BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 224
                                                                Page  1

        CONCURRENCE IN SENATE AMENDMENTS
        AB 224 (Portantino)
        As Amended  September 1, 2009
        2/3 vote.  Urgency
         
         ----------------------------------------------------------------- 
        |ASSEMBLY:  |     |(April 20,      |SENATE: |40-0 |(September 4,  |
        |           |     |2009)           |        |     |2009)          |
         ----------------------------------------------------------------- 
             (vote not relevant)


         ------------------------------------------------------------------------ 
        |COMMITTEE VOTE:  |10-0 |(September 10,      |RECOMMENDATION: |concur    |
        |                 |     |2009)               |                |          |
         ------------------------------------------------------------------------ 
        (Judiciary)

        Original Committee Reference:   HIGHER ED.  

         SUMMARY  :  Extends a sunset date for a provision of the Uniform  
        Commercial Code (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 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.

         The Senate amendments  delete the Assembly version of this bill, and  
        instead extend the sunset mentioned above.
         
        EXISTING LAW  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, as well as a  
        definition of "licensee in ordinary course of business" sunsets on  
        January 1, 2010.

         AS PASSED BY THE ASSEMBLY  , this bill dealt with postsecondary  








                                                                AB 224
                                                                Page  2

        education.
         
        FISCAL EFFECT  :  None

         COMMENTS  :  Existing law 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 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 would extend 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 Uniform Law  
        Commission (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.  

        The 1999 revisions to Article 9 of the UCC created rights for  
        licensees of general intangibles such as intellectual property  
        comparable to the 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).  

        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.

        The sponsor of AB 224, the Directors Guild of America, Inc.,  
        believes that another sunset extension is necessary to maintain the  








                                                                AB 224
                                                                Page  3

        status quo regarding Section 9321.  According to both the UCL and  
        the sponsors of this bill, 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"). 

         
        Analysis Prepared by  :    Leora Gershenzon / JUD. / (916) 319-2334 
                                                                 FN: 0003124