In the wake of a damning report on famous Drouot

France’s major economic newspaper Les Echos reports, in an article by Martine Robert, having had access to the famous report on the Paris auction place commissioned by French Minister for Justice after the Savoyards scandal. The 10 September 2010 report highlights the decline and lack of transparency of the 70 auction houses.

“Organised conservatism”, “minimalist governance”, a “closed statutory system” and “outdated working methods” without mentioning “the declining quality of its merchandise” are the damning conclusions of the report commissioned by French Minister for Justice, Michèle Alliot-Marie, to which Les Echos had access following the scandal which broke in late 2009.

“The conclusions are probably even more damning than expected and the government wants to give itself time to modernise Drouot”, antique dealer Hervé Aaron recently confided. “Originally an item of news trivia, this is turning into a matter of State”, added Hervé Chayette, Chairman of Symev, the representative body for public auction companies and auctioneers. “Drouot needs a complete overhaul. We’re not going to accept the usual suspects on the pretext that they are now regrouped in a new company!” stated, for his part, Claude Aguttes.

In 2010, according to Artprice’s econometrics and market research department, Drouot represents 46.5% of transactions and 23% of auction sales proceeds for the art market in France. Artprice knows Drouot well following its attempted acquisition of the Gazette de l’Hôtel Drouot in February 2002 (Source: Les Echos #18578, 23 January 2002 – La Tribune, 25 January 2002).

Francine Mariani-Ducray, Chairperson of the Conseil Supérieur des Ventes Volontaires, the art market’s regulatory board, who acted as reporting counselor to the Justice Ministry for the Drouot report, believes that “Drouot must pursue a group strategy and leverage its world-wide reputation in order to develop internationally”.

According to Les Echos, the French Minister for Justice’s position is very specific: “In commissioning this report, my aim was clear: to ensure that, in future, the Drouot group and its 70 member auction houses are stronger than in the past. The main concern must be the economic situation of Drouot and its players when faced with increasing international competition, the emergence of new markets and some fierce, particularly British and American, operators.” Furthermore, “Drouot is experincing a crisis which has made it the subject of legal proceedings on which, given my position, I cannot comment”.

In the same Les Echos interview, the Minister for Justice stated that “the draft law debated in the Senate last year should come before the Assemblée Nationale at the earliest opportunity”. Artprice can only welcome this governmental commitment to rescuing France’s position in the global art market where it continues to lose ground.

Within the framework of an official meeting on 27 July 2010, attended by Francine Mariani-Ducray, Chairperson of the Conseil Supérieur des Ventes Volontaires, the art market’s regulatory equivalent to the SEC for the financial markets, Thierry Ehrmann, Chairman and Chief Executive Officer of Artprice, reiterated that, in terms of the art market, France has been steadily losing ground for the past 30 years with China now safely established as the global number three (see page 10 of the Artprice 2010 half year financial report).

Artprice’s Chairman and CEO proffered some figures incontestably showing that the reform of 10 July 2000 was not beneficial for France due to its lack of ambition and protectionist nature (Source: Code des ventes volontaires et judiciaires (Code of Voluntary and Judicial Auction Sales), 1,430 pages, published by Artprice in 2001). Despite some deceptive figures on the Fine Art segment, France’s loss of market share is still accelerating in a sector where job losses now amount to some thousands (Source: Economic report published by Le Serveur Judiciaire/Artprice 2010).

In addition to the scandal that has sustainably rocked the history of the Drouot group and its member auction houses, the situation in France is no better: this year, the French auction houses are again losing market share. The first firm to appear, Artcurial, only ranks number nine behind Dorotheum, the Austrian auction house, and far behind the Chinese and British players. In 2006, there were six French auction houses in the global top thirty but today there are only three.

However, beyond the Drouot scandal, the complaints lodged by Artprice before the Autorité de la Concurrence (Competition Authority) against five Paris auction houses for price fixing have opened up a new legal battlefront.

Artprice confirms having lodged a complaint, before the Autorité de la Concurrence, against five Paris auction houses for price fixing opposite 3,600 auction houses, who are Artprice’s clients and partners and 7,400 valuers with whom Artprice has been working since 1987 over the world-wide internet (see the Litigation chapter of Artprice’s 2010 first half financial report).

According to Artprice, there are unquestionable links, individuals in common, holdings in share capital and common social mandates, common management bodies, common public auction sales, internal notes and declarations of union bodies like the SYMEV, chaired by Hervé Chayette, common minutes on the strategy versus Artprice, prohibited refusals to sell such as the Gazette de l’Hôtel Drouot (owned by the main companies accused) despite formal notices, similar strategies with serious and concordant indications of a concert party action and/or long-meditated agreement but clearly contravening for example, article L.420-1 of the Code of Commerce. With a little perspective, one might consider, amongst other things, the Drouot problem to be far from over…

At European level, a number of these auction houses have been very seriously condemned for such practices. These concert party actions tend to limit the access to and free exercise of competition, notably by Artprice, on the electronic public auction market as provided by the European Services Directive that should have been transposed into local law by 27 December 2009.

Lastly, on 8 July 2010, the Third Chamber (4th Section) of the Paris Court of First Instance (which, within the framework of its four sections, exclusively handles intellectual property cases and whose decisions are considered authoritative on this matter) handed down an important ruling within the framework of the dispute between Artprice and one of the five auction sale companies. The ruling of the judges was very clear that the sale catalogues of the SVV (Voluntary Auction Sale Company) Claude Aguttes are not protected by copyright. The Third Chamber of the Court accordingly held that Artprice could not have committed acts of forgery and dismissed the Aguttes case.

The first section of the same jurisdiction handed down a similar ruling on 30 March 2010 within the framework of the litigation between Artprice and SVV Artcurial Briest Poulain F. Tajan (one of the five auction houses suing Artprice). Again the judges found that the catalogues published by Artcurial are not protected by copyright and the court dismissed the auction sale company’s forgery claim against Artprice. This ruling was not appealed and is thus final.

These legal precedents, involving two major auction houses, strengthen Artprice’s position within the framework of three similar cases that are still pending as well as the outcome of the price fixing claim lodged with the Competition Authorities by Artprice. At the end of July 2010, some staggering and incontestable new evidence accusing these five auction houses of price fixing has just been cited in the schedule listing documents relied in support of the claim lodged with the Autorité de la Concurrence during the 2010 first quarter.

It should be specified that Artprice pays royalties under the terms of the specific contract concluded with the ADAGP, the French society for collective management in the visual arts and the largest in the world, which receives and redistributes copyright fees to visual artists in more than 43 countries. This pioneering agreement (2007) in the digital economy is regularly cited as exemplary by the different Ministers for Culture in Europe and particularly in France.

Artprice also confirms that it is the plaintiff, before the most senior examining magistrate, in a claim against Christie’s for, amongst other things, infringement of France’s Monetary and Financial Code. In the fullness of time, this claim turns out to be similar to a Christie’s case against Artprice in 2001, when Christie’s dropped the claim without any concession whatsoever from Artprice.

Transposition of the European Electronic Sales Directive into French law and 2010 outlook

The transposition into local law of the EC Services Directive 2006/123/CE including the notion of online operators of electronic auctions is perfectly in accordance with the different government projects and commissions to which Artprice has already given its support and data.

The European Commission has just singled out France with a substantiated recommendation, criticizing it for the delay in transposing the Services Directive and enjoining it to inform the Commission of the legal measures it plans to take to expedite the transposition of this European Services Directive into French law. This is the second warning shot from the department of Michel Barnier, the European Commissioner for the Internal Market. This Directive, formerly better known as the Bolkenstein Directive, should have been transposed into local law by 27 December 2009, but there has been a very serious and unjustified delay in France, heavily penalising European players such as Artprice.

The Commission considers that the delay in transposing the Directive will involve significant costs for European companies. France thus had until 24 August 2010 to respond to the Commission. Brussels may now legitimately refer the case to the European Union Court of Justice, thus initiating the third stage in the European action for breach procedure. In September, a legislative calendar involving a political and economic context that is extremely favourable to Artprice is thus being established by the Commission injunction in which France had until 24 August 2010 to comply with the latter.

Lastly, the adoption by the 27 Member States of the European Union of the Treaty of Lisbon that came into force on 1 December 2009 considerably strengthens Artprice’s legal and judicial position in defending itself against an ultra-minority camp that is witnessing the collapse of its Franco-French monopoly. It should be specified that the majority of French auction houses and valuers (94.5%) have worked with Artprice since 1987.

Artprice proposes to reinstate France as a leader of the global art market

As a result of the global economic and financial crisis, nearly all the auction houses and valuers around the world are moving closer to Artprice, which has been working in close collaboration with them since 1987, in order to produce their auction catalogues formatted by the Artprice standardised data and, as soon as the Services Directive is adopted, organise online auctions through Artprice’s standardised market place and its 1.3 million members.

In addition to its market place, Artprice owns the largest Fine Art client portfolio in the world. For the art market, these client behaviour databases constitute the basis for the success of catalogued auction sales with information dating back to the origins of art auction sales in Europe in the early nineteenth century.

The standardised market place model has now been tried, tested and validated by the Art market particularly during a period of major crisis. The figures speak for themselves: according to the 2005 activity report from the Conseil Supérieur des Ventes Volontaires “the Artprice offer amounted to EUR 1.3 billion of works of art”. In 2006, the offer stood at EUR 2.7 billion of works of art before rising to EUR 4.32 billion in 2007 and EUR 5.4 billion in 2008. For 2009, Artprice confirms recording a volume of around EUR 5.85 billion of works of art with an estimated sale rate of around a third on which Artprice does not yet receive a commission. In 2010, Artprice expects growth of between 18% and 20%.

With the context of globalisation, Artprice is in a leading position in that it has all the assets needed to offer the auction houses and valuers the optimal conditions for integral online migration by accelerating their sales and reducing buyer/seller costs (between 36% and 37.5% according to the Conseil Supérieur des Ventes Volontaires). Artprice is thus ready for online auction sales in accordance with the European Directives (2006/123/CE on services voted 12 December 2006) on liberalising auctions in Europe and adopted by the Senate on 28 October 2009.

Similarly, the Conseil Supérieur des Ventes Volontaires, the regulatory authority for the auction sales market, notes that “French auction houses have not followed the online sales process proportionally to the explosion in the global internet”, which also supports Artprice in its vocation to be the reference online auction sales platform for the 3,600 auction houses worldwide (including, of course, the 378 French auction houses) and the 7,400 valuers with whom Artprice has been working over the internet since 1987.

In August 2010, within the framework of specific agreements, more than 77.4% of the PDF catalogues and/or data of 3,600 international auction houses were sent to Artprice on its Secure Intranet.

This reflects, better than any other demonstration, the trust and confidence that characterises Artprice’s relations with auction houses. Likewise, thanks to Artprice’s database on valuers (a large number of whom organise auctions themselves) there are no fewer than 7,400 key art market players that Artprice is gradually connecting to its standardised marketplace (SMP) with intellectual property rights protection (sui generis and copyright law).

This explains Artprice’s presence in most of the printed and online auction sales catalogues of the auctioneers and auction houses, in which each artist and work of art now has a unique reference coming from the Artprice databases.

In conclusion, the expediting by French Minister for Justice of the adoption of the European Directive by the Assemblée Nationale is excellent news when it comes to defending the common interests of both Artprice and French auction houses in the art market.

Part de l’Hôtel Drouot sur le marché de l’art Français