BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 170
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          Date of Hearing:  July 6, 2011

                                Wesley Chesbro, Chair
                     SB 170 (Pavley) - As Amended:  June 23, 2011

           SENATE VOTE  :  25-14
          SUBJECT  :  Air districts:  adverse effects of air pollution:  
          intellectual property

           SUMMARY  :  Authorizes local and regional air pollution control 
          districts and air quality management districts to sponsor air 
          pollution prevention and mitigation projects involving both 
          stationary and mobile sources, and allows districts to share in 
          revenues generated from the commercialization of intellectual 
          property (IP), as specified.

           EXISTING LAW  :

          1)Provides the California Air Resources Board (ARB) with primary 
            responsibility for control of mobile sources of air pollution, 
            including the adoption of rules for reducing vehicle emissions 
            and the specifications of vehicular fuel composition.  
            Designates the ARB as the air pollution control agency 
            responsible for the coordination of the activities of air 
            pollution control districts and air quality management 
            districts for the purposes of the federal Clean Air Act. 

          2)Establishes county air pollution control districts in every 
            county, unless the entire county is included within the 
            Antelope Valley Air Quality Management District, the Bay Area 
            Quality Management District, the Mojave Desert Air Quality 
            Management District, the South Coast Air Quality Management 
            District (SCAQMD), the San Joaquin Valley Air Pollution 
            Control District, a regional district, or a unified district.  
            Requires air districts to adopt and enforce rules and 
            regulations to achieve and maintain the state and federal 
            ambient air quality standards in all areas affected by 
            non-vehicular emission sources under their jurisdiction.

          3)Requires the Independent Citizen's Oversight Committee (ICOC), 
            as part of the California Institute for Regenerative Medicine 
            (CIRM), to establish standards that require that all grants 
            and loan awards be subject to IP agreements that balance the 


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            opportunity of the state to benefit from the patents, 
            royalties, and licenses that result from basic research, 
            therapy development, and clinical trials with the need to 
            ensure that essential medical research is not unreasonable 
            hindered by the IP agreements.  Requires that all revenues 
            that are received through the IP agreements established 
            pursuant to this subdivision be deposited into the General 
            Fund.  Allows the ICOC to accept additional revenue and real 
            personal property, including, but not limited to, gifts, 
            royalties, interest, and appropriations that may be used to 
            supplement annual research funding and the operations of the 

          4)Provides that to the extent that IP is developed under the 
            Public Interest Energy Research, Demonstration, and 
            Development Program (PIER) administered by the California 
            Energy Commission (CEC), an equitable share of rights in the 
            intellectual property or in the benefits derived therefrom 
            shall accrue to the state.  Allows the CEC to determine what 
            share, if any, of the IP, or the benefits derived therefrom, 
            shall accrue to the state and to negotiate sharing mechanisms 
            for IP or benefits with award recipients. 
           THIS BILL  : 

          1)Authorizes an air district 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 air district to negotiate what share of IP, or 
            benefits of IP, developed from use of district funds, 
            including funds from grants that will accrue to that district. 

          3)Authorizes an air district to negotiate revenue sharing 
            agreements with recipients of district funds, including the 
            collection of royalties. 

          4)Specifies that proceeds obtained by an air district from these 
            revenue sharing agreements shall accrue to the district and be 
            deposited into a special account that can only be used, 
            subject to the district's ability to recover its expenses and 
            its administrative costs, for either of the following 


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             a)   To fund projects that will lead to the prevention, 
               mitigation, or cure of the adverse effects of air 
               pollution, including the adverse health effects of air 
               pollution; or, 

             b)   To fund projects to reduce or mitigate air pollution 
               through the development or implementation of pollution 
               controls, low or zero polluting fuels or technologies, or 
               pollution prevention measures. 

          5)Provides that a district shall not receive a benefit pursuant 
            to this section in excess of the amount of the district's 
            investment in the development of a process, machine, or 
            article of manufacture, if the district adopts a rule or 
            regulation that mandates the use of that process, machine, or 
            article of manufacture and that regulation or rule was adopted 
            after the development of the process, machine, or article of 

          6)Provides that if the state or a subdivision of the state 
            purchases or licenses a process, machine, or article or 
            manufacture for which a district accrues a benefit resulting 
            from an IP interest negotiated pursuant to subdivision (1) or 
            (2) above, upon the request of the Department of General 
            Services (DGS), the district shall prepare reimbursement to 
            the General Fund for the amount of the benefit accrued. 

          7)Requires a district that attempts to negotiate for benefits to 
            report annually to the Legislature, and include the following 
            in the report:

             a)   The number of district-funded projects and the number of 
               district-funded projects for which a benefit was 
               negotiated, regardless of the outcome of the negotiation.

             b)   The outcome of all negotiations regarding intellectual 
               property pursuant to this section, including agreed terms 
               for revenue sharing. 

             c)   A list of all district-funded projects from previous 
               years that have resulted in a benefit pursuant to this 
               section, if any, and the total amount of that benefit to 

          8)Provides that a district may include a report required by this 


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            section as part of another report submitted to the Legislature 
            by the district. 

          9)Provides that this section does not apply to a contract 
            governed by Chapter 14.27 (beginning with Section 67325) of 
            Part 40 of Division 5 of Title 3 of the Education Code. 

          10)Provides that provisions of this bill related to IP and 
            benefits shall become inoperative on January 1, 2018.

          11)Provides that an agreement made prior to January 1, 2018, 
            pursuant to the bill's provisions, shall remain in effect for 
            the duration of the agreement. 

           FISCAL EFFECT  :  Unknown

           COMMENTS  :

           1)Background  .  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.  Presently, there is no clear 
            authority for air districts to share in revenue streams of 
            ventures resulting, in part, from district 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. 

          According to the author, this bill seeks to, on a voluntary 
            basis, allow state air districts the option of sharing in 
            revenues generated from the commercialization of intellectual 
            property developed with air district research grant funding.

           2)Federal Policy Regarding IP and Grants  .  The Bayh-Dole Act, or 
            Patent and Trademark Law Amendments Act, was adopted in 1980 
            to give universities, small businesses, and non-profits 
            control of IP they developed with federal funding.  After 
            passage of the Act, IP created using federal grant funds is 
            largely retained by the grantee with requirements that the 
            grantee disclose the discovery, seek patent protection, and 
            take reasonable steps to apply the discovery.  Additional 
            requirements exist for nonprofit grantees, such as reasonable 
            efforts at small business licensing and a requirement that any 
            products sold in the United States resulting from such IP be 


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            substantially manufactured in the U.S.

           3)State Policy Regarding IP and Grants  .  The author identified 
            CIRM and the CEC's PIER program as two examples of state 
            agencies with specific authority to negotiate royalty 
            agreements.  PIER negotiates royalty payments only when the 
            CEC determines a reasonable exception of royalties applies, in 
            which case standard contract terms apply.  CIRM does not take 
            IP ownership, but does have royalty requirements and retains 
            march-in rights on abandoned IP.  Revenue sharing is requires 
            for any CIRM grantee when licensing revenue exceeds $500,000.  
            CIRM has yet to receive royalties. 

           4)Sunset is relatively long for a new program  .  This bill's IP 
            provisions sunset January 1, 2018, but allow agreements 
            executed prior to 2018 to continue in effect for the duration 
            of the agreement.   The author and the committee may wish to 
            consider  whether a somewhat earlier 


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            sunset would be adequate allow districts to demonstrate the 
            authority the bill provides, but provide more effective 
            legislative oversight over the districts' management of any IP 
            funds that may accrue.

           5)Related Legislation  . 

          AB 2721 (Mullin, 2006) would have established the Office of 
            Intellectual Property in the Business, Transportation and 
            Housing Agency.  The Agency would have been responsible for, 
            among other things, tracking IP generated by state employees 
            and by state funded research.  AB 2721 passed the Assembly, 
            but was held in the Senate Governmental Organization 

          SB 778 (Pavley, 2010) would have specifically allowed SCAQMD to 
            sponsor, coordinate, and promote air pollution prevention or 
            mitigation projects and would have authorized SCAQMD to 
            determine what share, if any, of the intellectual property, or 
            benefits resulting from intellectual property, developed from 
            the use of district funds, including funds discharged as 
            grants, would have accrued.  This version of SB 778 was never 
            heard in policy committee and the bill did not move. 

          AB 744 (John Perez, 2011) would establish the Office of 
            Intellectual Property in the Business, Transportation and 
            Housing Agency, similar to that which would have been created 
            by AB 2721. AB 744 passed Business, Professions & Consumer 
            Protection Committee, but was held on the Appropriations 
            Committee suspense file. 


          South Coast Air Quality Management District (sponsor)
          None on file

           Analysis Prepared by  :  Lynn Kirshbaum / NAT. RES. / (916) 


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