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Tech start-up aims to get artist licenses for resale

Even before artist Robert Rauschenberg famously objected to a 1958 painting he originally sold for $900 being exchanged for $85,000 in 1973, artists were frustrated at not receiving royalties on their work when they did changed owner.

Previous efforts to address this over the years have failed. But now, as musicians and other creative producers assert more control over their future sales, and as blockchain technology enables easier intellectual property tracking, two Stanford alumni have started a company to help visual artists reap the financial rewards When their work is sold privately or resold at auction, sometimes at multiples of the original price.

“The secondary market has seen exponential growth, but artists have largely been left behind, despite being essential to it,” said Max Kendrick, one of the founders. “How do we create a more sustainable model for the artist and the galleries that support them?”

Charlie Jarvis, 24, a computer scientist, and Kendrick, 36, a former diplomat and son of sculptor Mel Kendrick, founded the company called Fairchain in 2019. It is gradually gaining in importance among artists and gallery owners.

“If it’s widely used, as it should be, it could be quite revolutionary,” said artist Hank Willis Thomas, an adviser to the company. “So many artists who died poor spent their entire careers giving away what they produced.

“It’s expected in the music industry,” Thomas added. “I have friends at Law and Order who are still getting royalty checks after 20 years. Outside of live performance, we are the only art form that has no residue whatsoever.”

Kendrick came up with the idea for Fairchain when an artist friend was forced to choose between paying the rent for her studio and getting her dental work done (she chose the studio).

Kendrick earned a management degree from Stanford Business School in 2019, where he was introduced to Jarvis, who was working toward a master’s in computer science after earning his bachelor’s degree. She stopped short of her Masters to found Fairchain. “I was fascinated by the impact of technology on a creative industry,” she said.

Fairchain allows artists or their galleries to generate digital certificates of title and authenticity that are encrypted and recorded on the blockchain. When a work is sold or resold, the certificate is only transferred to the new buyer after they have signed an agreement agreeing to remit a percentage of the transaction value to the artist who created the work.

The royalty percentage is set by the artist or their gallery when the work is first sold, and artists can remit a portion of their future royalties to the gallery that first sold the work. Fairchain has generally seen resale fees range from zero to 10 percent, Kendrick said. Fairchain earns $10 each time the title changes hands.

Each of Fairchain’s advisors — about 10 people who work part-time at the company because of their expertise — hold some form of stock or stock options in the platform, which is registered as a non-profit corporation, Kendrick said.

The company has also established a non-profit arm, the Fairchain Fund for Working Artists, which donates 1 to 1.5 percent of each sale to a fund that provides small emergency grants to artists in need.

Blockchain registration allows buyers to permanently verify a work’s provenance, verify its authenticity, and document transactions, presumably avoiding ownership disputes. Kendrick described it as a “digital catalog raisonné”.

“Often you see artwork and you don’t know where it came from,” said Paula Volent, Rockefeller University’s chief investment officer and founding member of Fairchain’s nonprofit fund.

Artist Eric Fischl said Fairchain’s technology is crucial at a time when legal disputes have prompted artist estates – like the Andy Warhol Foundation – to pull out of the quagmire of authentication. “It has to work,” he said of the project. “Authentication has become the most problematic. No foundation wants to authenticate anything.”

By turning their attention to the artist royalties issue, the makers of Fairchain have addressed a long-standing problem for working artists: most of them are only paid through a first sale.

“I’ve long said that fine artists are overdue for final payments,” artist Frank Stella said in a statement Fairchain provided to the New York Times. “The benefits of appreciating artworks accrue exclusively to others, despite the artist’s essential and ongoing work in developing his practice and building the value of his works.”

This affects all levels of the art market, from emerging to established names. In 2018, for example, David Hockney’s painting “Portrait of an Artist (Pool With Two Figures)” fetched $90.3 million at Christie’s; The artist originally sold it in 1972 for $18,000.

That same year, when the city of Chicago decided to sell a mural by Kerry James Marshall at auction—it was estimated at $10–15 million after it was commissioned for $10,000 in 1993—the sale went ahead eventually canceled after the artist was publicly criticized by the city for “extracting as much value as possible from the fruits of my labor”.

Through Fairchain, an artist’s original gallery can also participate in the proceeds of a large resale, even if they no longer represent the artist.

“Smaller galleries are penalized for their success by launching artists and then not reaping the benefits of discovering them,” Kendrick said.

Some artists say Fairchain makes it easier for them to interact with galleries. “I have a lot of friends who don’t even want to be a part of the art market,” said Bronx-based artist Alteronce Gumby, an investor in the company. While Fairchain introduces “a lot of paperwork and a lot of language that we’re not used to,” he added, “I think it’s important for us to understand this ecosystem and the power that we have.”

Fairchain, which began operations in December, is likely to be slow to become standard practice given ingrained resistance in the art market and track record of previous attempts. For example, the California Resale Royalties Act of 1977 was overturned by a federal appeals court in 2018 on the grounds that it violated federal copyright law.

“There’s a mountain to be climbed here,” said dealer James Cohan. “Artists have to insist – ‘if you want to buy my art, you have to do it this way.'”

Still, Fairchain said it has attracted support from prominent investors, who have also funded startups like Postmates and Superhuman. Fairchain was recently included in the Deciders edition of ARTnews, which “highlights individuals and institutions who are currently contributing to the cultural conversation,” guest-edited by Thomas.

And some art world pundits believe the moral argument has gained more support, and this time the industry will feel compelled to join in.

“It just seems obvious that it’s fair,” said artist Carroll Dunham. “People argue that it will stifle the resale market and make the entire art business less fluid. But there has to be a turning point.”

Given that galleries carefully monitor the details of their dealings, Fairchain keeps collectors’ identities and terms of sale private from third parties. At the same time, Fairchain believes the art market is ripe for change, as technology-friendly millennials now make up 52 percent of wealthy collectors and have the highest art spending overall, according to Art Basel and UBS’s 2021 report.

“It’s a paradigm shift in terms of collecting,” Kendrick said.

“We are aware of the need to respect norms,” ​​he added. “We do not bring transparency to the market. We bring clarity to these transactions.”

https://www.nytimes.com/2022/03/23/arts/design/fairchain-artists-resale-royalties.html Tech start-up aims to get artist licenses for resale

Ian Walker

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