BILL ANALYSIS Ó
SB 550
Page 1
Date of Hearing: June 28, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 550 (Padilla) - As Amended: May 10, 2011
SENATE VOTE : 33-6
SUBJECT : Business: manufactured optical disc.
SUMMARY : Authorizes law enforcement officials to inspect
commercial optical disc manufacturing facilities to ensure
compliance with existing laws requiring certain identifying
marks on each disc, and increases the fines for individuals who
violate provisions regulating manufactured optical discs.
Specifically, this bill :
1)Prohibits manufacturers of optical discs for commercial
purposes from:
a) Possessing, owning, controlling, or operating
manufacturing equipment or any optical disc mold unless it
has been adapted to apply the appropriate identification
mark or unique identifying code in accordance as specified,
or,
b) Making, possessing, or adapting any optical disc mold
for the purpose of applying to an optical disc a forged or
false identification mark or identifying code, or any mark
so similar to a manufacturer's identification mark or
identifying code as to be likely to deceive.
2)Provides that any manufacturing equipment, optical disc mold,
or production part found on the premises of a commercial
manufacturer shall be deemed to be in the possession of the
manufacturer.
3)Authorizes law enforcement officers to perform inspections at
commercial optical disc manufacturing facilities to verify
compliance, as specified.
4)Specifies that any inspection shall be conducted by officers
whose primary responsibilities include investigation of
high-technology crime or intellectual property piracy, during
SB 550
Page 2
regular business hours, and limited to the areas of the
premises where manufacturing equipment is located and where
optical discs and production parts are manufactured and
stored.
5)Limits the scope of the inspection to the physical review of
items and collection of information necessary to verify
compliance, as specified.
6)Authorizes officers performing inspections to do so without
providing prior notice or obtaining a warrant, and to:
a) Take an inventory of all manufacturing equipment,
including the identification mark or unique identifying
code that any piece of equipment has been modified to
apply;
b) Review any optical disc, manufacturing equipment,
optical disc mold, or production part;
c) Review any record, book, or document, as specified, kept
in any format, electronic or otherwise, relating to the
business concerned;
d) Inspect, remove, and detain for the purpose of
examination for as long as reasonably necessary any optical
disc, production part, or record, book, or document, as
specified;
e) Seize any optical disc or production part manufactured
in violation of this bill; and,
f) Obtain and remove four samples each of the optical discs
molded by each mold that has been used or could be used to
manufacture optical discs.
7)Prohibits individuals from evading, obstructing, or refusing
any inspection requested or being carried out by a law
enforcement officer to determine compliance with this bill.
8)Requires the manufacturer, and the employees, servants, or
agents of the manufacturer, to cooperate during the course of
the inspection by promptly:
a) Providing and explaining any record, book, or document,
SB 550
Page 3
as specified;
b) Pointing out and providing access to all optical discs,
manufacturing equipment, optical disc molds, and production
parts and demonstrating to the satisfaction of the officer
that they include or have been adapted to apply the
required identification mark or unique identifying code;
and,
c) Providing and permanently surrendering four samples each
of the optical discs molded by each mold that has been used
or could be used to manufacture optical discs.
9)Increases the fine for failing to properly mark an optical
disc manufactured for commercial purposes to a minimum of
$2,500 and maximum of $25,000 for a first offense, and a
minimum of $25,000 and maximum of $250,000 for a subsequent
offense.
10)Provides that the minimum fine for knowingly buying, selling,
or renting a disc without the proper mark is $1,000, as
specified.
11)Provides that the minimum fine for knowingly removing,
covering, or altering the required mark is $1,000, as
specified.
12)Requires individuals who manufacture optical discs for
commercial purposes to keep full and accurate records,
including specified information, of their manufacturing
equipment, and make them available to law enforcement for
inspection pursuant to this bill.
13)Requires individuals who manufacture optical discs for
commercial purposes to keep all of the following, for a period
of not less than five years from the date of production:
a) One sample of each optical disc title manufactured by
it;
b) One copy in a retrievable form of the content of each
production part manufactured by it; and,
c) The name and physical address of the customer, or if the
order was placed by an intermediary, the name and physical
SB 550
Page 4
address of the actual customer who originated the order.
14)Defines the following terms:
a) "Commercial purposes" means 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" means a person who replicates the
physical optical disc or produces the master used in any
optical disc replication process, not including a person
who manufactures optical discs for internal use, testing,
or review, or a person who manufactures blank optical
discs;
c) "Manufacturing equipment" means any machine, equipment,
or device, including mastering equipment, used for the
manufacture of optical discs or production parts in
accordance with this bill;
d) "Mastering equipment" means 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" means a disc capable of being read by a
laser or other light source on which data is stored in
digital form, including compact discs (CD), digital video
discs (DVD), or related mastering source materials. It
does not include blank optical discs;
f) "Production part" means 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; and,
g) "Professional organization" means an organization whose
membership consists wholly or substantially of intellectual
property rights owners, and which is mandated by those
SB 550
Page 5
members to enforce their rights against counterfeiting and
piracy.
EXISTING LAW :
1)Requires individuals who manufacture an optical disc, as
defined, for commercial purposes to permanently mark the
manufactured optical disc with an identification mark or a
unique identifying code, as specified.
2)Provides that a manufacturer that violates these provisions is
guilty of a misdemeanor and subject to a fine between $500 and
$5,000 for a first offense and between $5,000 and $50,000 for
a subsequent offense.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "The
crime of illegal mass reproduction of music and movies is a
serious problem in California. Last year alone, more than
820,000 illegal discs were seized by law enforcement authorities
in California.
"Music and movie piracy undermines the California economy and
deprives artists, record labels, and production companies of
hard earned revenue, resulting in job loss in California and
across the nation. Legitimate music and movie retailers cannot
compete with pirates who fail to pay for the discs and fail to
pay local, state, and federal taxes.
"In a 2007 report, The Los Angeles Economic Development
Corporation estimated the economic losses in Los Angeles County
alone exceed $3 billion annually and deprives state and local
governments of nearly half a billion tax dollars a year.
"The problem is growing worse. The manufacture and distribution
of high quality counterfeit music and movie products on pressed
CDs and DVDs in California has grown exponentially in recent
years. This trend has flooded California, and the nation, with
millions of professional grade counterfeit recordings that are
finding their way into retail locations.
"To make matters worse, pirates are now ordering pressed CDs
SB 550
Page 6
containing hundreds of unauthorized mp3 files of hit songs by
popular artists of all genres. This has the potential to
further undermine the music industry and the growing market for
digital music. The plants that choose to manufacture such
illicit recordings also tend to produce illegal optical discs
and profit handsomely. They work to ensure that the illegal
goods they produce at their facilities cannot be traced back to
them.
"Allowing for inspections of plant manufacturing equipment and
the collection of sample discs would allow state authorities to
verify compliance with existing regulations. These safeguards
would advance the state's interest in creating a level playing
field amongst disc manufacturers and retailers and protect
California's global leadership in the entertainment industry."
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.
Support . The Recording Industry Association of America writes
in support, "For years, we have struggled with the problem of
counterfeiting as more and more illicit operations have found
profit in piracy. This activity has not only affected the work
of those who create music - including artists, musicians,
songwriters, labels, and others - but has decimated the
thousands of jobs of those who bring the music to the public.
"Exacerbating this already difficult problem is the increase in
counterfeit products produced by commercial CD manufacturers and
replicators in California. Indeed, nine out of 10 infringing
CDs seized in California last year were manufactured by CD
plants - nearly tripling since 2006. What makes this particular
piracy so damaging is the professional quality of the goods,
making it significantly harder for consumers to identify as
illegal, and for rights holders and authorities to enforce
against.
SB 550
Page 7
"While current law does prohibit unauthorized manufacture of
sound recordings at these facilities and requires manufacturers
to include proper information on the discs they press, there is
no mechanism to enforce such provisions. Millions of illegal
CDs are now being made simply because the manufacturers can get
away with it. Legitimate business, and California's economy,
suffers as a result.
"That is why SB 550 is so necessary. It is essential that we
close this loophole and ensure that manufacturers are complying
with regulations. This legislation allows state authorities to
verify this compliance in an unobtrusive and narrowly defined
way, serving to identify the facilities operating illegally and
ensuring a legitimate marketplace for those businesses following
the law."
Opposition . The American Civil Liberties Union of California
writes in opposition, "SB 550 would allow the warrantless
searches of businesses that create CDs, DVDs, or other optical
disks that contain music, films, computer programs, and other
expressive content, activity which is protected by the First
Amendment. In general, the First Amendment looks with suspicion
on laws like this one that single-out publishers and impose
burdens on them that are equally imposed on other businesses.
And searches of entities engaged in protected speech are also
subject to heightened scrutiny. The government therefore cannot
justify searches?because such 'businesses enjoy a degree of
First Amendment protection, the government probably could not
'closely regulate' them under the Burger line of cases without
running afoul of the First Amendment.'
"In addition, the proposed amendment would authorize law
enforcement officials to seize any disks that they believe were
manufactured in violation of the statute. This violates the
fundamental First Amendment principle that the government cannot
confiscate more than a single exemplar of expressive materials
without a final judgment that the materials are unprotected by
the First Amendment.
"Searches of businesses that are engaged in pressing optical
disks may endanger the First Amendment rights of the businesses
themselves and also of individuals who may hire a company to
manufacture a few hundred copies of a self-made video or other
work. These businesses are not engaged in activities that may
pose an unusual danger to the health and safety of the public or
SB 550
Page 8
of their employees; nor are they closely regulated in any sort
of comprehensive way."
Previous legislation . AB 2633 (Murray), Chapter 712, Statutes
of 1998, requires manufacturers, as defined, to mark each
optical disc permanently with a specified identification mark,
and specifies penalties in connection with unlawful activities
related to manufacture, distribution or sale of unauthorized
optical disks.
Double referred . This bill has been double-referred to the
Assembly Public Safety Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Association of Independent Music
Hollywood Chamber of Commerce
Los Angeles Area Chamber of Commerce
Recording Industry Association of America
Universal Music Group
Valley Industry and Commerce Association
Opposition
American Civil Liberties Union of California
Electronic Frontier Foundation
One individual
Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916)
319-3301