BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 550|
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                                 THIRD READING


          Bill No:  SB 550
          Author:   Padilla (D), et al.
          Amended:  5/10/11
          Vote:     21

           
           SENATE BUSINESS, PROF. & ECON. DEV. COMMITTEE  :  8-0, 
            4/11/11
          AYES:  Price, Emmerson, Corbett, Correa, Hernandez, Negrete 
            McLeod, Vargas, Wyland
          NO VOTE RECORDED:  Walters

           SENATE PUBLIC SAFETY COMMITTEE  :  5-2, 5/3/11
          AYES:  Hancock, Harman, Liu, Price, Steinberg
          NOES:  Anderson, Calderon

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8


           SUBJECT  :    Business:  manufactured optical disc

           SOURCE  :     Recording Industry Association of America


           DIGEST  :    This bill allows law enforcement officials to 
          inspect commercial optical disc (CD or DVD) manufacturing 
          facilities to ensure compliance with existing laws that 
          require certain identifying marks on each disc, prohibits 
          the possession of optical disc manufacturing equipment that 
          has not been adapted to apply the required identifying 
          marks, requires optical disc manufacturers to keep certain 
          records, and increases fines applicable to a person who 
          violates the provisions regulating manufactured optical 
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          discs.

           ANALYSIS  :   

          Existing law:

          1. Requires a person who manufactures optical discs 
             (including, but not limited to, CDs or DVDs) for 
             commercial purposes to permanently mark each disc with 
             either the name of the manufacturer and the state where 
             the disc was manufactured, or a unique identification 
             code (referred to in the industry as a "Source 
             Identification Code" or "SID Code") that is visible 
             without magnification or a special device.

          2. Makes a person who manufactures optical disks without 
             these required marks guilty of a misdemeanor punishable 
             by a fine between $500 and $5000 for a first offense, 
             and up to $50,000 for a second or subsequent offense. 

          3. Makes a person who buys, sells, or rents an optical disc 
             knowing that the required identification mark is missing 
             or has been removed, defaced, destroyed guilty of a 
             misdemeanor, punishable by a jail term of up to one year 
             or a fine up to $10,000, or by both fine and 
             imprisonment.  

          4. Makes a person who knowingly removes, covers, or alters 
             the identification mark guilty of a misdemeanor 
             punishable by a jail term of up to one year and a 
             maximum fine of $10,000. 

          5. Specifies that a person "manufactures an optical disc 
             for commercial purposes" if that person manufactures at 
             least 10 of the same or different optical discs in a 
             180-day period for purposes of resale. 

          This bill:

          1. Prohibits anyone who manufactures optical discs for 
             commercial purposes from owning or operating an optical 
             disc mold unless it is equipped to apply the required 
             identification mark. 


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          2. Defines, for the purposes of the chapter: 

             A.    "Commercial purposes" as the manufacture of at 
                least 10 of the same or different optical discs in a 
                180-day period by storing information on the disc for 
                the purposes of resale by that person or others.

             B.    "Manufacturer" as a person who replicates the 
                physical optical disc or produces the master used in 
                any optical disc replication process.  It does not 
                include a person who manufactures optical discs for 
                internal use, testing, or review, or a person who 
                manufactures blank optical discs.

             C.    "Manufacturing Equipment" as any machine, 
                equipment, or device, including mastering equipment, 
                used for the manufacture of optical discs or 
                production parts in accordance with this chapter.

             D.    "Mastering Equipment" as any machine, equipment, 
                or device used for the mastering of optical discs or 
                production parts consisting of a signal processor and 
                laser beam recorder or any other recorder, used to 
                record data onto the glass or polymer master disc 
                from which production parts are produced, or to 
                record data directly onto a production part.

             E.    "Optical Disc" as a disc capable of being read by 
                a laser or other light source on which data is stored 
                in digital form.  It includes, but is not limited to, 
                discs known as CDs, DVDs, or related mastering source 
                materials.  It does not include blank optical discs.

             F.    "Production Part" as the item usually referred to 
                as a stamper that embodies data in a digital form and 
                is capable of being used to mold optical discs, and 
                includes any other item, usually referred to as a 
                master, father or mother, embodying data from which a 
                stamper may be produced by means of an electroplating 
                process.

             G.    "Professional organization" as an organization 
                whose membership consists wholly or substantially of 
                intellectual property rights owners, and which is 

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                mandated by those members to enforce their rights 
                against counterfeiting and piracy.

          3. Increases the fine for failing to properly mark an 
             optical disc manufactured for commercial purposes to a 
             range of $2500 - $25,000 for a first offense and a 
             maximum of $250,000 for a subsequent offense.  

          4. Increases the fine for knowingly buying, selling, or 
             renting a disc without the proper mark to a range of 
             $1,000 - $10,000.

          5. Increases the fine for knowingly removing, covering, or 
             altering the required mark to a range of $1,000 - 
             $10,000.

          6. Requires that a person who manufactures optical discs 
             for commercial purposes keep full and accurate records 
             and inventory of its manufacturing equipment and make 
             these records available to law enforcement for 
             inspections.

          7. Requires that a person who manufactures optical discs 
             keep each of a following for at least five years from 
             the date of production:

             A.    A sample of each optical disc title manufactured.

             B.    A retrievable copy of the content of each master. 

             C.    The name and physical address of the customer who 
                originated the order.

          8. Allows law enforcement officers to perform inspections 
             at commercial optical disc manufacturing facilities to 
             ensure compliance, and requires an inspection be 
             conducted by officers whose primary responsibilities 
             include investigation of high-technology or intellectual 
             property piracy.

          9. Specifies that a search of a manufacturing facility by 
             law enforcement must take place during regular business 
             hours and be limited to inspection of physical items and 
             collection of information necessary to verify 

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             compliance.  

          10.Provides that officers may perform inspections without 
             giving prior notice or obtaining a warrant. 

          11.Authorizes law enforcement officials to do all of the 
             following when performing an inspection:

             A.    Take an inventory of all manufacturing equipment, 
                including the identification mark or code that any 
                piece of equipment has been modified to apply.  

             B.    Review any optical disc or equipment involved in 
                manufacturing the disk.

             C.    Review any physical or digital records or 
                documents relating to the business concerned.

             D.    Inspect, remove, or detain specified equipment, 
                records, or documents for purposes of examination for 
                as long as reasonably necessary.

             E.    Seize any optical disc or production part in 
                violation of this chapter.

             F.    Obtain and remove up to four samples each of the 
                optical discs molded by each mold that has been used 
                or could be used to manufacture optical discs. 

          12.Prohibits any person from evading, obstructing, or 
             refusing any inspection requested or being carried out 
             by a law enforcement officer to determine compliance 
             with this chapter.

          13.Requires that the manufacturer and the manufacturer's 
             employees or agents: 

             A.    Provide and explain any record book required to be 
                maintained pursuant to this act.

             B.    Point out and provide access to all optical discs, 
                manufacturing equipment, etc. and demonstrating to 
                the satisfaction of the officer that they include or 
                have been adapted to apply the required 

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                identification mark or unique identifying code.  

           Background
           
          The passage of AB 2633 (Murray), Chapter 712, Statutes of 
          1998, made California the first state to require optical 
          disc manufacturers to permanently mark their discs with 
          identifying information.  The effort was intended to 
          prevent the loss of revenue due to pirated material by 
          curtailing illegal activity associated with the production, 
          distribution, sale and possession of counterfeit optical 
          disks.  AB 2633 required disk manufacturers to permanently 
          mark each disc with the name of the manufacturer and the 
          state that the disc was manufactured in.    

          Supporters of the bill included software, motion picture, 
          video, and recording industry associations who collectively 
          argued that the billions of dollars lost by their companies 
          justified the approach taken in the bill.  They noted that 
          the ability to copy the digital information on optical 
          discs without any degradation in quality made optical discs 
          different from other technologies often pirated.  The 
          supporters asserted that the bill would increase the 
          ability of industries using optical disc technology to 
          identify those individuals who counterfeit copyrighted 
          information, and that California's dominance in these 
          industries necessitated early state action.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  Yes

           SUPPORT  :   (Verified  5/23/11)

          Recording Industry Association of America (Sponsor)
          City of Los Angeles
          Hollywood Chamber of Commerce
          Los Angeles Area Chamber of Commerce
          Sony Music Entertainment
          Valley Industry and Commerce Association


           ARGUMENTS IN SUPPORT  :    According to this bill's sponsor, 
          the Recording Industry Association of America (RIAA), 
          California has a serious problem with the crime of music 

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          piracy.  RIAA claims that street vendors and retail 
          locations offer illicit sound recordings openly throughout 
          the state, many of which are supplied by large scale 
          manufacturing and distribution operations.  The group 
          believes that music piracy is a devastating economic crime 
          that deprives artists and record labels of hard earned 
          profits, resulting in losses of jobs in California and 
          across the nation.  Further, legitimate music retailers 
          throughout the state are forced to compete with music 
          pirates that undercut their businesses by failing to pay 
          for music, and failing to pay local, state, and federal 
          taxes.  

          RIAA believes that current law needs to be updated in 
          recognition of the evolution of the problem faced and new 
          provisions are "absolutely necessary to further the disc 
          identification regulations imposed by existing law," and to 
          advance the state's interest in creating a level playing 
          field for law-abiding optical disc manufacturers and 
          protecting the vibrant entertainment industry of this 
          state.


          JJA:kc  5/23/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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