BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 819
                                                                  Page 1

          Date of Hearing:   April 28, 2009
          Counsel:                Nicole J. Hanson


                         ASSEMBLY COMMITTEE ON PUBLIC SAFETY
                                 Jose Solorio, Chair

                   AB 819 (Calderon) - As Amended:  April 15, 2009
           
           
           SUMMARY  :   Creates the Intellectual Property Piracy Prevention  
          and Prosecution (IPPPP) Program to fund grants for local law  
          enforcement and district attorneys for the purposes of  
          preventing and prosecuting intellectual property piracy.   
          Specifically,  this bill  :  

          1)Removes the creation and distribution of counterfeit software  
            and pirated sound recordings from the list of high technology  
            crimes to be under the purview of the High Technology Crime  
            Advisory Committee (HTCAC).

          2)Establishes the IPPPP Act of 2009.

          3)Finds and declares the following:  

             a)   According to a 2007 study by the Institute for Policy  
               Innovation, intellectual property piracy, meaning the theft  
               of movies, music, software, and video games, costs the  
               United States economy $58 billion each year.

             b)   The problem of intellectual property piracy continues to  
               grow worse.  A 2005 Gallup study found that 5% of Americans  
               had purchased, copied, or downloaded counterfeit music in  
               the preceding year.  By 2007, this number had jumped to 9%.  
                The percentage of respondents that admitted buying a  
               pirated movie rose from 3% in 2005 to 6% in 2007.  At the  
               same time, once robust DVD sales have flattened over the  
               past few years, while CD shipments to retailers have  
               plummeted.

             c)   The effect of intellectual property piracy on California  
               and its citizens is particularly dire. Intellectual  
               property piracy adversely affects the California economy,  
               eliminates jobs, and damages industry.  According to the  
               Business Software Alliance, in 2003, software piracy alone  








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               cost the California economy more than 13,000 jobs, over  
               $802 million in wages and salaries, over $1 billion in  
               retail sales of business software applications, and roughly  
               $239 million in total tax losses.  This act will send a  
               strong signal that California is committed to protecting  
               the intellectual property created by California's  
               innovation and entertainment industries.

             d)   By creating a technical advisory committee, California  
               will be able to draw upon the expertise and insight of  
               those on the front lines of the anti-piracy effort.

             e)   Grants awarded pursuant to this act will be used to  
               foster innovation and to provide local law enforcement and  
               prosecutors the tools they need to effectively fight  
               intellectual property piracy.  

             f)   Finally, by safeguarding the legitimate sale of  
               intellectual property, California will increase its tax  
               base, and stimulate the economy.

          4)Mandates that funds provided under this program are intended  
            to ensure that law enforcement and prosecutors are equipped  
            with the necessary personnel and equipment to combat  
            successfully intellectual property piracy, which includes  
            piracy of movies, music, software, and video games.

          5)Creates within the Department of Justice (DOJ), a program of  
            financial assistance for law enforcement and district  
            attorneys' offices, designated the IPPPP Program.  Upon  
            appropriation by the Legislature, all funds appropriated to  
            the DOJ for the purposes of this chapter shall be administered  
            and disbursed by the Attorney General (AG) in consultation  
            with the IPPPP Advisory Committee as established and shall, to  
            the extent feasible, be coordinated with funds derived and  
            private grants or private donations that are made available  
            for these purposes.

          6)Provides that all funds designated for use for purposes of  
            this chapter shall be deposited in the IPPPP Fund, which is  
            hereby established.  The fund shall be under the direction and  
            control of the office of the AG.  The fund may also accept  
            private donations.

          7)Requires the advisory committee to review grant applications  








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            and, on a majority vote of the membership, submit those  
            applications to the AG for formal approval.

          8)States that the advisory committee shall monitor and audit the  
            use of grant funds.

          9)Necessitates that grant money must be used exclusively to  
            combat intellectual property piracy within California.  Grants  
            shall be made on an annual basis, and may not be used to pay  
            existing staff, absent extraordinary circumstances and  
            approval by the AG.  Grant recipients may receive funding for  
            no more than three years without submitting another grant  
            application.  Grants shall only be made to applicants with an  
            existing budget dedicated to fighting intellectual property  
            piracy.

          10)Demands that in order to receive a grant, prospective  
            recipients shall agree in writing to the following terms, as  
            conditions of receiving a grant:

             a)   The recipient is authorized to accept grant funds under  
               all applicable state and local laws.

             b)   The recipient will vigilantly safeguard grant funds and  
               ensure that use of the grant funds fully comports with the  
               purposes specified in the application for the grant funds,  
               as approved or modified by the advisory committee.

             c)   Grant funds shall be used to augment, but shall not be  
               used to supplant, a grant recipient's budget.

             d)   If the grant funds are used for the purpose of  
               investigation, litigation, or prosecution, any remedy,  
               settlement, judgment, or restitution award shall provide  
               for full reimbursement to the IPPPP Fund of all grant funds  
               used for that investigation, litigation, or prosecution.

             e)   The recipient shall notify the advisory committee in  
               writing of litigation or prosecution results, including any  
               settlement, judgment, or other resolution, within 30 days.

             f)   The recipient shall notify the advisory committee in  
               writing of the status of all outstanding investigations,  
               litigation, or prosecutions funded in whole or in part by  
               the grant six months after the funds are disbursed, and  








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               every 12 months thereafter until all disbursed funds have  
               been expended and reported on.

             g)   The recipient shall fully cooperate with the advisory  
               committee and its agents in providing all information and  
               documents concerning the use of grant funds.

             h)   Except as otherwise expressly agreed by the advisory  
               committee, within 60 days after the conclusion of the  
               investigation, litigation, or prosecution, training, or  
               other activity for which the disbursement was awarded, the  
               recipient shall return all unused funds to the advisory  
               committee by check made payable to the IPPPP Fund.

             i)   If grant funds are used for the production of any  
               materials, the recipient shall permit the AG's Office and  
               the advisory committee to use and distribute those  
               materials without restriction for their intended purposes.

             j)   The advisory committee is authorized to audit, review,  
               and inspect the recipient's activities, books, documents,  
               papers, and records during the project and thereafter for  
               three years following the final allocation of funds.

          11)Establishes the IPPPP Advisory Committee for the purpose of  
            formulating a comprehensive written strategy for addressing  
            intellectual property piracy prevention and prosecution  
            throughout California, and to advise the AG on the appropriate  
            disbursement of funds to local law enforcement agencies and  
            district attorneys' offices.

          12)Requires the IPPPP Advisory Committee to identify various  
            priorities for law enforcement attention regarding the  
            following:

             a)    The apprehension and prosecution of criminal  
               organizations, networks, and groups of individuals engaged  
               in the theft of, counterfeiting of, or unauthorized  
               distribution, sale, or reproduction of, the following types  
               of intellectual property:

               i)     Movies.

               ii)    Music.









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               iii)   Computer software.

               iv)    Video games.

             b)   The investigation and prosecution of violations of  
               criminal and civil provisions of law.

             c)   The advising of local law enforcement and district  
               attorneys regarding current aspects of intellectual  
               property piracy, in order to respond quickly to the most  
               serious threats of piracy.

          13)Asks the IPPPP Advisory Committee to meet at least four times  
            per year, shall consist of 10 members, of whom six shall be  
            appointed by the Governor, two by the Speaker of the Assembly,  
            and two by the Senate Committee on Rules.  Members shall be  
            paid $100 per diem for each meeting, as well as all necessary  
            travel expenses.  The advisory committee shall be composed of  
            the following members:

             a)   At least two representatives of the general public.

             b)   At least one representative with demonstrable knowledge  
               of the movie industry.

             c)   At least one representative with demonstrable knowledge  
               of the music industry.

             d)   At least one representative with demonstrable knowledge  
               of the computer software industry.

             e)   At least one representative with demonstrable knowledge  
               of the video gaming industry.

             f)   At least one representative with experience in law  
               enforcement, specifically relating to intellectual property  
               piracy offenses.

             g)   At least one representative with experience prosecuting  
               intellectual property piracy offenses at the local, state,  
               or federal level.

          14)Proscribes that in deciding which grant applications to fund,  
            the IPPPP Advisory Committee shall consider the following  
            factors:








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             a)   The purpose for which the funds are sought.

             b)   The proposal's specificity, including whether the  
               proposal identifies anticipated costs, along with materials  
               and personnel to be used.

             c)   The anticipated public benefit.

             d)   The ability of the advisory committee to audit the use  
               of the funds.

             e)   The number, amount, and use of previous grants awarded  
               to the prospective recipient, if any.

          15)Entitles members of the IPPPP Advisory Committee to the same  
            immunity from liability that is provided to public employees.

           EXISTING LAW  :

          1)States legislative intent to provide local law enforcement and  
            district attorneys with the tools necessary to successfully  
            interdict the promulgation of high technology crime.   
            According to the federal Law Enforcement Training Center, it  
            is expected that states will see a tremendous growth in high  
            technology crimes over the next few years as computers become  
            more available and computer users more skilled in utilizing  
            technology to commit these faceless crimes.  High technology  
            crimes are those crimes in which technology is used as an  
            instrument in committing, or assisting in the commission of, a  
            crime, or which is the target of a criminal act.  [Penal Code  
            Section 13848(a).]

          2)Disperses funds through the High Technology Theft Apprehension  
            and Prosecution Program to ensure that law enforcement is  
            equipped with the necessary personnel and equipment to  
            successfully combat high technology crime which includes  
            software piracy and other unlawful duplication of information.  
             [Penal Code Section 13848(b)(5).]

          3)Establishes the HTCAC for the purpose of formulating a  
            comprehensive written strategy for addressing high technology  
            crime throughout California, with the exception of crimes that  
            occur on state property or are committed against state  
            employees, and to advise the California Emergency Management  








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            Agency on the appropriate disbursement of funds to regional  
            task forces.  Priorities identified include the apprehension  
            and prosecution of criminal organizations, networks, and  
            groups of individuals engaged in the creation and distribution  
            of counterfeit software and other digital information,  
            including the use of counterfeit trademarks to misrepresent  
            the origin of that software or digital information.  Also  
            included are those engaged in the creation and distribution of  
            pirated sound recordings or audiovisual works or the failure  
            to disclose the origin of a recording or audiovisual work.  
            [Penal Code Section 13848.6.]

          4)Requires the Executive Director of the agency or agencies  
            designated by Department of Finance (DOF) to appoint the Chair  
            and the following members to the HTCAC:

             a)   The California District Attorneys Association.

             b)   The California State Sheriffs Association.

             c)   The California Police Chiefs Association.

             d)   The Attorney General.

             e)   The California Highway Patrol.

             f)   The High Tech Criminal Investigators Association.

             g)   The representative of the agency of agencies designated  
               by the DOF Director.

             h)   The American Electronics Association to represent  
               computer system manufacturers.

             i)   The American Electronics Association to represent  
               software producers.

             j)   The California Cellular Carriers Association.

             aa)  The California Internet Industry Alliance.

             bb)  The Semiconductor Equipment and Materials International.

             cc)  The California Cable Television Association.









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             dd)  The Motion Pictures Association of America.

             ee)  Either the California Telephone Association or the  
               California Association of Long Distance Companies. 

             ff)  The California banking industry.

             gg)  The Office of Privacy Protection.

             hh)  The Department of Finance.  [Penal Code Sections  
               13848.6(c) and (d).]

          5)States that the HTCAC shall not be required to meet more than  
            12 times per year, and may create subcommittees of its own  
            membership which may meet as often as the members find  
            necessary.  [Penal Code Section 13848.6(e).]

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           1)Author's Statement  :  According to the author, "California  
            remains the capital of the motion picture and television  
            industry as well as a center for the recording and software  
            industries.  In terms of economic activity, television and  
            movies generated a total of $42.2 billion, split almost  
            equally between payroll expenditures and payments to vendors.  
            Approximately 266,000 people were directly employed in the  
            motion picture and television industry in California, with an  
            average salary of $80,600. When indirect employment resulting  
            from the industry is factored in, the number of people working  
            in California as a result of television and movies totals over  
            500,000.

          "Although piracy is a global problem, a recent study by the Los  
            Angeles County Economic Development Corporation (LAEDC) notes  
            that it affects the L.A. region disproportionately due to the  
            concentration of the entertainment industry there.  LAEDC  
            estimates that in 2005 losses to the motion picture industry  
            from piracy were $2.7 billion; the sound recording industry  
            $851 million; software publishing $355 million.

          "Not only is digital piracy a direct threat to the industry, but  
            its effects are felt by state and local government in the form  
            of lost tax revenues.  








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          "According to the same LAEDC study, piracy affecting the  
            entertainment industry just in LA cost nearly $134 million in  
            state income taxes; $63.5 million in sales taxes; $2 million  
            in LA City Business Taxes.

          "This is not just an LA problem.

          "Digital piracy reaches across the state, affecting the Silicon  
            Valley and its computer industry. According to the Business  
            Software Alliance, in 2003, software piracy alone cost the  
            California economy more than 13,000 jobs, $802 million in  
            wages and salaries, over $1 billion in retail sales of  
            business software applications, and roughly $239 million in  
            total tax losses."

           2)Background  :  According to information provided by the author,  
            "AB 819 would help law enforcement tackle the issue of piracy  
            statewide by establishing the Intellectual Property Piracy  
            Prevention and Prosecution Program to fund grants for local  
            law enforcement and district attorneys for purposes of  
            preventing and prosecuting intellectual property piracy,  
            funded by public and private sources.  It also establishes a  
            technical advisory committee that would include members of the  
            affected industries to award these grants."

           3)Piracy  :  In the 1980's, the Legislature established what was  
            then a strong policy against the piracy of music and film  
            recordings.  California's criminal anti-piracy statute  
            prohibits selling recordings without disclosing the  
            manufacturer and author of the recording.  The improper  
            labeling of 1,000 audio recordings or 100 audiovisual works  
            can be prosecuted as either a misdemeanor or a felony.   
            However, technology has changed significantly since the policy  
            was established, making the production and distribution of  
            pirated works easier, the network broader, and the recording  
            of higher quality.  Pirates, bootleggers, and counterfeiters  
            now have at their disposal the technology to make near-perfect  
            copies.  The advancing technology is creating more  
            sophisticated labeling and packaging techniques as well as  
            facilitating the transmission of film and music  
            electronically.  Because of the ease by which these products  
            can be produced and transmitted, piracy continues to grow at  
            all levels - in local flea markets, street corners where  
            tables of pirated works are standard fare, and on the  








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            Internet.  The worldwide impact on the film and music  
            industries is now estimated to be in excess of $8 billion  
            annually in lost revenues.

          Piracy negatively impacts artists, film and recording companies,  
            performers, composers, distributors, wholesalers, and  
            retailers.  This activity has a significant negative effect on  
            consumers, as fewer and fewer dollars are made available to  
            invest in bringing consumers the musical and film diversity  
            they have come to expect from America's entertainment  
            industries.  The impact of piracy on trade and international  
            competitiveness cannot be understated.

           4)Economic Impact of Music Piracy  :  According to the California  
            Chamber of Commerce, "California loses $34 billion annually to  
            counterfeiting and piracy.  In 2005, Los Angeles County alone  
            lost 106, 000 jobs because of the trade of counterfeit goods.   
            This trend cuts to the heart of the Entertainment Industry,  
            whose lifeblood is authentically produced content."

          In testimony before the Select Committee on the Preservation of  
            California's Entertainment Industry on February 1, 2008, Joel  
            Flatow, Senior Vice President, Recording Industry Association  
            of America (RIAA), stated, "Music has never been as accessible  
            to fans as it is right now, and, our studies show that more  
            music is being acquired than ever - but less and less of it is  
            being paid for.  And, therein lies one of the great  
            challenges.  It's just too easy to get for free without  
            compensating the creators, including cheap counterfeit goods.   
            On the label side . . . the truth is that sales have been  
            decimated, certainly at least in part from piracy . . . the  
            sale of recorded music has been down for the last 7 of 8  
            years, amounting to an aggregate fall from 1999 through 2007  
            of roughly 25% and more than $3 billion decline in sales.   
            According to a recent report on music piracy by the Institute  
            for Policy Innovation (IPI), this translates into 70,000 lost  
            jobs and almost $2.7 billion in wages for US workers.  Right  
            here in California, the IPI study indicates that but for  
            piracy the state of California would employ 21,227 more  
            workers, which translates into more than $930 million in lost  
            wages." 

          In considering prior legislation, AB 64 (Cohn), in 2006, the  
            Committee on Arts, Entertainment, Sports, Tourism and Internet  
            Media found, "Many do not understand the significant negative  








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            impact of piracy on the music industry.  Though it would  
            appear that record companies and artists are still making  
            money, these impressions are mere fallacies.  Each sale by a  
            'pirate' represents a lost legitimate sale; thereby depriving  
            not only the record company of profits but also the artist,  
            producer, songwriter, publisher, retailer, and the list goes  
            on.  Consumers also lose because the shortcut savings enjoyed  
            by pirates drive up the costs of legitimate product for  
            everyone.  Not including losses due to Internet piracy, the  
            sale of pirate recordings exceeds $4.2 billion worldwide.   
            Eighty-five percent of recordings released do not even  
            generate enough revenue to cover their costs.  Record  
            companies depend heavily on the profitable 15% of recordings  
            to subsidize the less profitable types of music, to cover the  
            costs of developing new artists, and to keep their businesses  
            operational.  Often, the thieves do not focus on the 85%; they  
                                                                            go straight to the top and steal the gold.  Creative artists  
            lose.  Musicians, singers, songwriters and producers do not  
            get the royalties and fees they have earned.  Virtually all  
            artists (95%) depend on these fees to make a living.

          "The Los Angeles Police Department's (LAPD) anti-piracy unit, in  
            coordination with the RIAA, is aggressively attacking music  
            piracy.  In one instance a private residence was searched and  
            LAPD seized 22 CD-R burners; 2 computers; 4 DVD records; 6,812  
            alleged counterfeit compact discs; and 349 counterfeit DVD's.   
            A 14-month investigation by the Orange County District  
            Attorneys and the RIAA resulted in a two-year sentence for the  
            defendant, from whom 8 CD-R burners and 17,982 completed  
            unauthorized discs were seized.  The Los Angeles High Tech  
            Crimes Task Force raided a CD-pressing facility and seized  
            17,000 finished discs; 2 sets of molds; and 38 burners.  These  
            examples illustrate the widespread nature of this problem." 

           5)Prior Legislation  : 

             a)   AB 2750 (Krekorian), Chapter 468, Statutes of 2009,   
               requires a court to order persons convicted of specified  
               crimes relating to music piracy to pay restitution to  
               persons who have suffered economic loss as a result of the  
               illegal activity.

             b)   SB 1506 (Murray), Chapter 617, Statutes of 2005, created  
               a misdemeanor for any person to electronically disseminate  
               a copyrighted audiovisual work without disclosing their  








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               true name and address.

             c)   AB 1211(La Suer), of the 2001-02 Legislative Session,  
               would have required specified probation conditions for  
               those convicted of  high-tech crimes accomplished with the  
               aid of a computer, electronic mail, or the Internet. AB  
               1211 was placed in the Assembly Committee on  
               Appropriations' Suspense File.

             d)   SB 438 (Johnston), Chapter 906, Statutes of 1998,  
               created the HTTAPP and provided for forfeiture of  
               telecommunications equipment after a conviction based on  
               misuse of the equipment.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          None 

           Opposition 
           
          None
           

          Analysis Prepared by  :    Nicole J. Hanson / PUB. S. / (916)  
          319-3744