Art Case Update - December 2023
Image: Maurizio Cattelan, “America”, 2016. Source: Guggenheim.
Guest Work Agency is your go-to source on art-related legal cases and law reform in Australia, as well as select cases internationally. In this story, our Director and Founder, Alana Kushnir and Paralegal Mia Schaumann report on changes to the Australian unfair contract terms regime, the latest chapter in the US class action case against AI image generating platforms, the UK’s guidance on dealing with contested heritage assets plus more.
Australia
Changes to the Unfair Contract Terms regime
Reforms to the Unfair Contract Terms (UCT) regime contained within the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission (ASIC) have now come into play. These changes concern small businesses and ‘standard form’ contracts (SFC) which have been entered into, renewed or varied from 9 November 2023. The reforms have broadened the applicability of the regime, bringing small businesses who employ under 100 people or have an annual turnover of less than $10 million into the scope.
So, what is a standard form contract? If you’re in the arts, you may have come across licence agreements or supplier terms which take on a standard format. These are types of SFCs. An SFC is traditionally prepared by one party and presented on a ‘take it or leave it’ basis. Though there is no strict definition of SFC, section 27(2) of the ACL provides various factors that a court may consider when ascertaining whether a contract is an SFC. These include, whether one of the parties has all or most of the bargaining power relating to the transaction and whether there was an opportunity to negotiate the terms of the contract.
If a court finds that a contract term is unfair, it will treat the term as void. However, if the contract can still be performed without the term, the contract will remain in force and bind all parties to the contract. Under the recent reforms the test for determining whether a term is unfair has not changed. The court must consider the extent to which the term is transparent, taking into account the contract as a whole. The ACL guidelines provide that a term of a contract is unfair if it:
would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
The reforms impose significant penalties under the new regime, with each unfair contract term attracting a separate penalty. Whether you’re an artist, gallerist or any form of arts business/worker we recommend you look out for contracts that provide no opportunities to negotiate prior to execution, as they may be considered an SFC and may contain unfair contract terms. More here.
Regulating Digital Asset Platforms consultation paper released
Treasury is currently seeking industry feedback on its recently released proposal for Regulating Digital Asset Platforms. The consultation paper sets out a regulatory framework for entities who either provide access to, or hold digital assets on behalf of Australian individuals and businesses. As outlined by Treasury, ‘the government intends to introduce a regulatory framework to address consumer harms in the crypto ecosystem while supporting innovation’.
The paper proposes to mandate digital asset platforms that hold over $1,500 individual or $5 million in aggregate assets to obtain an Australian Financial Services Licence. In leveraging off the pre-existing Australian financial services laws, the licence obligations include providing the financial service efficiently, honestly, and fairly, having a dispute resolution system in place and monitoring market misconduct. Incorporating a licence requirement would bring digital asset platforms regime in line with that of the Australian financial services sector.
The draft legislation is set to be released in 2024, after which a proposed 12-month transitionary period will be triggered to allow adequate time for industry compliance. Read more here.
International
Judge hands down decision in class action lawsuit against AI image generating platforms
The U.S. District Court, Northern District of California has largely ruled in favour of artificial intelligence (AI) image generating platforms Stability AI, DeviantArt and Midjourney (Image Generating Platforms) in a class action lawsuit. By way of background, artists Sarah Anderson, Kelly McKernan, and Karla Ortiz (Artists) filed a suit against the AI Platforms earlier this year for allegedly violating the artists’ rights by allowing users to create derivative images using the artists’ works without obtaining their consent (read our past coverage here). In response, the Image Generating Platforms submitted motions to dismiss and strike the claims. Though the Court largely granted the defendant’s motions, the Artists were given leave to provide additional clarity on the alleged claims.
In their original submission, the Artists alleged that the Image Generating Platforms infringed on their copyright pursuant to 17 U.S.C. §§ 106 by incorporating their copyright protected works into their AI text to image products and creating derivative works without licence to do so. The Artists claimed that the Image Generating Platforms have used their copyright protected images gathered through web scraping practices, to train the Image Generating Platforms underlying software (Training Images). They alleged that this allows users to input ‘an image, or image paired with a descriptive text caption’ often gathered through web scraping, to generate output images in the likeness of the artist’s style (Output Image).
In order to bring legal proceedings for an alleged copyright infringement in the U.S., copyright in a work is required to be registered with the U.S. Copyright Office. On this basis, Justice William Orrick dismissed the copyright infringement claims with respect to two of the plaintiffs as ‘neither of them registered the images with the Copyright Office.’ Regarding the third plaintiff (Andersen), the defendants argued that the Artist should not be able to proceed with her infringement claim ‘unless she identifies with specificity each of her registered works that she believes were used as Training Images’. Whilst the plaintiff did not identify which specific works were used, Justice Orrick noted that the defendants could test this during the discovery stage.
Regarding the alleged copyright violations with respect to the generation of Output Images, in their original submission, the Artists argued that they are necessarily derivative, based on the assumption that the Output Images are produced using the copyright-protected Training Images. Justice Orrick found that whilst some of the Training Images used by the Image Generating Platforms may be protected by copyright, not all of the Training Images, of which there are more than 5 billion, are necessarily copyright protected. He found that it is unclear, based on the Artists original submission, whether the ‘AI products allow users to create new works by expressly referencing Anderson’s works by name’. Additionally, he was unable to determine, based on a lack of evidence, whether the alleged copyright protected works were being stored in the platform’s image database and then used to produce the Output Images. The Court ultimately granted the motion to dismiss the claim of copyright infringement, with leave to amend the submission to clarify the points of confusion.
Further, in their submission, the plaintiffs alleged that the ‘defendants “knowingly” used plaintiffs’ names in their products – by allowing users to request art in the style of their names – and that their names are uniquely associated with their art and distinctive artistic styles’ in breach of the statutory right of publicity pursuant to California Civil Code § 3344. The Court dismissed this claim with leave to amend as the plaintiffs did not provide sufficient evidence to prove that their names had been used to further the commercial interests of the defendants.
Whilst the motions to dismiss were granted in full, except for Anderson’s copyright infringement claim, the Artists were granted leave to amend the deficiencies outlined by the Court. Read the full judgement here.
Court awards remedies in Bored Ape Yacht Club settlement
In August of this year the U.S. District Court for the Central District of California granted Yuga Labs, Inc. (Yuga) a summary judgment in connection with a number of claims filed against Ryder Ripps and Jeremy Cahen (Defendants). Yuga has now been awarded equitable remedies pursuant to the Court’s August Order.
Yuga is the creator of the Bored Ape Yacht Club (BAYC) NFT series which has risen to global prominence since 2021. By virtue of their scarcity, BAYC NFTs have in the past resold for millions of dollars. Purporting to critique Yuga, the Defendants released their own collection of NFTs titled ‘Ryder Ripps Bored Ape Yacht Club’ (RR/BAYC) in 2022. Yuga filed a Complaint against the Defendants for false designation of origin and cybersquatting. In August, the Court granted Yuga summary judgment for the claims of false designation and cybersquatting, however it denied making a summary judgement with regard to the award of damages and the scope of the injunctive relief (read our past coverage here). In the most recent judgement, the Court clarified the award of equitable remedies.
Firstly, the court determined whether Yuga was entitled to a disgorgement of the Defendants' profits. Under the Lanham Act 15 U.S.C. § 1117, once trademark infringement has been established, as was the case in this instance, a plaintiff is entitled to recover the defendant’s profits which resulted from the infringement. The judgement explained that the amount able to be recovered is determined at the Court’s discretion and is subject to the principles of equity. Justice Walters found that disgorgement of the Defendants’ profits was warranted. He based this on the reasoning of the summary judgement, which found that the Defendants’ ‘acted with intent to deceive consumers’ through their intentional use of Yuga’s logo and the BAYC trademarks to sell their own NFT collection.
Justice Walters explained that ‘disgorgement of profits is intended to award profits only on sales that are attributable to the infringing conduct.’ The Defendants argued that a portion of their profits were attributable to ‘individuals buying RR/BAYC NFTs in support of Defendants' "protest" against Yuga’ and not specifically to the infringing conduct. However, they failed to provide adequate evidence in support of this contention at trial and as such, Yuga was awarded the total profits.
Secondly, Justice Walters considered the amount of statutory damages to be awarded Yuga with respect to the cybersquatting claim. Pursuant to 15 U.S.C. § 1117(d) this amount is legally unable to exceed $100,000 per domain name. Yuga requested the maximum penalty of $200,000 to be awarded for the two domain names found in violation of cybersquatting laws, arguing that the ‘Defendants displayed clear contempt towards the Court by continuing to use and promote the two domains at issue even after the Court found Defendants’ liable for cybersquatting.’ Justice Walters granted the maximum award of $200,000, based on the egregiousness and wilfulness of the conduct in question.
The Court also awarded Yuga a permanent injunction preventing the Defendant from any future use of the BAYC Marks. Read the full judgement here.
The UK publishes guidance on dealing with contested heritage assets
The UK government has recently published guidance for custodians of contested heritage assets to assist in circumstances where there is public pressure for an asset’s removal or relocation.
The guidelines emphasise that it is ‘government policy that commemorative heritage assets should remain in situ,’ noting that ‘removing commemorative heritage assets diminishes our understanding of the past.’ In what has become known as the ‘retain and explain’ policy, the UK has opted to retain historical objects that may be deemed unacceptable by today’s standards, and instead have them accompanied by a comprehensive explanation of the asset’s historic context. The scope of the guidance applies to any commemorative heritage asset ‘which is a structure, or is part of a building or structure, which is on public display or in places accessible to the public.’ However it expressly excludes museum and gallery collections.
The guidelines establish the recommended steps for dealing with calls to remove commemorative heritage assets. Set out in a triage like manner based on the degree of necessity, the guidelines outline processes around asset examination, stakeholder and community consultations, and where necessary, how to contextualise the asset’s accompanying explanation. Importantly, the Annex contains a summary of legislation, policy and existing guidance in England associated with commemorative heritage assets which have become contested. In a similar vein, the New York City council is considering introducing a bill which would require the Public Design Commission to include plaques with monuments of slavery, which explain their historical context. Read the guidelines here and more on the bill here.
Legal proceedings brought against the Helen Frankenthaler Foundation
The nephew of the notorious abstract expressionist painter, Helen Frankenthaler, has brought legal proceeding against the Helen Frankenthaler Foundation and its directors for the alleged mismanagement of the late artist’s legacy. The complaint filed with the Supreme Court of New York stipulates that the directors breached their fiduciary duties, exploiting the Foundation for their own personal benefit. Read more here.
The Cleveland Museum of Art has commenced legal proceedings in provenance dispute
The Cleveland Museum of Art (CMA) has commenced legal proceedings against a Manhattan District Attorney (DA) over the seizure of one of the museums most valuable bronze sculptures, which dates back to 50 BCE–200 CE. The DA’s office was initially granted a warrant after evidence was presented which indicated that the sculpture was looted from Turkey. The CMA has subsequently alleged that it lawfully acquired the sculpture, and as such it is the rightful legal owner. Read more here and here.
Copyright Office denies legal protection to works lacking human authorship
The U.S. Copyright Office has denied copyright protection to an artwork which was generated using artificial intelligence software. The artwork in question was generated using the text-to-image generator Midjourney, and was the recipient of the Colorado State Fair prize in 2022. This finding was made on the grounds that the work lacked ‘human authorship,’ which remains one of the fundamental tenants of copyright law. Read more here.
Seven Egon Schiele works returned
Seven artworks by the prominent Austrian expressionist painter, Egon Schiele, have been returned to the heirs of the esteemed Jewish cabaret artist, Fritz Grünbaum. Ordered to sign over his art collection whilst detained in the concentration camp where he subsequently died, the restitution of Grünbaum’s collection could have a marked effect on cases concerning Nazi-looted art. Read more here and here.
Four men charged with the theft of the infamous golden toilet
The Crown Prosecution Service has charged four men with the theft of Maurizio Cattelan’s 18-Karat gold toilet. Valued at USD$6 million, the work was stolen from Blenheim Palace where it was installed and on display in 2019. The four men are scheduled to appear before court later this month. Read more here.
British Museum releases additional information on its independent review
The British Museum has released its terms of reference for its independent review into the objects from the Greece and Rome collection which were reported missing, stolen or damaged earlier this year. The terms of reference outline the scope of the review and delineate its objectives. Read more here.
Hermès NFT decision appealed
Earlier this year, the U.S. District Court of the Southern District of New York ruled in favour of Hermès in their lawsuit against Mason Rothschild for his use of the BIRKIN trademark in relation to his NFT collection titled ‘MetaBirkins’. Rothschild has subsequently appealed the Court’s findings, alleging that the Court had erred on various grounds. More recently, the prominent art collective, MSCHF, filed an amicus brief, arguing for the appeal on First Amendment grounds. Read our past coverage here and more here.