Ownership and Copyright in Artworks

Ownership and Copyright in Artworks

Artists who participate in the art market via the initial sale of their works on the primary market often face, on the one hand, the financial challenge of funding their raw materials as the starting point of the "art creation process". Furthermore, on the other hand, every "art creator" requires corresponding purchasers of the artworks who are willing to invest in fictitious, subjective values on the primary market without an existing price reference. Private patrons as well as professional investors frequently declare their willingness to advance the basic costs for the procurement of materials and production, expecting a corresponding return on investment through resale on the secondary market. In this context, there are several pitfalls for artists and investors that must be observed.

Ownership and Copyright in Artworks: Challenges in Financing on the Primary Market

Artists who participate in the art market via the initial sale of their works on the primary market often face the financial challenge of funding their raw materials as the starting point of the art creation process. Furthermore, every artist requires corresponding purchasers of the artworks who are willing to invest in fictitious, subjective values on the primary market without an existing price reference. Private patrons as well as professional investors frequently declare their willingness to advance the basic costs for the procurement of materials and production, expecting a corresponding return on investment through resale on the secondary market. In this context, there are pitfalls for artists and investors that must be observed, namely with regard to the tension between property law and copyright law, as well as any regulatory obligations, especially in the context of anti-money laundering prevention.

Copyright and the Concept of a Work

Under the Liechtenstein legal system, "works" are defined as intellectual creations of literature and art that have an individual character, regardless of their value or purpose (Art 2 Abs 1 URG). The author has the exclusive right to determine whether, when, and how their work is used (Art 10 Abs 1 URG). This right encompasses both economic rights, such as the right of alienation (Art 10 Abs 2 lit b URG), and moral rights, namely the right to the integrity of the work (Art 12 URG). Original authorship arises directly upon the creation of the work (Art 32 Abs 1 URG) and imperatively remains with the artist.

The Principle of Separation: Property Law versus Intellectual Property Law

If an investor advances funds for the procurement of materials, the question arises as to the in rem allocation of the created physical copy of the work. From a legal perspective, it must be stated that the mere (pre-)financing of the material or production costs does not effect an in rem acquisition of rights in the sense of a transfer of property under property law (Sachenrecht) of the final artwork to the financier. The acquisition of ownership of an "artwork", viewed as a movable object under both the law of obligations and property law, always requires a valid title of acquisition, for example, a purchase agreement or a contract for work and materials, as well as the legal transfer of ownership through actual delivery to the acquirer.

From the investor's perspective, in addition to a full transfer of ownership by way of security, the establishment of limited in rem rights are permissible to secure the investment made. Thus, the granting of a pledge over movables or the assertion of a right of retention over the pre-financed materials or the final copy of the work is permissible under property law. However, a regular prerequisite for this is that the object is transferred into the lawful possession of the investor in compliance with the pledge principle (Faustpfandprinzip) or is already in their possession with the will of the artist. If such a legal transfer of ownership or the granting of a pledge or right of retention over the physical artwork in favour of the investor occurs, this does not lead to the transfer of copyright usage rights in accordance with the principle of separation. Through the executed in rem act, the investor exclusively acquires the property law position (ownership, right of pledge, or right of retention) in the physical copy of the work, while the copyright powers remain entirely with the artist.

The Statutory Resale Right upon Resale

If the investor aims for a return on investment through resale on the secondary market, the resale right (Folgerecht) must also be observed. Consequently, the author has a right to remuneration upon any resale of the work in which an art market professional is involved as seller, buyer, or intermediary (Art 15a Abs 1 URG). This claim is calculated proportionally from the sale price (Art 15d Abs 1 URG). A contractual waiver of this right to the detriment of the author is explicitly excluded by the legislator. Accordingly, provided the statutory requirements are met, the artist mandatorily participates in increases in value on the secondary market.

Anti-Money Laundering Supervision and Intermediary Activity

If investors or other market participants act in the context of the sale not merely as private sellers, but commercially as dealers or intermediaries, the anti-money laundering regulatory framework must moreover be observed. The Liechtenstein Due Diligence Act (Sorgfaltspflichtgesetz, SPG) establishes an immediate reporting obligation and subjects’ persons trading in artworks or acting as intermediaries in the art trade to the supervision of the Financial Market Authority (FMA), provided the transaction value amounts to at least CHF 10,000.00 (Art 3 Abs 1 lit u SPG).

Practical Relevance

In practice, the constellation of pre-financed art production requires precise contractual regulation. In the absence of such regulation, the default provisions of the General Civil Code (Allgemeines Bürgerliches Gesetzbuch, ABGB) apply, for instance, the provisions on mandate (§§ 1002 ff ABGB) or the contract for work and services. In the absence of an explicit grant of rights, the investor may possess and sell the copy of the work after a legally valid transfer of ownership; however, any use going beyond this, such as the production of reproductions for exhibition catalogues (Art 28 URG), requires the consent of the author. Furthermore, in rem ownership does not entitle the investor to alter or distort the work, as the author can defend themselves against any distortion of their work that infringes upon their personality (Art 12 Abs 1 URG).

Conclusion

The financing of artworks by investors on the primary market offers legal structuring leeway but necessitates a precise differentiation between the levels of the law of obligations, property law, and intellectual property law. The mere provision of financial means does not yet establish ownership of the artwork; this requires a specific legal transfer of ownership. The in rem acquisition of the physical copy of the work consequently grants the investor no intellectual property rights and does not exempt them from the statutory remuneration obligation arising from the resale right in the event of a resale on the secondary market involving professional art market actors. Additionally, commercial intermediary activity triggers mandatory regulatory obligations upon reaching certain thresholds. To avoid legal disputes and official sanctions, a precise contractual fixation of ownership structures as well as compliance with regulatory requirements is legally imperative.

We would be pleased to advise you regarding the contractual structuring of art transactions and are at your disposal for a consultation for any questions in this context.

The Authors:

MMag. Thomas Plattner and M.A. HSG Fabian Jenny