BILL ANALYSIS                                                                                                                                                                                                    







                      SENATE COMMITTEE ON PUBLIC SAFETY
                             Senator Mark Leno, Chair                A
                             2009-2010 Regular Session               B

                                                                     8
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          AB 819 (Calderon)                                           
          As Amended June 1, 2009 
          Hearing date:  July 7, 2009
          Penal Code (URGENCY)
          JM:mc

                                INTELLECTUAL PROPERTY:

                                  PIRACY PREVENTION  


                                       HISTORY

          Source:  Author

          Prior Legislation: AB 2750 (Krekorian) - Ch. 468, Stats. 2009
                       AB 64 (Cohn) - Ch. 9, Stats. 2006
                       SB 1506 (Murray) - Ch. 617, Stats. 2005
                       SB 438 (Johnston) - Ch. 906, Stats. 1998

          Support: Unknown

          Opposition:None known

          Assembly Floor Vote:  Ayes 77 - Noes 0


                                           
                                     KEY ISSUES
           
          SUBJECT TO AN APPROPRIATION, SHOULD THE LEGISLATURE CREATE THE  
          INTELLECTUAL PROPERTY PIRACY PREVENTION AND PROSECUTION (IPPPP)  
          PROGRAM?




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                                                                (CONTINUED)



          SHOULD THE IPPPP PROGRAM MAKE GRANTS OF FUNDS TO LOCAL LAW  
          ENFORCEMENT AND PROSECUTORS, AND SHOULD AN ADVISORY BOARD BE  
          ESTABLISHED, AS SPECIFIED?

          SHOULD MATTERS CONCERNING MUSIC, MOVIE, AND SOFTWARE PIRACY BE TAKEN  
          OUT OF THE PURVIEW OF THE HIGH TECHNOLOGY CRIME ADVISORY TASK FORCE  
          AND TRANSFERRED TO THE IPPPP?


                                       PURPOSE

          The purpose of this bill, subject to an appropriation of funds  
          by the Legislature, is to create the Intellectual Property  
          Piracy Prevention and Prosecution ("IPPPP") program, as  
          specified, to fund grants for local law enforcement in  
          prosecuting intellectual property crimes, and to establish an  
          IPPPP advisory committee, as specified.

           Existing law states legislative intent to provide local law  
          enforcement and district attorneys with the tools necessary to  
          successfully interdict high technology crime.  According to the  
          federal Law Enforcement Training Center, states will see a  
          tremendous growth in high technology 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.  (Pen. Code   
          13848, subd. (a).)

           Existing law  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,  
          including software piracy.  (Pen. Code  13848, subd. (b)(5).)

           Existing law  establishes the High Technology Crime Advisory  
          Committee (HTCAC) to formulate comprehensive written strategy  
          for addressing high technology crime throughout California, with  



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          the exception of crimes that occur on state property or are  
          committed against state employees, and to advise the California  
          Emergency Management Agency (CalEMA) 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.  Priorities include persons and groups 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.  (Pen. Code  13848.6.)

           Existing law  requires the Director of CalEMA to appoint the  
          Chair and the following members to the HTCAC:


                     The California District Attorneys Association.
                     The California State Sheriffs Association.
                     The California Police Chiefs Association.
                     The Attorney General.
                     The California Highway Patrol. 
                     The High Tech Criminal Investigators Association. 
                     The representative of the agency of agencies  
                 designated by the DOF Director. 
                     The American Electronics Association to represent  
                 computer system manufacturers.
                     The American Electronics Association to represent  
                 software producers. 
                     The California Cellular Carriers Association.
                     The California Internet Industry Alliance.
                     The Semiconductor Equipment and Materials  
                 International.
                     The California Cable Television Association.
                     The Motion Pictures Association of America.
                     Either the California Telephone Association or the  
                 California Association of Long Distance Companies.
                     The California banking industry.
                     The Office of Privacy Protection.
                     The Department of Finance.  (Pen. Code  13848.6,  



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                 subds. (c)-(d).)

           Existing law  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.  (Pen. Code  13848.6, subd. (e).)

           This bill  removes the creation and distribution of counterfeit  
          software, pirated sound recordings and audiovisual works from  
          the list of high technology crimes to be under the purview of  
          the High Technology Crime Advisory Committee (HTCAC).

           This bill  , dependent upon an appropriation of funds, establishes  
          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.  

           This bill  places the IPPPP Program within the Department of  
          Justice (DOJ) and provides for grants to law enforcement and  
          district attorneys' offices.  Upon appropriation by the  
          Legislature, all funds appropriated to the DOJ in this regard  
          shall be administered and disbursed by the Attorney General in  
          consultation with the IPPPP Advisory Committee as established.

           This bill  finds and declares the following: 

                 A 2007 study by the Institute for Policy Innovation  
               found that intellectual property piracy - theft of movies,  
               music, software, and video games - costs the United States  
               economy $58 billion each year.
                 Intellectual property piracy is growing.  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.  DVD sales have flattened in  
               recent years, while CD shipments to retailers have  
               plummeted.
                 Intellectual property piracy adversely affects the  
               California economy, eliminates jobs, and damages industry.   



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               According to the Business Software Alliance, in 2003,  
               software piracy 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 tax losses.  This  
               act shows California's commitment to protect the  
               intellectual property created by California's innovation  
               and entertainment industries.
                 A technical advisory committee will allow California to  
               draw upon the expertise of those on the front lines of the  
               anti-piracy effort.
                 Grants awarded pursuant to this act will be used to  
               foster innovation and to provide local law enforcement and  
               prosecutors the effective anti-piracy tools.
                 Finally, by safeguarding the legitimate sale of  
               intellectual property, California will increase its tax  
               base, and stimulate the economy.

           This bill  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.

           This bill  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 Attorney General.

           This bill  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.

           This bill  states that the advisory committee shall monitor and  
          audit the use of grant funds.

           This bill  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  



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          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.

           This bill  requires that, in order to receive a grant,  
          prospective recipients agree in writing to the following terms,  
          as conditions of receiving a grant:

                 The recipient is authorized to accept grant funds under  
               all applicable state and local laws;
                 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;
                 Grant funds shall be used to augment, but shall not be  
               used to supplant, a grant recipient's budget;
                 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;
                 The recipient shall notify the advisory committee in  
               writing of litigation or prosecution results, including any  
               settlement, judgment, or other resolution, within 30 days;
                 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;
                 The recipient shall fully cooperate with the advisory  
               committee and its agents in providing all information and  
               documents concerning the use of grant funds;
                 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;
                 If grant funds are used for the production of any  



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               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,
                 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.

           This bill  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.

           This bill  requires the IPPPP Advisory Committee to identify  
          various priorities for law enforcement attention regarding the  
          following:

                 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:
                  o         Movies;
                  o         Music;
                  o         Computer software; and,
                  o         Video games.

                 The investigation and prosecution of violations of  
               criminal and civil provisions of law; and,


                 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.

           This bill  provides that the advisory committee shall consist of  
          10 members, of whom six shall be appointed by the Governor, two  



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          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

           This bill  directs the IPPPP Advisory Committee to meet at least  
          four times per year.

           This bill  provides that the advisory committee shall be composed  
          of the following members:

                 At least two representatives of the general public;
                 At least one representative each with demonstrable  
               knowledge of the following industries:
                  o         The movie industry;
                  o         The music industry;
                  o         The computer software industry;
                  o         The video gaming industry;
                 At least one representative with experience in law  
               enforcement, specifically relating to intellectual property  
               piracy offenses; and
                 At least one representative with experience prosecuting  
               intellectual property piracy offenses at the local, state,  
               or federal level.

           This bill  requires that in deciding which grant applications to  
          fund, the IPPPP Advisory Committee shall consider the following  
          factors:

                     The purpose for which the funds are sought;
                     The proposal's specificity, including whether the  
                 proposal identifies anticipated costs, along with  
                 materials and personnel to be used;
                     The anticipated public benefit;
                     The ability of the advisory committee to audit the  
                 use of the funds; and
                     The number, amount, and use of previous grants  
                 awarded to the prospective recipient, if any.

           This bill  entitles members of the IPPPP Advisory Committee to  
          the same immunity from liability that is provided to public  
          employees.



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          This bill  provides that this act shall become operative only if  
          an appropriation is provided for its operation.




              RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION IMPLICATIONS
          
          California continues to face a severe prison overcrowding  
          crisis.  The Department of Corrections and Rehabilitation (CDCR)  
          currently has about 170,000 inmates under its jurisdiction.  Due  
          to a lack of traditional housing space available, the department  
          houses roughly 15,000 inmates in gyms and dayrooms.   
          California's prison population has increased by 125% (an average  
          of 4% annually) over the past 20 years, growing from 76,000  
          inmates to 171,000 inmates, far outpacing the state's population  
          growth rate for the age cohort with the highest risk of  
          incarceration.<1>

          In December of 2006 plaintiffs in two federal lawsuits against  
          CDCR sought a court-ordered limit on the prison population  
          pursuant to the federal Prison Litigation Reform Act.  On  
          February 9, 2009, the three-judge federal court panel issued a  
          tentative ruling that included the following conclusions with  
          respect to overcrowding:

               No party contests that California's prisons are  
               overcrowded, however measured, and whether considered  
               in comparison to prisons in other states or jails  
               within this state.  There are simply too many  
               prisoners for the existing capacity.  The Governor,  
               the principal defendant, declared a state of emergency  
               in 2006 because of the "severe overcrowding" in  
               ----------------------
          <1>  "Between 1987 and 2007, California's population of ages 15  
          through 44 - the age cohort with the highest risk for  
          incarceration - grew by an average of less than 1% annually,  
          which is a pace much slower than the growth in prison  
          admissions."  (2009-2010 Budget Analysis Series, Judicial and  
          Criminal Justice, Legislative Analyst's Office (January 30,  
          2009).)


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               California's prisons, which has caused "substantial  
               risk to the health and safety of the men and women who  
               work inside these prisons and the inmates housed in  
               them."  . . .  A state appellate court upheld the  
               Governor's proclamation, holding that the evidence  
               supported the existence of conditions of "extreme  
               peril to the safety of persons and property."  
               (citation omitted)  The Governor's declaration of the  
               state of emergency remains in effect to this day.

               . . .  the evidence is compelling that there is no  
               relief other than a prisoner release order that will  
               remedy the unconstitutional prison conditions.

               . . .

               Although the evidence may be less than perfectly  
               clear, it appears to the Court that in order to  
               alleviate the constitutional violations California's  
               inmate population must be reduced to at most 120% to  
               145% of design capacity, with some institutions or  
               clinical programs at or below 100%.  We caution the  
               parties, however, that these are not firm figures and  
               that the Court reserves the right - until its final  
               ruling - to determine that a higher or lower figure is  
               appropriate in general or in particular types of  
               facilities.

               . . .Under the PLRA, any prisoner release order that  
               we issue will be narrowly drawn, extend no further  
               than necessary to correct the violation of  
               constitutional rights, and be the least intrusive  
               means necessary to correct the violation of those  
               rights.  For this reason, it is our present intention  
               to adopt an order requiring the State to develop a  
               plan to reduce the prison population to 120% or 145%  
               of the prison's design capacity (or somewhere in  







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               between) within a period of two or three years.<2>

          The final outcome of the panel's tentative decision, as well as  
          any appeal that may be in response to the panel's final  
          decision, is unknown at the time of this writing.

           This bill  does not appear to aggravate the prison overcrowding  
          crisis outlined above.

                                      COMMENTS

          1.  Need for This Bill 

          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  
               ----------------------
          <2>  Three Judge Court Tentative Ruling, Coleman v.  
          Schwarzenegger, Plata v. Schwarzenegger, in the United States  
          District Courts for the Eastern District of California and the  
          Northern District of California United States District Court  
          composed of three judges pursuant to Section 2284, Title 28  
                                                                                  United States Code (Feb. 9, 2009).


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               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 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.  LAO's 2008-2009 Budget Analysis:  High Technology Theft  
            Apprehension and Prosecution Program - the Precursor or  
            Model of the Program Created by this Bill  

          The Legislative Analyst's Office (LAO) reviewed the High  
          Technology Theft Apprehension and Prosecution Program  
          (HTTAP) as part of the review of the 2008-2009 Budget.  The  
          HTTAP appears to be the model for the program that would be  
          created by this bill.  The LAO's analysis stated:


               Background. High technology crimes are defined as  
               being those crimes in which technology is used as an  
               instrument in committing a crime, or in which  
               technology is the target of a crime (examples include  
               computer hacking and intellectual property theft).  
               Historically, the High Technology Theft Apprehension  
               and Prosecution Program provided about $10 million  
               from the General Fund to support five local high  
               technology crime task forces, and two related database  



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               and training projects. 


               In 2001, the Legislature expanded the program to  
               include five regional identity theft units that focus  
               solely on identity theft crimes. As a result, funding  
               for the program increased to $13.3 million from the  
               General Fund. Under the program, equal grant  
               allocations go to high technology task forces in  
               Marin, Los Angeles, Sacramento, San Diego, and Santa  
               Clara Counties (each task force gets about $2.5  
               million), with additional resources allocated to DOJ  
               and the California District Attorneys Association to  
               maintain a crime database and to provide training. The  
               General Fund portion of program funding has a 25  
               percent local government match, bringing total program  
               funds to $16.6 million. 


               Administration's Proposal.  The administration's  
               budget proposes a 10 percent reduction in funding for  
               this program in the budget year (for a General Fund  
               reduction of $1.3 million).  The result would be  
               approximately $12 million of continued General Fund  
               support for the program, for total program funding of  
               at least about $15 million when the local matching  
               funds requirement is taken into account. 


               $10 Million in Spending Focused on 1,500 Victims. In  
               2006-07, the program's high technology task forces  
               investigated about 1,000 crimes involving about 1,500  
               victims at a General Fund cost of $10 million.  This  
               means that on average, the state spent more than  
               $10,000 per investigation, or $6,800 per victim on  
               these types of crimes. The identity theft task forces,  
               which were funded with $3.3 million of General Fund  
               support, investigated about 1,400 cases statewide  
               which involved nearly 17,000 victims of identity  
               theft. This means that on average, the state spent  
               more than $2,300 per identity theft investigation, or  



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               about $200 per victim. 


               LAO Recommendation. As a result of the high cost to  
               the state of investigating each case, and to better  
               target funding in this program, we recommend that the  
               Legislature reduce total General Fund support to this  
               program by 25 percent ($3.3 million General Fund) by  
               reducing the funding provided for high-tech theft  
               cases. Our recommendation would hold harmless the  
               amount of existing funding to identity theft units and  
               to DOJ for the crimes database. This would result in  
               approximately $10 million General Fund support for the  
               program ($3.3 million for identity theft units, $6.7  
               million for other high-tech crimes units, and $60,000  
               to DOJ for crimes database).




























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          3.  Recent Music and Movie Piracy Legislation - Piracy  
            Investigations by Industry Representatives  

          The Legislature has enacted a number of movie and music  
          piracy bills over the past five years.

                 AB 64 (Cohn), Ch. 9, Stats. 2006 expanded the  
               felony in the true name and address music piracy law.   
               California can make no direct copyright infringement  
               statutes, as federal law preempts state law in this  
               regard.  Instead, California law makes is a crime to  
               fail to disclose the true name and address of the  
               maker of a sound recording.  Music and movie pirates  
               are unlikely to include their true name and address on  
               pirated CDs. DVDs and other recordings and audiovisual  
               works.

                 SB 1506 (Murray) Ch. 617, Stats. 2004 essentially  
               extended the true name and address law for hard-copy  
               musical or audiovisual works to electronic  
               distribution through Internet file sharing.

                 SB 1032(Murray) Ch. 670, Stats. 2003 defined the  
               misdemeanor crime of recording a motion picture in a  
               theatre without the express permission of the owner of  
               the theatre.  The illicit recording of movies in  
               theatrical release was the subject of a well-known  
               "Seinfeld" episode - "The Little Kicks."

                 AB 2750 (Krekorian) Ch. 468, Stats. 2008, provided  
               that in a music or movie piracy prosecutions, the  
               court can order the defendant to pay restitution to a  
               trade association (such as the Recording Industry  
               Association of America - RIAA), if the trade  
               association suffered economic loss from the  
               defendant's crime.  AB 2750 specifically provided that  
               restitution includes the reasonable costs incurred by  
               the owner, producer or trade association to  
               investigate the piracy.




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          In discussions on each of these bills, industry representatives  
          noted that the music and movie industries make substantial  
          efforts to investigate piracy under existing laws.  The trade  
          associations employ investigators - often former law enforcement  
          officers - to investigate music and movie piracy.  The trade  
          associations also employ attorneys - often former prosecutors -  
          to organize and prepare the evidence that would be used in  
          prosecution.  The cases are then essentially turned over to  
          local law enforcement agencies and district attorneys for  
          prosecution.  Also, especially in music piracy cases, trade  
          associations have sued persons who have downloaded or  
          electronically distributed pirated music.  Trade association  
          lawyers vigorously pursue restitution claims following music or  
          movie piracy convictions.

          The music and movie industries have direct and substantial  
          financial interests in preventing piracy, punishing piracy and  
          obtaining restitution from those who illegally obtain or  
          distribute music and movies.  Arguably, a government-sponsored  
          piracy advisory organization and a program to fund piracy  
          investigations by law enforcement could be redundant of industry  
          efforts.  

          WOULD THE PROGRAM CREATED BY THIS BILL DUPLICATE CURRENT EFFORTS  
          AND ACTIVITIES OF MOVIE INDUSTRY COMPANIES AND TRADE  
          ASSOCIATIONS TO INVESTIGATE AND COUNTER PIRACY?


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