BILL ANALYSIS                                                                                                                                                                                                    







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

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          AB 819 (Calderon)                                           
          As Amended June 22, 2010 
          Hearing date:  June 29, 2010
          Penal Code (URGENCY)
          JM:dl
                             INTELLECTUAL PROPERTY PIRACY

                                           
                                       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
           
          SHOULD CRIMES INVOLVING COUNTERFEIT GOODS BE EXPANDED TO INCLUDE  
          POSSESSION, USE, DISPLAY OR TRANSPORTING, AS SPECIFIED, OF SUCH  
          GOODS, AND THE ITEMS COVERED BY THE OFFENSE EXPANDED TO INCLUDE  
          ANY COMPONENT OF A TRADEMARK GOOD OR SERVICE, INCLUDING  
          PACKAGING, CONTAINERS, OR DOCUMENTATION, AS SPECIFIED?

          SHOULD THE PENALTIES FOR CRIMES INVOLVING COUNTERFEIT GOODS NOT  
          DEPEND ON THE NUMBER OF ITEMS INVOLVED IN THE CRIME, AND SHOULD  



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          THE FINES FOR SUCH CRIMES BE GREATLY INCREASED?

                                                                (CONTINUED)



          SHOULD RESTITUTION IN A CASE OF PIRACY OF AN UNRELEASED AUDIO  
          WORK OR AN AUDIOVISUAL WORK THAT HAS NOT BEEN RELEASED ON DISC  
          BE CALCULATED AS PROVEN LOSSES FROM THE PIRACY OR FIVE TIMES THE  
          VALUES OF EACH PIRATED WORK?

          SHOULD NUMEROUS CRIMES CONCERNING AUDIO WORKS ALSO APPLY TO  
          AUDIOVISUAL WORKS?

          SHOULD THE FINES FOR CRIMES INVOLVING AUDIO WORKS AND  
          AUDIOVISUAL WORKS BE GREATLY INCREASED, AS SPECIFIED?

          SHOULD A LAW THAT ALLOWS RESTITUTION IN A MUSIC OR VIDEO PIRACY  
          CASE TO BE PAID TO A TRADE ASSOCIATION ALSO APPLY TO CASES  
          INVOLVING COUNTERFEIT GOODS AND SERVICES?

          SHOULD THE OFFICE OF THE ATTORNEY GENERAL INCLUDE A DIVISION OF  
          ORGANIZED CRIME AND INTELLECTUAL PROPERTY PIRACY (OCIP) TO  
          INVESTIGATE AND PROSECUTE INTELLECTUAL PROPERTY PIRACY,  
          ESPECIALLY MOVIE PIRACY, COMMITTED BY ORGANIZED CRIMINAL  
          ENTITIES?

          UPON APPROPRIATION BY THE LEGISLATURE AND APPROVAL OF THE  
          ATTORNEY GENERAL, SHALL THE CONTROLLER MAKE PAYMENTS FROM THE  
          FUND TO LOCAL LAW ENFORCEMENT AGENCIES THAT PROVIDE SUBSTANTIAL  
          ASSISTANCE TO THE OCIP IN INTELLECTUAL PROPERTY PIRACY CASES, AS  
          SPECIFIED?

          SHOULD ALL FUNDS FROM PROSECUTIONS BY OCIP BY DEPOSITED IN THE  
          NEW FUND?



                                       PURPOSE

          The purposes of this bill are to 1) create in the Department of  



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          Justice the Division of Organized Crime and Intellectual Piracy  
          (OCIP) to investigate and prosecute intellectual property  
          piracy, as specified; 2) to establish the Intellectual Property  
          Piracy Prevention and Prosecution (IPPPP) Fund within the  
          Controller's Office, and, upon appropriation by the Legislature,  
          use the fund to reimburse local law enforcement for the costs of  
          providing substantial assistance to the OCIP, as specified; 3)  
          to provide that all fines in OCIP cases be deposited in the  
          IPPPP fund; 4) to expand the acts constituting crimes involving  
          counterfeit goods, as specified; to greatly increase the fines  
          for crimes involving counterfeit goods,


           5) to expand numerous crimes involving audio works to include  
          audiovisual works; 6) to greatly increase the fines for crimes  
          involving audio and audiovisual works; 7) to define and expand  
          restitution for audiovisual and audio works; and 8) to allow  
          restitution in a counterfeit goods case to be paid to a trade  
          association, 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  
          the exception of crimes that occur on state property or are  
          committed against state employees, and to advise the California  



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          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 specified representatives of law enforcement, and high  
          technology, telecommunications, film and finance industries to  
          the HTCAC (Pen. Code  13848.6, subds. (c)- (d).)

           This bill  establishes in the Office of the Attorney General the  
          Division of Organized Crime and Intellectual Piracy (OCIP) to  
          investigate and prosecute intellectual property piracy.

           This bill  establishes the Intellectual Property Piracy  
          Prevention and Prosecution (IPPPP) Fund within the Controller's  
          Office.

          This bill  provides that the IPPPP Fund shall be established  
          through money collected under AB 711 (Calderon).



           This bill  provides that the IPPPP Fund shall be used to  
          reimburse local law enforcement for the costs of providing  
          substantial assistance to the OCIP in the prosecution of  
          intellectual property piracy and theft, including movie and  
          music piracy, trademark and copyright infringement, commerce in  
          counterfeit goods, as specified.

           This bill  provides that all fines in OCIP cases be deposited in  
          the IPPPP fund.




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           This bill  requires an annual report to the Legislature.

           This bill  eliminates provisions that set penalties based on the  
          number of items involved the crime.

           This bill  increases the fine for a first conviction for a  
          misdemeanor involving counterfeit goods from $5,000 to $2  
          million for an individual and $100,000 to $5 million for a  
          business.

           This bill  increases the fine for a repeated conviction for a  
          crime involving counterfeit goods from $50,000 or $250,000 to $5  
          million for an individual, and from $200,000 or $500,000 to $15  
          million for a business. 

           This bill  provides that where a crime involving counterfeit  
          goods results in death or great bodily injury to a person using  
          an item for its intended purpose, the fine shall be raised from  
          $50,000 to $5 million for an individual and from $200,000 to $15  
          million for a business.

          Trademark Crimes
           
          Existing law  (Pen. Code  350, subd. (a)) states that any person  
          who willfully manufactures, intentionally sells, or knowingly  
          possesses for sale any counterfeit of a mark registered with the  
          California Secretary of State or registered on the United States  
          Patent and Trademark Office shall be punishable as follows:

          If the offense involves less than 1,000 of the articles with a  
          total retail value less than the standard for  grand theft (over  
          $400 -  487) the defendant is guilty of a misdemeanor,  
          punishable by a fine of not more than $5000, imprisonment in a  
          county jail for up to one year; or by both.  If the defendant is  
          a corporation, by a fine of not more than $100,000.

                 When the crime involves 1,000 or more articles,  
               or has a total retail value that meets the standard  
               for grand theft (over $400 -  487), the crime is an  
               alternate felony-misdemeanor, punishable by  
               imprisonment in a county jail for up to one year, or  



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               in the state prison for 16 months, 2 years or 3  
               years; by a fine not to exceed $250,000, or both.   
               If the defendant is a corporation, the maximum fine  
               is $500,000.

           





          Existing law  provides that a repeated violation of the  
          counterfeit trademark statute is an alternate  
          felony-misdemeanor, punishable by a fine of not more than  
          $50,000, imprisonment in a county jail for not more than one  
          year, or in the state prison for 16 months, or 2 or 3 years, or  
          both.  If the defendant is a corporation, the maximum fine is  
          $200,000.  (Pen. Code  350, subd. (b).)


           Existing law  states that any person whose trademark violation  
          has directly and foreseeably caused death or great bodily injury  
          to another through reliance on the counterfeited item for its  
          intended purpose is guilty of a felony, punishable by  
          imprisonment for 2, 3, or 4 years, a fine of not more than  
          $50,000, or by both.  The maximum fine for a corporation is a  
          fine of not more than $200,000.  (Pen. Code  350, subd. (c).)


           Existing federal law  provides that it is a crime to "traffic" or  
          "attempt to traffic" in counterfeit goods.  The crime is  
          punishable by a fine of up to $2,000,000, imprisonment for up to  
          10 years, or both.  The maximum fine for a corporation or an  
          entity other than an individual is $5,000,000.  Repeated  
          convictions are punishable by imprisonment for up to 20 years, a  
          fine of up to $5,000,000, or both.  Where the convicted  
          defendant of repeated violations is other than an individual the  
          maximum fine is $15,000,000.  (18 U.S.C.  2320.)

           Existing federal law  includes the Federal Sentencing Guidelines,  
          which provide very detailed factors a judge shall consider in  



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          imposing sentence within an extensive range of possible  
          penalties.  (See, 18 U.S.C.  3553 et seq. as to application of  
          the guidelines by the sentencing court.)

           Existing federal law  defines trafficking thus:  [T]he term  
          "traffic" means to transport, transfer, or otherwise dispose of,  
          to another, for purposes of commercial advantage or private  
          financial gain, or to make, import, export, obtain control of,  
          or possess, with intent to so transport, transfer or otherwise  
          dispose of.  (18 U.S.C.  2320 (e)(2.).)

          This bill  expands the acts constituting violations of the  
          trademark law to provide that it is a crime to use, possession,  
          use, display, or transporting of counterfeit goods.

           This bill  expands the items subject to the counterfeit law to  
          include boxes, containers, cans, cases, or any other components,  
          as specified.

          Music and Audiovisual Piracy
          
          California True Name and Address (Music Piracy) Law as Amended  
          by this Bill
          
           Existing law  (Pen. Code  653w) provides that a person is guilty  
          of a crime when he or she knowingly attempts to sell, rent or  
          manufacture, or possess for these purposes, an illicit audio  
          recording or audiovisual work.  It is an element of this offense  
          that the defendant failed to disclose the true name and address  
          of the manufacturer and the name of the artist.


           A violation of Section 653w involving at least 100 copies of  
            an audio recording an audiovisual work is an alternative  
            felony-misdemeanor, punishable by imprisonment for up to one  
            year in the county jail, or in state prison for 2, 3, or 5  
            years, or a fine of up to $250,000, or both.
           First violation involving less than 100 copies of an audio  
            recording or an audiovisual work is a misdemeanor, punishable  
            by up to one year in county jail, or a fine not exceeding  
            $25,000, or both.



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           Subsequent violation involving less than 100 copies of an  
            audio recording or an audiovisual work is an alternative  
            felony-misdemeanor, punishable by up to one year in county  
            jail, 16 months, 2 years, or 3 years in state prison, or a  
            fine not exceeding $100,000, or both.  (Penal Code  653w.)

           This bill  changes the fines for the crimes described in Section  
          653w as follows:

           The fine for a misdemeanor violation that involves between 25  
            and 100 units of a sound recording, or between 7 and 65 such  
            audiovisual recordings, shall be a maximum of $150,000.
           If the defendant has a prior conviction, the fine shall be a  
            maximum of $250,000.
           The maximum fine for a fist offense that involves less than 25  
            units of a sound recording or less than 7 units of an  
            audiovisual work shall be $50,000. 

           This bill  provides that a violation of this section that  
          involves between 25 and 100 units is an alternate  
          felony-misdemeanor, punishable by a jail term of up to one year  
          or a prison term of 16 months, two years or three years.

          Transferring or Transporting Sound Recordings
          
           Existing law  - Penal Code Section 653h, subdivision (a),  
          prohibits:

                 Transferring any recording for purposes of sale or  
               commercial public performance.
                 Transporting transferred recordings for financial gain.
           Section 653h, subd. (d) prohibits selling, or offering for  
            sale etc., illegally transferred recording.

           This bill  adds audiovisual works to the crimes of 1)  
          transferring or transporting, for commercial advantage, any  
          sounds that have been recorded on a record, disc, or any article  
          for recording sounds, as specified, and 2) selling, offering for  
          sale, renting or offering for rent, such items, with knowledge  
          of the illegal transferring or transporting. 




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          Section 653h, subd. (a) is punished thus:

           Offense involving at least 1000 units - wobbler (alternate  
            felony-misdemeanor), with prison triad of 2, 3 or 5 years and  
            $250,000 fine
           Offense involving less than 1000 units - misdemeanor
           Second conviction for under 1000 units - straight felony, with  
            a maximum fine of $100,000

          Section 653h, subd. (d) punishment:

           First offense involving at least 100 units - misdemeanor, with  
            maximum 1-year jail term and maximum $10,000 fine
           Second conviction - wobbler, with maximum $25,000 fine\
           First offense involving less than 100 units - misdemeanor,  
            with maximum 6-months' jail term and maximum $5,000 fine
           Second offense involving less than 100 units - misdemeanor,  
            with maximum 1-year jail term and maximum $10,000 fine
           Third offense involving less than 100 units - wobbler, with  
            maximum $25,000 fine

           This bill  provides that the fine for a misdemeanor violation  
          that involves between 100 and 1,000 units of a sound recording,  
          or between 7 and 65 audiovisual recording, shall be a maximum of  
          $150,000.

           This bill  provides that the fine for a conviction under this  
          section that involves at least 65 audiovisual works shall be a  
          maximum of $250,000.

           This bill  eliminates the provisions setting specified penalties  
          for commerce in illegally transferred works by the number of  
          convictions the defendant has suffered.

          Crimes Involving Illegal Recordings of Live Performances
           
          Existing law  (Pen. Code  653s, subdivision (a), prohibits any  
          person from, without consent of the owner of the live recording,  
          transporting any recording of a live performance for monetary or  
          other.  Section 653s, subd. (a) is punished thus:




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           Offense involving at least 1,000 units - wobbler (alternate  
            felony-misdemeanor), with prison triad of 2, 3 or 5 years and  
            $250,000 fine.  (Pen. Code  653s, subd. (g).)
           Offense involving less than 1,000 units:
              o     First offense is a misdemeanor, punishable by a jail  
                term of up to one year, a fine of up to $25,000, or both.
              o     Second or subsequent offense is an alternate  
                felony-misdemeanor, punishable by a jail term of up to one  
                year, a prison terms of 16 months, two years or three  
                years, a fine of up to $100,000, or both.  (Pen. Code   
                653s, subd. (h).)

           Existing law  (Pen. Code 653s, subd. (i), provides that any  
          person who sells or offers to sell any unauthorized live  
          recording is guilty of a crime, defined and punished as follows:

           If the offense involves less than 100 units, the person is  
            guilty of a misdemeanor, punishable by imprisonment in the  
            county jail for up to six months, a fine of up to $5,000, or  
            both.
           A second conviction is a misdemeanor, punishable by a jail  
            term of up to one year, a fine of up to $10,000, or both.
           A third or subsequent conviction is an alternate  
            felony-misdemeanor, punishable a jail term of up to one year,  
            a prison term of 16 months, two years or three years, a fine  
            of up to $25,000, or both.  (Pen. Code  653s, subd. (i)(2).)
           If the offense involves at least 100 units, the crime is a  
            misdemeanor, punishable by a jail term of to one year, a fine  
            of up to $10,000, or both.  A second or subsequent conviction  
            is an alternate felony-misdemeanor, punishable by a jail term  
            of up to one year, a prison term of 16 months, two years or  
            three years, a fine of up to $25,000, or both.  (Pen. Code   
            653s, subd. (i)(2).)
           
           This bill  adds audiovisual works to the crimes based on, without  
          consent, transporting for commercial advantage a recording of a  
          live performance.

           This bill  adds the acts of selling, offering for sale, renting  
          or offering for rent, illegal recordings of live performances.




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           This bill  changes the fines for the crimes described in Section  
          653s as follows:

           The fine for a misdemeanor violation that involves between 100  
            and 1,000 units of an illegally recorded live sound  
            performance, or between 7 and 65 such audiovisual recordings,  
            shall be a maximum of $150,000.

           The fine for a conviction under this section that involves at  
            least 65 audiovisual works shall be a maximum of $250,000.
           
          This bill  eliminates the provisions setting specified penalties  
          for commerce in illegally recorded live performances by the  
          number of convictions the defendant has suffered.

          Illegal Recording or Mastering of a Live Performance on any  
          Article
          
           Existing law  provides that any person who, without consent,  
          records or masters on any article the sound of a live  
          performance is guilty of a crime, punishable as follows:

           Offense involving at least 1,000 units - wobbler (alternate  
            felony-misdemeanor), with prison triad of 2, 3 or 5 years and  
            $250,000 fine.  (Pen. Code  653u, subd. (d).)
           Offense involving less than 1,000 units:
              o     First offense is a misdemeanor, punishable by a jail  
                term of up to one year, a fine of up to $25,000, or both.
              o     Second or subsequent offense is an alternate  
                felony-misdemeanor, punishable by a jail term of up to one  
                year, a prison terms of 16 months, two years or three  
                years, a fine of up to $100,000, or both.  (Pen. Code   
                653s, subd. (e).)

           This bill  includes audiovisual works in this crime.

           This bill  provides the following additional fines for this  
          crime:

           The fine for a misdemeanor violation of this section that  
            involves between 100 and 1,000 units of a sound recording  



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            article, or between 7 and 65 such audiovisual recordings,  
            shall be a maximum of $150,000.
           The fine for a conviction under this section that involves at  
            least 65 audiovisual works shall be a maximum of $250,000.

           Existing law  provides that "every person who operates a  
          recording device in a motion picture theater while a motion  
          picture is being exhibited, for the purpose of copying the  
          motion picture," without authority of the owner of the theater,  
          is guilty of a misdemeanor, punishable by a county jail term not  
          exceeding one year, by a fine not exceeding $2,500, or both  
          (Pen. Code  653z.)

           This bill  raises the maximum fine for a first conviction to  
          $25,000.

           This bill  raise the maximum fines for a second and third  
                                   conviction to $50,000 and $100,000 respectively.

           Existing law  provides that any person located in California who,  
          knowing that a particular recording or audiovisual work is  
          commercial, knowingly electronically disseminates all or  
          substantially all of that recording or work without disclosing  
          his or her true name and address and the title of the recording  
          or work, is guilty of a misdemeanor punishable by a fine of up  
          to $2,500 and up to a year in county jail.  The defendant must  
          know that the work was disseminated to more than 10 persons.   
          (See Pen. Code  653aa.)

          Restitution for Intellectual Property Crimes
          
           Existing law  requires the court in a music or audio-visual  
          piracy case to order the defendant to pay restitution to any  
          owner, producer, or trade association acting on behalf of the  
          owner or lawful producer.

                 restitution shall be calculated as the average aggregate  
               wholesale value of lawfully manufactured and authorized  
               musical or audio-visual works unless a greater amount can  
               be determined in the case of 1) an unreleased audio work,  
               or 2) an audiovisual work that had not been made available  



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               for sale to the public in the U.S. on digital versatile  
               disc. 
                 The order of restitution shall also include reasonable  
               costs incurred as a result of any investigation of the  
               violation undertaken by the owner, lawful producer, or  
               trade association acting on behalf of the owner or lawful  
               producer.  (Pen. Code  1202.4, subd. (r).)

           This bill  includes convictions for trademark violations and  
          Internet piracy as underlying convictions subject to the special  
          rules for restitution in cases involving audio or audio-visual  
          piracy.  

           This bill  amends the audio and audio visual piracy restitution  
          rules to eliminate the reference a proving a higher value than  
          aggregate wholesale value of covered works.  The bill replaces  
          that provision with this:  In the case of (A) an unreleased  
          audio work, or (B) an audiovisual work that has not been made  
          available in copies for sale to the general public in the [U.S.]  
          on a digital versatile disc the order of restitution shall also  
          include either proven economic loss incurred from lost profits  
          or no less than five times the aggregate value of each  
          nonconforming article or device.

           This bill  states that intellectual piracy presents a significant  
          threat to consumers who may be deceived and misled about  
          products that are "palmed off as legitimate authorized goods."

                    RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION
          
          The severe prison overcrowding problem California has  
          experienced for the last several years has not been solved.  In  
          December of 2006 plaintiffs in two federal lawsuits against the  
          Department of Corrections and Rehabilitation sought a  
          court-ordered limit on the prison population pursuant to the  
          federal Prison Litigation Reform Act.  On January 12, 2010, a  
          federal three-judge panel issued an order requiring the state to  
          reduce its inmate population to 137.5 percent of design capacity  
          -- a reduction of roughly 40,000 inmates -- within two years.   
          In a prior, related 184-page Opinion and Order dated August 4,  
          2009, that court stated in part:



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               "California's correctional system is in a tailspin,"  
               the state's independent oversight agency has reported.  
               . . .  (Jan. 2007 Little Hoover Commission Report,  
               "Solving California's Corrections Crisis: Time Is  
               Running Out").  Tough-on-crime politics have increased  
               the population of California's prisons dramatically  
               while making necessary reforms impossible. . . .  As a  
               result, the state's prisons have become places "of  
               extreme peril to the safety of persons" they house . .  
               .  (Governor Schwarzenegger's Oct. 4, 2006 Prison  
               Overcrowding State of Emergency Declaration), while  
               contributing little to the safety of California's  
               residents . . .   California "spends more on  
               corrections than most countries in the world," but the  
               state "reaps fewer public safety benefits." . . .  .   
               Although California's existing prison system serves  
               neither the public nor the inmates well, the state has  
               for years been unable or unwilling to implement the  
               reforms necessary to reverse its continuing  
               deterioration.  (Some citations omitted.)

               . . .

               The massive 750% increase in the California prison  
               population since the mid-1970s is the result of  
               political decisions made over three decades, including  
               the shift to inflexible determinate sentencing and the  
               passage of harsh mandatory minimum and three-strikes  
               laws, as well as the state's counterproductive parole  
               system.  Unfortunately, as California's prison  
               population has grown, California's political  
               decision-makers have failed to provide the resources  
               and facilities required to meet the additional need  
               for space and for other necessities of prison  
               existence.  Likewise, although state-appointed experts  
               have repeatedly provided numerous methods by which the  
               state could safely reduce its prison population, their  
               recommendations have been ignored, underfunded, or  
               postponed indefinitely.  The convergence of  
               tough-on-crime policies and an unwillingness to expend  



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               the necessary funds to support the population growth  
               has brought California's prisons to the breaking  
               point.  The state of emergency declared by Governor  
               Schwarzenegger almost three years ago continues to  
               this day, California's prisons remain severely  
               overcrowded, and inmates in the California prison  
               system continue to languish without constitutionally  
               adequate medical and mental health care.<1>

          The court stayed implementation of its January 12, 2010 ruling  
          pending the state's appeal of the decision to the U.S. Supreme  
          Court.  On Monday, June 14, 2010, The U.S. Supreme Court agreed  
          to hear the state's appeal in this case.   

           This bill  appears to aggravate the prison overcrowding crisis  
          described 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  
               ----------------------
          <1>   Three Judge Court Opinion and Order, 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 (August 4, 2009).



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               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.   
               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:




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               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  
               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  



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               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  
               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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          This bill requires that fines in crimes prosecuted by OPIC be  
          deposited into the IPPPP Fund.  The use of fines from a specific  
          crime to pay for prosecutions of similar crimes raises issues  
          concerning the creation of financial incentives for law  
          enforcement to concentrate efforts on one kind of crime to the  
          detriment of enforcement efforts in other crimes.  Funding for  
          many law enforcement programs will be cut considerably.   For  
          example, the Bureau of Narcotics Enforcement will receive  
          millions less in this budget year than in years past.

          WILL REQUIRING THE FINES FOR CRIMES PROSECUTED BY OCIP BE  
          DEPOSITED IN A FUND TO REIMBURSE LAW ENFORCEMENT FOR ASSISTING  
          OPIC CREATE AN INCENTIVE FOR LAW ENFORCEMENT TO CONCENTRATE  
          EFFORTS ON SUCH CRIMES TO THE DETRIMENT OF INVESTIGATIONS INTO  
          AND PROSECUTION OF OTHER CRIMES?

          3.  Use of IPPPP Fund Money to Reimburse Law Enforcement for  
            Assisting the OCIP in Investigating and Prosecuting  
            Copyright Violations - Jurisdictional Issues  

          Federal law preempts state law in the area of copyright.  A  
          state criminal law affecting copyright interests must be  
          based in a valid subject for state law.  The most widely  
          used California music and movie piracy law requires a  
          person who distributes a musical or audiovisual work to  
          disclose the true name and address of the maker of the  
          work.  While prosecution under the California music and  
          movie piracy laws may effectively promote or protect the  
          owners of the copyright in music or movies, the California  
          law cannot directly protect copyrights.  In this regard, it  
          should be noted that the bill does also refer to music and  
          movie piracy generally. 

          SHOULD THE BILL BE AMENDED TO STRIKE THE REFERENCE TO  
          INVESTIGATION AND PROSECUTION OF COPYRIGHT VIOLATIONS, AS  
          FEDERAL COPYRIGHT LAW PREEMPTS STATE LAW?

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

          The Legislature has enacted a number of movie and music  



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          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.

          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  











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          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?

          5.  Federal Law Controls Copyright - State Law Generally Involves  
            Other Defined Offenses  

          Federal law preempts state law in the area of copyright.  State  
          laws related to copyright are generally called "true name and  
          address" laws, which essentially prohibit specified forms of  
          unfair competition.  California Penal Code Section 653w is a  
          form of true name and address law. Other statutes including  
          statements that the crimes are meant to protect other valid  
          state interests.  This bill includes a statement that  
          intellectual piracy poses a substantial threat to consumers.  It  
          appears that this statement is intended, at least in part, to  
          defeat any claims of federal preemption.

          The United States 9th Circuit Court of Appeals upheld the  
          California true name and address law in Anderson v. Nidorf (9th  
          Cir. 1994 26 F.3d 100).  Cletus Anderson was convicted under  
          Penal Code Section 653w for failing to disclose the origin of a  











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          sound recording:  Anderson's claim that Section 653w is  
          preempted by federal copyright law was rejected by the 9th  
          Circuit.  The court in Anderson explained its holding that the  
          California law, in protecting interests beyond and apart from  
          federal copyright law, was not preempted by federal law:

              . . . [T]he district court stated:  []  "[Anderson's]  
              argument ignores [that] 653w was designed to serve:   
              'assisting consumers in this state by mandating that  
              manufacturers market products for which consumers can  
              go back to the source if there are any problems or  
              complaints.'  Preemption would frustrate the State's  
              objective of consumer protection through disclosure."   
              []  Federal copyright laws do not . . . protect  
              consumers.  They are designed to protect the property  
              rights of copyright owners.

              ?Because Section 653w does not prohibit the  
              reproduction of copyrighted works, but rather  
              prohibits selling recordings without disclosing the  
              manufacturer and author of the recording (regardless  
              of its copyright status), the federal copyright laws  
              do not preempt the state statute.  (Internal  
              citations omitted, bold type added.)

          The decision in Anderson did not consider whether the California  
          true name and address statute would be preempted by federal law  
          if the sole intent of the law were to prevent piracy.  However,  
          such an argument can be made from the decision in Anderson,  
          which focused on the consumer protection aspect of the  
          California law.




          6.  Difficulty of Adapting Federal Criminal Sentences to  
            California Law - Federal Sentences   and Fines are Imposed  
            Pursuant to Detailed Sentencing Guidelines Designed to Produce  
               Proportionate and Appropriate Sentences within a Wide Range  .

          Federal courts impose sentence pursuant to the Federal  











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          Sentencing Guidelines, which provide very detailed factors a  
          judge shall consider in imposing sentence within an extensive  
          range of possible penalties.  (See, 18 U.S.C.  3553 et seq. as  
          to application of the guidelines by the sentencing court.)   
          Courts are essentially directed to add or decrease prison time,  
          and to increase or decrease fines according to relatively  
          certain schedules and chats.   California sentences are imposed  
                                                      pursuant to much looser guidelines than the federal sentencing  
          guidelines.  Comparing California and federal sentences is very  
          difficult.

          The commentary to the general guidelines for intellectual  
          property crimes states:

               This guideline treats copyright and trademark  
               violations much like theft and fraud. Similar to the  
               sentences for theft and fraud offenses, the sentences  
               for defendants convicted of intellectual property  
               offenses should reflect the nature and magnitude of  
               the pecuniary harm caused by their crimes.  
               Accordingly, similar to the loss enhancement in the  
               theft and fraud guideline, the infringement amount in  
               subsection (b)(1) serves as a principal factor in  
               determining the offense level for intellectual  
               property offenses.

          Essentially, the maximum fines and sentences in federal  
          intellectual property law are for truly high-level crime, likely  
          involving such acts as international smuggling of large amounts  
          of pirated goods.

          Under the federal sentencing guidelines for intellectual  
          property crimes, the court essentially determines the base  
          sentencing level of the crime.  It appears that the base level  
          for trafficking in counterfeit goods is 8.  The court then  
          calculates increases or decreases in levels for various    
          circumstances.  It appears that commercial motivation adds two  
          levels.  The levels increase based on the value of property.  If  
          the value of the property is between $2,000 and $5,000 in value,  
          add one level.  A chart guides the court in increasing levels  
          for higher values.  











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          For example, a defendant sentenced in a typical commercial  
          counterfeit goods case involving property valued at $10,000  
          would receive a sentence such as the following:  A prison term  
          of 10-16 months and a fine of between $3,000 and $30,000.

          In contrast, California sentencing law includes various statutes  
          imposing sentence enhancements and increased fines when the  
          crime involved a large amount of money or the value of the  
          property taken or lost was high.

          ESPECIALLY IN COPYRIGHT LAW, SHOULD LARGE-SCALE INTELLECTUAL  
          PROPERTY CRIME, ESPECIALLY CRIME INVOLVING MULTIPLE STATES AND  
          FOREIGN COUNTRIES, BE HANDLED IN FEDERAL COURT?

          7.  Mandatory Penalty Assessments Multiply a Criminal Fine Nearly  
          Four Times  

          Criminal fines are subject to mandatory penalty assessments.   
          Penalty assessments fund numerous programs.  Penalty assessments  
          generally are imposed at 280% of the base fine, although the  
          exact amount varies from county to county.  An individual  
          defendant (not a business entity) who is ordered to pay a fine  
          authorized by this bill of $2 million would actually be required  
          to pay a fine of approximately $7.6 million.

          IF INCREASED INTELLECTUAL PROPERTY FINES ARE TO BE MODELED ON  
          FEDERAL LAW, SHOULD THAT BE DONE IN LIGHT OF THE FACT THAT  
          FEDERAL FINES ARE IMPOSED THROUGH DETAILED CONSIDERATION OF  
          NUMEROUS FACTORS SET OUT IN THE FEDERAL SENTENCING GUIDELINES?
           
           8.  Restitution Issues  

          The primary purpose of restitution is to compensate the victim  
          for the harm caused by the defendant.  (Cal. Const. Art. 1  
          28(b).)  Pen. Code  1204, subd. (a)(1).)  Restitution also  
          serves as a form of rehabilitation in that it can bring the  
          defendant to understand and appreciate the losses or harms he or  
          she has caused. (People v. Crow (1993) 6 Cal.4th 952, 958 It is  
          questionable whether restitution can properly have a punitive  
          purpose. Restitution was originally imposed as a condition of  











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          probation.  (Witkin & Epstein (3rd Ed. 2000) 3 Crim. Law,  
          Punishment, 97 Probation is essentially a grant of leniency to  
          allow the defendant to make amends.  

          This bill provides that restitution for cases involving pirated  
          unreleased audio works and audiovisual works that have not been  
          released on disc shall be proven economic losses or "five times  
          the aggregate value of each non-conforming article or device."   
          This provision raises an issue as to whether such a formula more  
          than compensates the victim for losses.  While it can be argued  
          that distribution of unreleased works is particularly harmful,  
          as new works of music or video may quickly lose value following  
          release.  That is, part of the value of an audio or audiovisual  
          work is the newness or novelty of the work.  However, the method  
          of calculation of restitution must be reasonable.  (People v.  
          Giordano (2007) 42 Cal.4th 644.)

          A predetermined restitution amount of five times the value of a  
          work would likely be challenged as arbitrary and punitive.   
          Further, if a restitution provision is determined to be  
          punishment, courts could find that the amount must be determined  
          by a jury.  (Blakely v. Washington (2004) 542 U.S. 296.)

          IS A RESTITUTION FORMULA SETTING THE AMOUNT OWED AS FIVE TIMES  
          THE VALUE OF UNRELEASED AUDIO AND AUDIOVISUAL WORKS ARBITRARY  
          AND PUNITIVE?





          9.     Recent Amendments Substantially Rewrite the Bill  

          This bill was substantially amended on June 22, 2010.  The  
          amendments included all of the provisions in the bill except the  
          Intellectual Property Piracy Prevention and Prosecution Act and  
          related sections creating a fund for reimbursing investigation  
          and prosecution costs in such cases and creation of the Division  
          of Organized Crime and Intellectual Property Piracy in the  
          Department of Justice to approve grants from the fund.   These  
          provisions have been in the bill for approximately one year.











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          The other sections in the bill are new.  These sections increase  
          the scope of numerous intellectual property piracy crimes and  
          greatly increase fines for those crimes.  The bill also includes  
          new restitution entitlement and calculation provisions.  None of  
          these provisions were heard in policy or fiscal committees in  
          the Assembly.  Arguably, these new provisions should be  
          carefully examined by the Legislature and interested parties.  

          HAS THERE BEEN ADEQUATE TIME FOR PUBLIC REVIEW OF THE  
          SIGNIFICANT AMENDMENTS ONLY RECENTLY MADE TO THE BILL?


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