-resale period. Alternatively, hard-coding veto rights can make it impossible for the owner to transfer title without notifying the artist or gallery, which would retain the power to block the transaction in a couple of clicks.⁴⁵ Of course, the collector can simply take the physical artwork and sell it off the blockchain. The sale would, however, be fraudulent and the smoking gun would be on the public blockchain. There is still much 'techno-hesitance' in the market, and the popularity of smart contracts, especially for the sale of physical works of art, is far from guaranteed. However, as the co-founder of Fairchain candidly said, 'until artists recognise that they have more power and influence than they realise, things will not change'. What would happen if the most in-demand artists said that using blockchain was the only way to acquire their art?
Solutions to protect an artist's market and their fair share of profit can also be more strategic than they are legal or technological. The year 2022 showed that this can include partnering with auction houses directly. A project by Sotheby's called 'Artist's Choice' aims to incite direct primary market consignments from artists and their galleries by offering to donate 15 per cent of the hammer price to a charity of the artist's choosing (7.5 per cent is taken from the hammer price and matched by Sotheby's out of its buyer's premium).⁴⁶ Simon de Pury recently organised online auctions featuring work consigned directly by artists and their galleries, designed to allow artists and galleries to reap the benefit of the boom by taking the full hammer price, which they choose how to split.⁴⁷
Some galleries succeed in launching new talent onto the market without inspiring uncontrollable waves of speculation. Those galleries work closely with the artists they represent so as to not only introduce their work to the market but also to inspire buyers to buy into their creative practice. Galleries that help clients feel like patrons more than buyers undeniably inspire a commitment to the health of an artist's market that can successfully challenge the accusation that art and capitalism are incompatible. It would, of course, be unhelpful to generalise collectors as an ironic threat to an artist's success. Many collectors are excellent patrons and are alive to their responsibilities towards the artists whose work they collect. In an act of self-regulation and as a gesture of accountability, earlier in 2022 a group of collectors proposed a 'Code of Conduct for Contemporary Art Collectors'.⁴⁸ Although it received mixed reviews and was not widely adopted,⁴⁹ the Code is proof that some collectors responsible for the roaring demand for an artist's work do not have to be a threat to an artist's market.
When it comes to fundamental questions about contemporary artistic practice, in 2022 the courts left us in suspense over cases inviting scrutiny of the creative processes of artists seen as 'provocateurs'. Two landmark cases invited the courts, yet again, to ponder the popular trope that good artists borrow, but great artists steal. A case pitting the Andy Warhol Foundation for the Visual Arts, Inc against the photographer Lynn Goldsmith centres on the scrutiny of appropriation art, a creative process defined by the legal and ethical issues it raises.⁵⁰ Recent years have shown that the judgments, both legal and societal, imposed upon appropriation artists are often formed in isolation of an understanding of the conceptual foundations of appropriation art. Lawsuits brought against artists such as Jeff Koons and Richard Prince over the past two decades have informed the stigmatisation of appropriation art as theft. Although the court in Blanch v. Koons⁵¹ tentatively took steps in the right direction of deciphering the conceptual basis for appropriation art, Bauret v. Koons⁵² and Cariou v. Prince⁵³ evidence the courts' struggle to interpret appropriation, largely due to a focus on the aesthetic characteristics of works of art to the detriment of appropriation art's important conceptual foundations. After decades of trials with inconsistent outcomes, the opportunity for the US Supreme Court to set a precedent that reconciles legal frameworks with the intricacies of artistic practice is not lost on artists and art lawyers.
The Goldsmith case examines a 1981 photograph of Prince taken by Lynn Goldsmith and later appropriated in a series of 16 screenprints by Andy Warhol. Goldsmith argues that Warhol's derivative work infringes her copyright. A 2021 decision by the Second Circuit Federal Appeals Court rejected the fair use defence to copyright infringement raised by the Andy Warhol Foundation on the basis that Warhol's work failed requirements of the fair use test, including the 'purpose and character' factor, which allows consideration of the 'transformative' nature of the infringing work.⁵⁴ Warhol's work is visibly derivative of Goldsmith's photograph – it retains key elements of her portrait on which Warhol's easily recognisable style is superposed. Focusing, as unfortunately often happens in appropriation cases, on an unhelpful formalist analysis of the work, the appeals court rejected the Foundation's claims regarding the importance of Warhol's changed meaning or message. The Foundation petitioned the court to hear its appeal in 2021 and, after permission was granted in March 2022, judges are once again left to ponder the meaning of art and resist a purely formalistic assessment of the issues. The heart of the key question before the Supreme Court is now whether, and importantly for the precedent value of this decision, why, the transformative change in meaning in Warhol's work can absolve him of copyright infringement.⁵⁵ This case is a prime example of a debate in which input from artists as advocates for their creative process is vital. This is not lost on artists in the field of conceptual art. Barbara Kruger and Robert Storr have helpfully filed amicus briefs supporting the Foundation and providing a fascinating and apt explanation of both how appropriation, variation and copying have played key roles in art history on the one hand, and how, on the other, contemporary artists continue to make varied and active use of pre-existing works, showing that appropriation remains central to modern artistic practice. A timely survey exhibition at Luxembourg + Co titled 'Bad Manners' in spring 2022 was dedicated to the role of non-consensual collaborations between artists from the mid-nineteenth century to the present day, beautifully showcasing the rich variety of provocateurs in art history from Jean Arp to the Chapman brothers that have challenged 'collegial etiquette, originality and authorship'.⁵⁶
The second seminal case was brought in the French courts against Maurizio Cattelan by the sculptor Daniel Druet, unsurprisingly not the only time that the provocative artist was in hot water for copyright infringement in 2022.⁵⁷ Daniel Druet is an artist in his own right, and was commissioned by Cattelan to produce wax sculptures used in some of Cattelan's most acclaimed works. In the lawsuit, Druet claimed exclusive authorship (as opposed to joint authorship) of the sculptures in question, which was ascribed to Cattelan, and over £4 million in damages from Cattelan's gallery (Perrotin), the gallery's publisher and la Monnaie de Paris, the museum that hosted a retrospective of Cattelan's work. The potential repercussions of the court's decision were feared by many. It is more than common practice for contemporary artists today to employ artisans, artists and staff in their studios to execute their concepts. The artist might never physically touch the work, yet the possibility that those in charge of the fabrication of their work are co-authors or, as Druet claims, the only author, is uncomfortable. French artists joined forces to defend conceptual art in a letter published by Le Monde,⁵⁸ while contemporary artists around the world were left holding their breath in fear of what French courts – where the droit d'auteur is sacred – could make of the hierarchy between artistic concept and savoir faire. The Paris court dismissed the claim on 8 July 2022, but importantly on the procedural basis that Cattelan, as the presumptive author of the work,⁵⁹ should have been made a defendant and thus passed on the opportunity to fully delve into an important authorship debate.⁶⁰ It remains to be seen whether Druet will appeal or file an amended claim. In the meantime, we are left to ponder the question: who is the author of a work of art? The artist who conceives it or the artist who makes it, a question at least as old as Auguste Rodin, who reportedly never carved a block of marble himself.⁶¹
Developments in the global art market in 2022 are inspiring change at all levels of the industry. Economic challenges have proven to be catalysts for proactive innovation rather than reactive survival. The dimensions of the market, both geographical and technological, are shifting. The industry is increasingly alive to the benefits of systemic transparency and accountability. The evergreen questions about what it means to be an artist and support and understand creative practice are at the forefront of our minds. What a decade to be an art lawyer.
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