BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                SB 170
                                                                       

                      SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                        Senator S. Joseph Simitian, Chairman
                              2011-2012 Regular Session
                                           
           BILL NO:    SB 170
           AUTHOR:     Pavley
           AMENDED:    April 25, 2011
           FISCAL:     Yes               HEARING DATE:     May 2, 2011
           URGENCY:    No                CONSULTANT:       Peter Cowan
            
           SUBJECT  :    AIR POLLUTION CONTROL DISTRICTS

            SUMMARY  :    
           
            Existing law  :

           1) Provides the California Air Resources Board (ARB) with 
              primary responsibility for control of mobile source air 
              pollution, including adoption of rules for reducing vehicle 
              emissions and the specification of vehicular fuel 
              composition.  (Health and Safety Code §39000 et seq. and 
              §39500 et seq.).  ARB must coordinate efforts to attain and 
              maintain ambient air quality standards.  (§39003).

           2) Provides that air pollution control districts (APCDs) and 
              air quality management districts (AQMDs) have primary 
              responsibility for controlling air pollution from all 
              sources, other than emissions from mobile sources.  (§40000 
              et seq.).

            This bill  :

           1) Authorizes an APCD or AQMD to sponsor, coordinate, and 
              promote projects that will lead to the prevention, 
              mitigation, or cure of adverse air pollution effects, 
              including adverse health effects of air quality.

           2) Authorizes an APCD or AQMD to negotiate a share of 
              intellectual property (IP), or benefits of IP, developed 
              from use of district funds, including funds from grants 
              that will accrue to that district.

           3) Authorizes a district to negotiate revenue sharing 









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              agreements with recipients of district funds, including 
              collection of royalties.  Proceeds obtained by the district 
              from these revenue sharing agreements must accrue to the 
              district and be deposited into a special account that may 
              only be used to:  a) fund projects that will lead to the 
              prevention, mitigation, or cure of adverse air pollution 
              effects, including the adverse effects of air pollution; or 
              b) to develop low-polluting fuels or technologies.

           4) Limits the benefit accrued to an APCD or AQMD to the 
              district's initial investment in the development of a 
              process, machine, or article of manufacture if the district 
              adopts a rule or regulation mandating it after its 
              development.

           5) Requires an APCD or AQMD to reimburse the General Fund for 
              the amount of benefit accrued if the state purchases or 
              licenses a good, service, or process for which the APCD or 
              AQMD accrues a benefit from an IP interest negotiated under 
              the above terms (#2 and 3 above), upon the request of the 
              Department of General Services.

           COMMENTS  :

            1) Purpose of Bill  .  According to the author, "Air districts 
              throughout the state cosponsor and fund research, 
              development, demonstration and commercialization of clean 
              technologies to reduce or eliminate emissions. The 
              deficiency in the present law is that there is no clear 
              authority for air districts to share in revenue streams of 
              ventures resulting, in part, from their funding.  Such 
              additional revenues would enable air districts to sponsor 
              additional research, achieve further reductions in diesel 
              and toxic emissions, and provide greater health protection 
              in impacted communities."

           The author notes that "The California Institute for 
              Regenerative Medicine (CIRM) and the California Energy 
              Commission's Public Interest Energy Research, 
              Demonstration, and Development (PIER) Program are prime 
              examples of what air districts hope to achieve - clear 
              authorization which allows them to negotiate revenue 










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              sharing agreements with grant recipients."

           According to the author, SB 170 "seeks to, on a voluntary 
              basis, allow state air districts the option to share in 
              revenues generated from the commercialization of IP 
              developed with air district research grant funding.  Said 
              revenues would be deposited in a special account created by 
              the air district and spent on the prevention, mitigation, 
              or cure of the adverse effects of air pollution or to 
              develop low-polluting fuels or technologies."

            2) Related legislation  .  AB 744 (Pérez) establishes the Office 
              of Intellectual Property in the Business, Transportation, 
              and Housing Agency to track IP generated by state employees 
              and by state funded research, and set related requirements 
              (passed to Assembly Appropriations Committee by Business, 
              Professions and Consumer Protection April 12, 2011 (6, 0)). 
               AB 2781 (Mullin) of 2006 established a similar office for 
              tracking IP (June 27, 2006, Senate Governmental 
              Organization hearing cancelled at request of author).

           3) Purpose of granting  .  The state should endeavor to fund 
              projects with the greatest potential for public good as 
              potential societal benefits will be many times any direct 
              financial benefit.  Rather than funding research, 
              technologies, or products that are likely to be 
              economically successful, the state should focus its limited 
              resources on those that would not mature to the point of 
              widespread use in the absence of those funds.

           4) IP policy for state grants  .  The author identified the 
              Public Interest Energy Research (PIER) program and the 
              California Institute for Regenerative Medicine (CIRM) as 
              models of state agencies with royalty agreements. PIER 
              negotiates royalty payments only when the commission 
              agreement manager determines a reasonable expectation of 
              royalties applies, in which case standard contract terms 
              apply.  Through the fiscal year 2009/10 PIER has collected 
              $4.8 million in royalties on over $761 million in grants, 
              over 40% of which results from a single grant and 80% from 
              two companies.  CIRM does not take IP ownership, but does 
              have royalty requirements and retains march-in rights on 










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              abandoned IP.  Revenue sharing is required for any CIRM 
              grantee when licensing revenue exceeds $500,000.  
              Additional requirements exist for pharmaceuticals developed 
              by grantees.  CIRM has yet to receive royalties.

            5) Federal Bayh-Dole Act  .  IP created using federal grant 
              funds are largely retained by the grantee with requirements 
              that they disclose the discovery, seek patent protection, 
              and take reasonable steps to apply the discovery.  The 
              federal government retains a nonexclusive nontransferable 
              royalty-free license for use on behalf of the government on 
              discoveries made with grant funds and reserves the right to 
              take title or exercise march-in rights if the grantee fails 
              to protect or commercialize the IP, respectively.  
              Additional requirements exist for nonprofit grantees, such 
              as reasonable efforts at small business licensing and a 
              requirement that any products sold in the U.S. resulting 
              from such IP be substantially manufactured in the U.S.

            6) Amendments needed  .  To maintain oversight of the APCD or 
              AQMD grant making process any district that attempts to 
              negotiate any royalties or IP as this bill allows should 
              report annually on those negotiations and their outcome.  
              Furthermore, the provisions should sunset after three years 
              in order for the Legislature to review the IP and grant 
              making process (any IP agreement, however, should remain in 
              effect after the sunset).

            SOURCE  :        South Coast Air Quality Management District 

           SUPPORT  :       American Lung Association, Environmental 
                          Defense Fund, South Coast Air Quality 
                          Management District  

           OPPOSITION  :    None on file