BILL ANALYSIS
AB 224
Page 1
Date of Hearing: September 10, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 224 (Portantino) - As Amended: September 1, 2009
FOR CONCURRENCE
SUBJECT : UNIFORM COMMERCIAL CODE: Security Interest in
Intangible Property: SUNSET EXTENSION
KEY ISSUE : SHOULD THE SUNSET ON A PROVISION OF THE UNIFORM
COMMERCIAL CODE BE EXTENDED FOR THREE YEARS TO ALLOW THE
ENTERTAINMENT INDUSTRY ADDITIONAL TIME TO DETERMINE IF THE
PROVISION WILL CAUSE A HARDSHIP TO THE INDUSTRY?
SYNOPSIS
Existing law provides that a licensee in the ordinary course of
business takes its rights under a nonexclusive license free of a
security interest in the intangible property created by the
licensor and takes its leasehold interest free of a security
interest in the goods created by the lessor, as specified. This
provision of the Uniform Commercial Code (UCC) is scheduled to
sunset on January 1, 2010. This urgency bill extends the sunset
date of that provision until January 1, 2013.
The Directors Guild of America (DGA), the bill's sponsor,
believes that a sunset extension is necessary simply to maintain
the status quo. The bill is also supported by the Uniform Law
Commission (ULC). According to both the ULC and the sponsor,
the extension is also necessary in order to allow the involved
parties to evaluate the effect of the provision in question on
exclusive and nonexclusive licensees in the context of existing
and continually evolving technology to deliver goods (such as
"streaming media to cell phones"). This bill has no known
opposition.
SUMMARY : Merely seeks to extend a sunset date for a provision
of the UCC. Specifically, this bill :
1)Extends, until January 1, 2013, the sunset date of a provision
of the UCC which provides that a licensee in ordinary course
of business takes its rights under a nonexclusive license free
of a security interest in the intangible property created by
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the licensor and takes its leasehold interest free of a
security interest in the goods created by the lessor.
2)Contains an urgency clause, allowing this bill to take effect
immediately upon enactment.
EXISTING LAW :
1)Defines a "licensee in ordinary course of business" as a
person who becomes a licensee of a general intangible in good
faith, without knowledge that the license violates the rights
of another person in the intangible, and in the ordinary
course from a person in the business of licensing general
intangibles. This provision sunsets on January 1, 2010.
2)Provides that a licensee in ordinary course of business takes
its rights under a nonexclusive license free of a security
interest in the general intangible created by the licensor,
even if the security interest is perfected and the licensee
knows of its existence. This provision sunsets on January 1,
2010.
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : Existing law provides that a licensee in the ordinary
course of business takes its rights under a nonexclusive license
free of a security interest in the intangible property created
by the licensor and takes its leasehold interest free of a
security interest in the goods created by the lessor, as
specified. This provision of the UCC is scheduled to sunset on
January 1, 2010. This urgency bill extends the sunset date of
that provision to January 1, 2013.
Article 9 of the UCC covers security interests in personal
property. It was rewritten and modernized by the ULC (formerly
the National Conference of Commissioners on Uniform State Laws)
in the late 1990s and in the process the ULC addressed security
interests in general intangible property, such as intellectual
property. Every state has adopted Article 9 as revised, and it
became effective in California on July 1, 2001. (SB 45 (Sher),
Chap. 991, Stats. 1999.)
The 1999 revisions to Article 9 of the UCC created rights for
licensees of general intangibles that are comparable to the
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rights of buyers of goods in the ordinary course of business.
(UCC Section 9321.) When California was considering adoption of
the revised Article 9 of the UCC, the Directors Guild of America
and the Screen Actors Guild expressed concerns about how the
proposed revision to Section 9321 would affect their operations.
According to these groups, exclusive licenses granted to
investors and others who may have perfected security interests
or rights to proceeds from a film production (employees, for
example) may end up with diminished rights to security interests
in the goods (the film) that may be asserted by nonexclusive
licensees (for example, DVD rental stores).
At that time, the Screen Actors Guild raised concerns about that
application of the rule to their industry. They said that with
the rapidly developing technology in their industry, it was
difficult for them to forego the value of a perfected security
interest from a licensee, even if the license is a nonexclusive
license. They gave the example of an actor's residuals from
movie rights to a film rented out by Blockbuster Video, a
nonexclusive licensee. Technology may develop, they argued,
such that they should be able to enforce their security interest
against a nonexclusive licensee in the future, and therefore
suggest that this particular provision of the Article 9 of the
UCC sunset in three years, subject to reenactment.
While the ULC assured them at the time that the then-proposed
language of Section 9321 would not have a negative impact in
practice, the groups asked for time to evaluate the impact of
the new Section 9321 on their actual operations. The
Legislature agreed to then limit the operative effect of the new
Section 9321 to a sunset date of January 1, 2004, which was
subsequently extended twice, to January 1, 2007 and finally to
January 1, 2010. (See SB 283 (Sher), Chap. 235, Stats. 2003; AB
2303 (Judiciary), Chap. 567, Stats. 2006.)
The sponsor of AB 224, the Directors Guild of America, believes
that another sunset extension is necessary to maintain the
status quo regarding Section 9321. According to both the ULC
and the sponsor, the extension is also necessary in order to
allow the involved parties to evaluate the effect of Section
9321 on exclusive and nonexclusive licensees in the context of
existing and continually evolving technology to deliver goods
(such as "streaming media to cell phones").
Prior Legislation : SB 45 (Sher), Chap. 991, Stats. 1999,
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enacted the section on a licensee in the ordinary course of
business as part of overall the revision of Article 9 of the
Uniform Commercial Code. SB 283 (Sher), Chap. 235, Stats. 2003,
extended the sunset date to January 1, 2007. AB 2303
(Judiciary), Chap. 567, Stats. 2006, extended the sunset date to
January 1, 2010.
REGISTERED SUPPORT / OPPOSITION :
Support
Director's Guild of America, Inc. (sponsor)
Uniform Law Commission
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334