Abstract
This article examines whether the Resale Royalty Right for Visual Artists Act 2009 (Cth) provides adequate protections for artists working with non-fungible tokens (NFTs). Focussing on Indigenous Australian artists and the context within which they work, the article assesses whether smart contracts embedded in NFTs provide more secure access to royalties for visual artists, as compared with the Act. The article then considers how the Act can be reformed to provide more comprehensive protections that meet the needs of Indigenous Australian artists working with NFTs.
In 2019, mega-gallery Gagosian presented Desert Painters of Australia, a special exhibition of works from the Kluge-Ruhe Aboriginal Art Collection of the University of Virginia and the collection of Steve Martin and Anne Stringfield. 1 Also in December 2019, Sotheby’s held its first auction dedicated to Indigenous Australian art, with 29 lots bringing a net total of USD2.8 million. 2 The coincidence of these events is indicative of the booming market interest in Indigenous Australian art.
Despite the sustained popularity of their work since it gained international traction in the 1980s, 3 Indigenous artists have encountered barriers in reaping the financial rewards of high demand. 4 An injustice suffered by many artists is that, while sales on the primary market may be at relatively low prices, these figures can skyrocket in the secondary market. 5 Without a resale royalty right, artists saw none of the benefit of their growing market value. The passage of the Resale Royalty Right for Visual Artists Act 2009 (Cth) (‘the Act’) sought to resolve some of these injustices, by requiring a 5 per cent royalty 6 be paid to artists upon resale of some works in the secondary market. 7 This right allows artists to draw financial benefits from subsequent sales of their work. The Act, however, could not foresee the rise of non-fungible tokens (NFTs), 8 which complicate matters regarding resale royalties. NFTs are often conflated with the artworks they represent but are, in fact, unique tokens that represent the existence and ownership of an asset (which could be physical or digital). 9
Indigenous artists are starting to mint NFTs associated both with digitised physical works 10 and purely digital works. 11 Although NFTs provide a possible method to secure resale royalties, this is subject to negotiation in the primary market. The fact that the Act does not apply the royalty right to sales of NFTs can cause confusion and difficult commercial quandaries for artists. These problems are compounded for Indigenous Australians, who already suffer disadvantage in the art market.
This article explores the disadvantages faced by Indigenous Australian artists in the market and examines how these persist as Indigenous artists navigate commercial decisions related to securing resale royalties through the Act or with NFTs. The second section provides context by describing the plight of Indigenous Australian artists as they seek financial recognition of the growing value of their work in the secondary art market. Next, the article explains the proposed case for using NFTs and smart contracts to secure resale royalties, particularly for Indigenous artists. It examines the (non-)application of the Act to NFTs, and assesses the considerations involved for Indigenous artists using NFTs or the protections afforded by the Act to earn royalties. Informed by this discussion, the next section analyses how the Act could be reformed to better protect Indigenous artists’ access to royalties, and what intermediary action could be taken until such reforms are passed. Finally, the article concludes that NFTs provide some practical advantages for Indigenous artists in their attempts to earn royalties but that, due to the need to update the Act, Indigenous artists should exercise caution when minting and selling NFTs. It further recommends that the Act be amended to account for the rise of NFTs, and that Indigenous art centre professionals be educated on, and supported to properly issue, NFTs.
Culturally rich, revenue poor: The importance of resale royalties for Indigenous Australian artists
Indigenous artists have a significant interest in the secondary art market. 12 While sale prices on the primary art market can be relatively low, these can increase drastically upon resale. One example is the sales history of Warlugulong by Clifford Possum Tjapaltjarri. The work was first purchased by the Commonwealth Bank for AUD1200 in 1977. It subsequently sold for AUD36,000 in 1996, and AUD2.4 million in 2007. The final sale represented a 2000 per cent increase on the original price. 13 However, these increases did not benefit the original artist (or his heirs), with only the reseller in each instance taking home the profits. Warlugulong is an extreme example, reflecting Tjapaltjarri’s high status in the market. 14 However, Indigenous art regularly sells for figures that are significant 15 – at least in the eyes of artists, if not in the scheme of the broader art world. The disparity between price at initial sale and subsequent sales is even more alarming when one considers that works sold by artists on the primary market through art centres normally see the centre applying a 40 to 50 per cent sales fee for art provided on consignment. 16 Consignment fees thereby decrease the income the artist receives through a primary market sale even further.
While all visual artists have an interest in securing revenue from resale of their work, this interest is particularly pronounced for Indigenous Australians. Pham notes that for Indigenous artists, low income from primary sales ‘is compounded by living in impoverished remote communities with limited options for supplementing their income.’
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This view is supported by Senator Aden Ridgeway’s 2003 statement that [t]he establishment of a scheme for resale royalty rights for artists is particularly important in the context of the rapidly booming international market for Indigenous artworks as compared to the desperate economic conditions within which many Indigenous artists live and work.
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The injustice of this context is particularly marked as Indigenous artists may be considered the backbone of the Australian art market. In 2007 only 2.6 per cent of the Australian population was Indigenous, but 24 per cent of art sales by Australian artists were by Indigenous artists. 19 In 2021, Indigenous art sold on the secondary market totalled AUD11.6 million. 20 This socio-economic context points not only to a clear disparity in the market benefit that Indigenous artists contributed and derived from artistic production, but also to the fact that the ability to derive income from resale can have significant financial benefits for Indigenous artists.
Moreover, the usual power imbalances in the art market between dealers and artists are magnified for Indigenous artists. The Australian Competition and Consumer Commission (ACCC) has repeatedly recognised that Indigenous artists are often at risk due to the power imbalance between dealers and Indigenous artists. 21 ACCC Deputy Chair Delia Rickard said, in 2016, that ‘Indigenous art is world renowned, but some artists are taken advantage of and don’t get fair payment for their work’. 22
The conditions encountered by Indigenous artists directly informed arguments supporting the enactment of the resale royalty right. The 2002 Contemporary Visual Arts and Craft Inquiry concluded that ‘the case for introducing resale royalties is particularly strong given the needs of the Indigenous visual arts and craft sector.’ 23 Furthermore, during a 2008 debate in the House of Representatives, the Honourable Peter Garrett (then Minister for the Environment, Heritage and the Arts) said that ‘introducing the [resale] right will significantly increase the transparency of the art market, which, of course, is particularly important for Indigenous artists, who have sadly continued to be exploited by some unscrupulous dealers’. 24
Eventually, to alleviate these injustices and fulfil Australia’s obligations under the Berne Convention for the Protection of Literary and Artistic Works (1979), 25 a resale royalty right was introduced in the form of the Resale Royalty Right for Visual Artists Act 2009 (Cth).
The 2019 Post-Implementation Review of the Act and the Resale Royalty Scheme concluded that the Scheme has been effective in facilitating resale royalty payments. 26 More recently, the Productivity Commission found that in the 2020–21 financial year, Indigenous artists and their beneficiaries were paid 44 per cent of all royalties awarded under the Scheme, 27 highlighting its particular importance for them. In addition, artworks by Indigenous artists accounted for 78 per cent of artworks resold for a price between AUD1000 and AUD1999. 28 The high concentration of Indigenous artists in this price bracket suggests that the Scheme has been effective in helping Indigenous artists at the lower end of the market continue earning from their work. This is important as artists selling at the lower end of the market implicitly would have earned even less at the first sale of the work. These statistics in mind, this article does not dispute the general success of the Scheme but, as will be explained, emphasises the complications arising from the advent of NFTs and asks how these complications can be resolved.
Considerations for Indigenous artists securing resale royalties through NFTs or under the Act
NFTs and Indigenous artists
Before discussing the benefits (or otherwise) of using NFTs to secure resale royalties, it is important to note that NFTs are not artworks. 29 Rather, they are a tool that uses the blockchain to authenticate and secure a record of the ownership of assets, whether digital or real world. 30 Therefore, when an NFT associated with an artwork is sold, it is the token and not the artwork that is sold and owned. NFTs are often confused as being one and the same as an artwork because NFTs associated with art have been largely responsible for bringing this technology into the public consciousness. 31
Internationally, there has been great excitement that NFTs offer an avenue for artists to secure resale royalties for their work. This is achieved through the use of ‘smart contracts’. Smart contracts are pieces of code that make up a computer program that runs the operation of an NFT. 32 When somebody buys an NFT, they are automatically bound by the terms written into the smart contract, 33 which may include a term requiring payment of a resale royalty. The smart contract automatically fulfils the NFT’s terms (including payment of resale royalties to the work’s originator, if such a term is included) upon each secondary sale. 34 This is particularly revolutionary in jurisdictions which do not have a resale royalty right, such as the United States (US). 35 The lack of a resale royalty right has hampered the ability of artists working in such jurisdictions to earn money from resales.
But what about Indigenous artists working in Australia, where the right has already been secured by the Act? As mentioned, Indigenous artists have started venturing into the world of NFTs. Indigenous Yolngu artists from East Arnhem Land have been digitising physical works such as drawings and bark paintings. 36 Gunnai, Yorta Yorta and Gunditjmara artist Richard Young, another Indigenous artist involved in creating NFTs, says ‘[o]ne of my goals is to help Aboriginal artists and family groups to understand the processes involved in NFTs … in the context of resale royalties and contracts.’ 37 This comment emphasises the draw that NFTs have for Indigenous artists as an income stream: in 2021, the total volume of the NFT market was USD2,798,220,634 38 and, while about 60 per cent of sales took place on the primary market, the primary market represented only a quarter of the sales volume in terms of dollars traded. 39 The resale royalty rate included in the associated smart contract is often higher than the 5 per cent rate provided under the Act: the smart contacts for the sale of NFTs of Kamilaroi/Gamilaraay/Gamilaroi artist Reko Rennie’s Totemic III (2022) and Yuwi, Torres Strait and South Sea Islander artist Dylan Mooney’s Bottlebrush (2021) both include a 10 per cent resale royalty. 40
As Indigenous artists continue to make artworks associated with NFTs, it is vital to consider whether NFTs are captured by the operation of the Act and, if not, what impact this has on artists. The reason why the Act provides ‘security’ that NFTs do not is that although NFTs enable resale royalties to be earned through the terms of a smart contract, a smart contract is open to negotiation in the primary market. From a purely financial perspective, a primary purchaser has an imperative to negotiate a lower resale royalty rate as this can increase the price a secondary purchaser would pay. For some secondary purchasers, the increased price could be a deterrent to buying the work, which may make it difficult for the primary purchaser (or subsequent reselling owner) to sell the piece. This poses a practical concern for purchasers who buy art for investment purposes, such as self-managed super funds which account for 5 per cent of Indigenous art sold by private art businesses. 41 Indeed, in the lead up to the Scheme’s introduction, its detractors suggested that buyers would go to other markets internationally where there was no resale royalty scheme, 42 and where they therefore would not encounter such issues at resale.
Because NFTs do not enjoy a legislatively guaranteed resale royalty, NFT artists can be subject to pressure in primary sale negotiations, as purchasers can threaten to go to NFT artists who apply a lower or no resale royalty. This issue is compounded by the power discrepancies faced by Indigenous artists when negotiating with dealers. The ACCC has stated it ‘is concerned that too often artists are agreeing to produce art for dealers where the artist has little or no opportunity to negotiate’. 43 The Productivity Commission has also noted instances of unscrupulous dealers executing contracts with Indigenous artists which the artist does not understand or that reflect unfair remuneration. 44 Application of the Act to NFTs would mean that artists will not undercut each other (and also, ultimately, themselves) by offering lower resale royalty rates.
Are sales of artwork-related NFTs captured by the Act?
The increasing interest in NFTs and the potential revenue stream they offer should be tempered by consideration of whether Indigenous artists will be foregoing the security of resale royalties under the Act by minting and selling NFTs (rather than works themselves).
Under the Act, three main criteria must be met for the resale royalty right to apply:
The key sticking point here is that an NFT would likely not be considered an ‘artwork’ within the meaning of the Act. Section 7(1) of the Act defines an ‘artwork’ as ‘an original work of visual art’. Although s 7(2)(f) goes on to include ‘digital artworks’ within the definition of ‘an original work of visual art’, as discussed above an NFT itself is not a digital artwork. While the list of art media in s 7(2) is not exclusive, as an NFT is separate and distinct from the artwork to which it is related, it is unlikely that the court would consider an NFT to be an artwork within the meaning of the Act.
What is the commercial calculation for Indigenous artists choosing between NFTs or the Act to secure royalties?
Commercially speaking, the question for Indigenous artists is whether they are better off: (a) not minting NFTs and instead selling ‘artworks’ within the meaning of the Act, which (if the other criteria for application of the Act are satisfied) will secure the 5 per cent resale royalty, or (b) opting to make use of the NFT market, with smart contracts that may secure a resale royalty higher than the 5 per cent guaranteed by the Act,
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but which could also result in a lower resale royalty right, as the sale falls outside the auspices of the Act and is subject to negotiation in the primary market.
An additional consideration is the international nature of the art market: which avenue will provide better protections where Indigenous art is sold into foreign markets? The Act provides for international reciprocity pursuant to the Berne Convention. Under these reciprocal arrangements, an artist can claim a resale royalty right in a country that is party to the Convention, if the country to which the artist belongs recognises the right. 49 Notably, some key markets for Indigenous Australian art have not recognised the right, including the US which is hungry for Indigenous art. 50 An artist eager to make sales in the flourishing US market may opt for NFT-based royalties in order to ensure that any resale of their art in that market will continue to reap royalties. In this sense, NFTs can ‘plug a hole’ by facilitating resale royalties in jurisdictions where there is no reciprocal royalty scheme. Such benefits aside, NFTs leave Indigenous artists open to rapacious commercial negotiators in the primary market, who could leave them with a resale royalty lower than the Act’s 5 per cent. In short: ‘you can’t have it all.’
Then there is the issue of practicality. Many Indigenous Australian artists live and work in remote areas, where even receiving royalty cheques can be difficult. Although smart contracts can evade the vagaries of the post, banking access can be challenging for those living in remote areas. 51 Without intermediaries to access and distribute royalties, the automated and streamlined processes of a smart contract may not be practical. Noting that at 30 September 2019 Indigenous artists had received 63 per cent of royalties by volume, 52 it appears that the Scheme’s current administrative processes are working relatively well. 53 Where artists choose to change their method of earning royalties by switching to digitally-based NFT platforms, Indigenous art centres should be funded and supported to ensure their artists receive the royalties to which they are entitled, thereby ironing out any administrative challenges in making this change.
It is difficult, if not impossible, to determine whether royalties received through NFTs or under the Act provide a better income stream for Indigenous artists – not least because it is a matter of opinion whether ‘better’ is defined as secure or lucrative income. What is clear is that, unless the Act is reformed, and without Indigenous artists being made aware of the different ways royalties operate regarding NFTs, Indigenous artists may miss out on their hard won and rightful royalties.
While it is pragmatic and true to suggest that artists could ‘hedge their bets’ and make some works for the traditional market and others for the NFT market,
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this rather cold evaluation of the commercial and legal differences between NFTs and artworks subject to the Act ignores two essential factors: 1. Creative control: Suggesting artists increase their workload and push themselves into a market they may not wish to enter (whether NFTs or ‘traditional’ artworks) unnecessarily limits their creative control. Establishing a common baseline royalty rate for both NFTs and ‘artworks’ could resolve the issue. Moreover, there is a certain cachet associated with being ‘an NFT artist’ that artists may or may not wish to engage. It is unreasonable (and undesirable) to ask artists to tailor their output to market projections. 2. Scarcity: As with other markets, scarcity (or not) of an artist’s work can affect their prices. In addition, concerns have been raised about emerging artists being ‘too’ prolific in their early careers, with negative effects in the long run.
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To remove some of the anxiety and confusion of the decision, thereby liberating artists’ energies and resources for their creative pursuits, the legal environment could be simplified by bringing NFTs into the remit of the Act to make clear to artists that a baseline resale royalty rate applies not only to traditional artworks, but also to NFTs.
Reform and recommendations
As much of the discussion above imposes unrealistic expectations on artists who largely want to create, not spend time machinating the best royalty outcomes, the best action for reform would be to extend the resale royalty to artists who mint NFTs.
This could be achieved by amending the Act to include a new section addressing NFTs as a separate entity subject to the resale royalty right, setting a default 5 per cent resale royalty for NFTs unless a higher resale royalty percentage is otherwise specified in the smart contract. This would ensure that artists selling digital art (whether using an NFT or not) are treated equally by the Act, and that the current unfamiliarity with the novel technology of NFTs does not push artists into a race to the bottom with regard to royalty rates.
In addition, and particularly until law reform is undertaken, it is vital that Indigenous artists are well informed about their royalty rights and the relative benefits of securing them through smart contracts or the Act. Therefore, the Federal government should provide funding for awareness materials to be distributed to Indigenous art centres to promote understanding of the interaction of the Act with NFT sales. Education about these matters has ancillary benefits. An industry expert consulted for the Post-Implementation Review provided the following anecdotal information: An old Indigenous man who paints for a variety of dealers in Alice Springs is one of the largest recipients of resale royalty. The volume and regularity of resale royalty payments has provided an obvious financial benefit. But perhaps more telling is his and his family’s increased knowledge about bank accounts, fair distribution of benefits, planning for his retirement and his will … [this] is helping place Indigenous artists on a similar footing with non-Indigenous artists.
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Whatever path is taken legislatively, this example illustrates the importance of educating Indigenous artists about their rights and contractual protections more generally, to support not only a more equal art market, but a more equal Australian society.
Conclusion
While there is a dearth of comprehensive data on the Indigenous art industry as a whole, 57 a 2015 estimate placed the figure at between AUD100 million and AUD300 million. 58 The artists deserve to benefit from the financial success of their contributions to the Australian art market. NFTs have been touted as a game changer for the art market, particularly with regard to royalties. This may be true, but the values-based questions of ‘For which players?’ and ‘In what way?’ have not yet been fully addressed. NFTs clearly offer some benefits to Indigenous Australian artists, for example by ensuring royalty payments are made when sales occur in jurisdictions without a reciprocal resale royalty right. However, determining how they can be used to secure royalty rights presents confusing commercial decisions for Indigenous artists who, already disadvantaged in the market, can ill-afford the time and effort required to make thorough assessments of a complex legal landscape. Indeed, the current drafting of the Act (and specifically the definition of a ‘work of visual art’) puts Indigenous artists who place their faith in NFTs in jeopardy of fully removing themselves from the protection of the scheme and subjecting themselves to unnecessarily pressured commercial negotiations. This danger is pronounced considering the common misconception that an NFT is itself an artwork, together with the relative novelty of smart contracts, and the unethical conduct suffered by many Indigenous Australian artists at the hands of art dealers. In order to minimise financial disadvantage that may be incurred by Indigenous artists, it is recommended that the Act be amended to account for NFT sales. In the meantime, publicly funded educational materials should be distributed to Indigenous art centres to promote understanding of the impact of NFT use on access to resale royalties.
Footnotes
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
