BILL ANALYSIS AB 819 Page 1 ASSEMBLY THIRD READING AB 819 (Charles Calderon) As Amended June 1, 2009 2/3 vote. Urgency PUBLIC SAFETY 7-0 APPROPRIATIONS 12-5 ------------------------------------------------------------------ |Ayes:|Solorio, Hagman, |Ayes:|De Leon, Ammiano, Charles | | |Furutani, Gilmore, Hill, | |Calderon, Davis, Fuentes, | | |Ma, Skinner | |Hall, John A. Perez, | | | | |Price, Skinner, Solorio, | | | | |Torlakson, Krekorian | | | | | | |-----+--------------------------+-----+---------------------------| | | |Nays:|Nielsen, Duvall, Harkey, | | | | |Miller, | | | | |Audra Strickland | ------------------------------------------------------------------ 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%. AB 819 Page 2 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 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; and, 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 AB 819 Page 3 with the IPPPP Advisory Committee as established. 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. 7)Requires the advisory committee to review grant applications 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; AB 819 Page 4 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 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; and, 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: AB 819 Page 5 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; iii) Computer software; and, iv) Video games. b) The investigation and prosecution of violations of criminal and civil provisions of law; and, 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; AB 819 Page 6 f) At least one representative with experience in law enforcement, specifically relating to intellectual property piracy offenses; and, 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: 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; and, 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. 16)Provides that this act shall become operative only if an appropriation is provided for its operation. FISCAL EFFECT : According to the Assembly Appropriations Committee, no direct state cost as implementation of this act is contingent upon a subsequent appropriation. Potential cost pressure in the millions of dollars to fund the IPPPP. COMMENTS : 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 AB 819 Page 7 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 Los Angeles 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. "According to the same LAEDC study, piracy affecting the entertainment industry just in Los Angeles cost nearly $134 million in state income taxes; $63.5 million in sales taxes; $2 million in Los Angeles City business taxes. "This is not just a Los Angeles 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." Please see the policy committee for a full discussion of this bill. Analysis Prepared by : Nicole J. Hanson / PUB. S. / (916) 319-3744 FN: 0001271