Tech Start-Up Aims to Get Artists Royalties for Resale

Even before the artist Robert Rauschenberg famously objected to seeing a 1958 painting he originally sold for $900 flip for $85,000 in 1973, artists have been frustrated by not receiving royalties for their work when it changes hands.

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 blockchain technology has allowed for easier tracking of intellectual property, two Stanford alumni have started a business to help visual artists reap the financial rewards when their work is resold privately or comes up for auction, in some cases at many multiples of the original price.

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

Charlie Jarvis, 25, a computer scientist, and Kendrick, 36, a former diplomat and a son of the sculptor Mel Kendrick, started the company, called Fairchain, in 2019. Little by little, it is gaining traction with artists and gallerists.

“If widely adopted, as it should be, it could be pretty revolutionary,” said the artist Hank Willis Thomas, an adviser to the company. “So many artists who died poor spent their whole career giving away what they produced.

“In the music industry, it’s expected,” Thomas added. “I have friends on ‘Law and Order’ who, after 20 years, are still getting royalty checks. Outside of live performance we’re the only art form that doesn’t have some form of residuals.”

Kendrick had the idea for Fairchain when an artist friend was forced to choose between paying the rent on his studio and getting dental work (he chose the studio).

Kendrick got a management degree in 2019 from Stanford Business School, where he connected with Jarvis, who was working on a master’s in computer science after earning a bachelor’s degree there. She stopped short of getting her master’s to start Fairchain. “I was fascinated by the impact of technology on a creative industry,” she said.

Fairchain enables artists or their galleries to generate digital certificates of title and authenticity, which are encrypted and recorded on the blockchain. When a work is sold or resold, the certificate transfers to the new buyer only after they sign an agreement committing 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 may choose to commit a portion of their future royalties to the gallery that first sold the work. Fairchain has so far generally seen resale royalties set between zero and 10 percent, Kendrick said. Fairchain gets paid $10 every time the title changes hands.

Each of Fairchain’s advisers — about 10 people involved part-time in the company on the basis of their expertise — holds some form of equity or stock options in the platform, which is registered as a Public Benefit Corporation, Kendrick said.

The company has also established a nonprofit arm, the Fairchain Fund for Working Artists, which donates 1 percent to 1.5 percent of every sale to a fund that makes small emergency cash grants to artists in need.

The blockchain registration allows buyers to verify the provenance of a work in perpetuity, to establish its authenticity and to document transactions, presumably avoiding ownership disputes. Kendrick described it as a “digital catalog raisonné.”

“A lot of times you see works of art and you don’t know where they came from,” said Paula Volent, the chief investment officer of Rockefeller University and a founding board member of Fairchain’s nonprofit fund.

The artist Eric Fischl said Fairchain’s technology was crucial at a time in which legal disputes have prompted artists’ estates — like the Andy Warhol Foundation — to pull out of the authentication quagmire. “It has to work,” he said of the venture. “The thing that has become most problematic is authentication. No foundations want to authenticate anything.”

In turning their attention to the issue of artists’ royalties, the Fairchain creators have tapped a longstanding problem for working artists: Most of them only get paid from an initial sale.

“I have long said that residual payments for visual artists are overdue,” the artist Frank Stella said in a statement that Fairchain provided to The New York Times. “Benefits from the appreciation of artworks accrue entirely to others, despite the artist’s essential and ongoing work in developing their practice and building the value of their 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),” went for $90.3 million at Christie’s; the artist originally sold it for $18,000 in 1972.

That same year, when the city of Chicago decided to sell a Kerry James Marshall mural at auction — it was estimated to go for $10 million to $15 million, having been commissioned for $10,000 in 1993 — the sale was ultimately canceled after the artist publicly criticized the city for wringing “every bit of value they could from the fruits of my labor.”

Through Fairchain, an artist’s original gallery can also share in the proceeds from a large secondary sale, even if it no longer represents the artist.

“Smaller galleries are punished for their success by launching artists and then not reaping any of the benefits for having discovered them,” Kendrick said.

Some artists say Fairchain would make them more comfortable about interacting with galleries. “I have a lot of friends who don’t even want to be part of the art market,” said the Bronx-based artist Alteronce Gumby, an investor in the company. While Fairchain may introduce “a lot of paperwork and a lot of language 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 started operating in December, will likely be slow to become standard operating procedure, given entrenched resistance in the art market and the track record of previous attempts. The 1977 California Resale Royalties Act, for example, was overturned by a federal appeals court in 2018 on the grounds that it conflicted with federal copyright law.

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

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

And some art world experts believe the moral argument has gained more support, and that the industry will this time feel compelled to get on board.

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

Mindful that galleries closely guard the details of their deals, Fairchain keeps collectors’ identities and sales terms private from third parties. At the same time, Fairchain believes the art market is ripe for change, given that tech-friendly millennials now account for 52 percent of high-net-worth collectors, according to the 2021 Art Basel and UBS report, and are the highest art spenders overall.

“It’s a paradigm shift in what it means to collect,” Kendrick said.

“We are cleareyed about the need to respect norms,” he added. “We are not bringing transparency to the market. We are bringing clarity to these transactions.”

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