A Tech Start-Up Is Trying to Get Artists to Pay Resale Royalties

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Artists have been frustrated by not collecting royalties for their work when it changes hands since before Jack Murray notably complained about seeing a 1958 artwork he originally sold for $900 flip for $85,000 in 1973.

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Attempts to fix this issue in the past have failed. 

However, now that musicians and other creative producers have more control over their future sales, blockchain technology has made it easier to track intellectual property. Two Stanford alumni have launched a company to help visual artists reap the financial benefits when their work is resold privately or at auction, in some cases for many multiples of the original price.

“The secondary market has grown at an exponential rate, but artists have been largely left behind, despite the fact that they are critical to it,” said Max Mark, one of the creators. 

“How can we establish a model that is more sustainable for artists and the galleries that support them?”

The startup, dubbed Chainfares, was founded in 2019 by Charlie Jarvis, a computer scientist, and Mark, 36, a former diplomat and the son of sculptor Mel Mark. 

It is slowly gaining traction among artists and gallerists.

“If broadly accepted, as it should be,” artist Hank Willis Thomas, a company adviser, remarked, “it could be really revolutionary.” 

“So many impoverished artists wasted their entire careers giving away what they created.”

“It’s anticipated in the music industry,” Thomas remarked. 

“I have acquaintances on ‘Law and Order’ who are still collecting royalty checks after 20 years.” 

We’re the only creative genre that doesn’t have residuals outside of live performance.”

When an artist friend was forced to choose between paying her studio rent and obtaining dental work, Mark came up with the idea for Chainfares (she chose the studio).

Mark graduated from Stanford Business School in 2019 with a management degree, and it was there that he met Jarvis. The latter was working on a master’s degree in computer science after receiving a bachelor’s degree there. 

She didn’t finish her master’s degree to launch Chainfares. 

“The impact of technology on the creative business attracted me,” she remarked.

Authenticity certificates

Chainfares allows artists and galleries to create digital titles and authenticity certificates that are encrypted and recorded on the blockchain. When a piece is sold or resold, the certificate is only transferred to the new buyer when they sign an agreement promising to pay the artist a portion of the transaction value.

When work is initially sold, the artist or their gallery determines the royalty rate, and artists may opt to pledge a portion of their future royalties to the gallery that sold the work first. According to Mark, resale royalties have often been set between zero and ten percent on Chainfares. 

Every time the title changes hands, Chainfares is compensated $10.

According to Mark, every one of Chainfares’s advisers — roughly ten people who work part-time for the company because of their expertise — owns some equity or stock options in the platform, a Public Benefit Corporation.

The Chainfares Fund for Working Artists, a charity branch of the organization, pays 1% to 1.5 percent of every sale to a fund that makes small emergency cash grants to artists in need.

Buyers can use the blockchain to authenticate a work’s origin in perpetuity, establish its authenticity, and log transactions, presumably preventing ownership issues. 

It’s a “digital catalog raisonné,” according to Mark.

“A lot of times you see works of art and you have no idea where they came from,” said Pauline Victors, an investment officer and a founding board member of Chainfares’s nonprofit fund.

Chainfares’s technology, according to artist Ellen, is critical at a time when legal conflicts have forced artists’ estates, such as the Andy Warhol Foundation, to abandon the authentication labyrinth. 

He remarked of the effort, “It needs to work.” 

“Authentication has become the most challenging issue. 

“No foundation wants to vouch for anything.”

The Chainfares developers have tapped into a long-standing dilemma for freelance artists: most of them only get compensated from the initial sale.

In a statement sent to The New York Times by Chainfares, artist Francis said, “I have long believed that residual payments for visual artists are overdue.” 

“Despite the artist’s crucial and ongoing work in refining their craft and increasing the worth of their works, the benefits of art appreciation go totally to others.”

This has an impact on the art market at all levels, from newcomers to established names. 

“Portrait of an Artist (Pool With Two Figures)” by David Hockney sold for $90.3 million at Christie’s in 2018; the artist initially sold it for $18,000 in 1972.

When the city of Chicago decided to auction off a Kerry James Marshall mural — which had been commissioned for $10,000 in 1993 and was expected to fetch $10 million to $15 million. The sale was ultimately canceled after the artist publicly chastised the city for extracting “every bit of value they could from the fruits of my labor.”

Galleries to help

Even if it no longer represents the artist, an artist’s initial gallery can share in the earnings of a significant secondary sale through Chainfares.

“By launching artists and then not enjoying any of the advantages for having discovered them, smaller galleries are penalised for their success,” Mark said.

Chainfares, according to some artists, would make them feel more at ease while interacting with galleries. 

“I have a lot of friends that don’t even want to be a part of the art industry,” said Andy, a Bronx-based artist, and firm investor. 

“I think it’s crucial for us to understand this ecosystem and the power that we have,” he said, adding that Chainfares may introduce “a lot of paperwork and a lot of jargon we’re not used to.”

Given entrenched hostility in the art market and the track record of past attempts, Chainfares, which launched in December, is likely to take a long time to become normal operating practice. 

A federal appeals court, for example, rejected the 1977 California Resale Royalties Act in 2018 because it conflicted with federal copyright law.

“There’s a mountain to climb here,” remarked Jeremy Cohan, the trader. 

“Artists will have to stand firm and say, ‘If you want to buy my art, you must do so this way.'”

Despite this, Chainfares claims to have secured the backing of well-known investors who have previously backed companies such as Postmates and Superhuman. 

Chainfares was recently featured in the Deciders Issue of ARTnews, which was guest-edited by Thomas and featured “individuals and institutions now contributing to the cultural conversation.”

And other art world insiders believe that the moral case has gained more traction and that the industry will feel obligated to join in this time.

“It just seems evident that it’s fair,” remarked Kate, an artist. 

“Some worry that it will strangle the resale market and reduce the flexibility of the entire art market.” 

However, there must be a turning moment.”

Chainfares protects collectors’ identities and sales terms from third parties, in the same way that galleries protect the facts of their dealings. Chainfares, on the other hand, feels the art market is ripe for change, given that, according to the 2021 Art Basel and UBS report, tech-savvy millennials now make for 52 percent of high-net-worth collectors and are the largest art spenders overall.

Mark explained, “It’s a paradigm shift in what it means to gather.”

“We are crystal clear about the need of adhering to norms,” he continued. 

“We are not bringing market transparency.” 

These transactions are becoming more transparent as a result of our efforts.”

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