BILL ANALYSIS Ó
SB 550
Page 1
Date of Hearing: July 5, 2011
Counsel: Milena Nelson
ASSEMBLY COMMITTEE ON PUBLIC SAFETY
Tom Ammiano, Chair
SB 550 (Padilla) - As Amended: May 10, 2011
As Proposed to be Amended in Committee
SUMMARY : Authorizes law enforcement officers to perform
inspections of commercial optical disc manufacturers to verify
compliance with optical disc identification law, as specified,
without providing prior notice of the inspection, or obtaining a
warrant. Specifically, this bill :
1)States that inspection shall be conducted by officers whose
primary responsibilities include investigation of
high-technology crime or intellectual property piracy.
2)States that inspection shall take place during regular
business hours and shall be limited to areas of the premises
where manufacturing equipment is located and where optical
discs and production parts are manufactured and stored.
3)States that the scope of the inspection shall be restricted to
the physical review of items and collection of information
necessary to verify compliance with optical disc
identification law, as specified.
4)Specifies that the officer conducting the inspection shall
have the authority to do all of the following:
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 maintained, as
specified, kept in any format, electronic or otherwise,
relating to the business concerned;
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d) Inspect, remove, and detain for the purpose of
examination for a long as reasonably necessary any optical
disc, production part, or record, book, or document
maintained, as specified;
e) Seize any optical disc or production party manufactured
in violation of this chapter; 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.
5)Prohibits any person from evading, obstructing, or refusing
any inspection requested or being carried out by a law
enforcement officer to determine compliance with optical disc
identification law, as specified.
6)Requires that any manufacturer and the employees, servants, or
agents of the manufacturer, cooperate during the course of the
inspection by promptly doing the following:
a) Providing and explaining any record, book, or document
required to be maintained, 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.
7)Prohibits a person who manufactures optical discs for
commercial purposes from 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.
8)Prohibits a person who manufactures optical discs for
commercial purposes from making, possessing, or adapting any
optical disc mold for the purpose of applying a forged, false,
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or deceptive identification mark or identifying code.
9)States that any manufacturing equipment, optical disc mold, or
production part found on the premises of a commercial
manufacturer shall for the purposes of this chapter, be deemed
to be in the possession of the manufacturer.
10)Defines "commercial purposes" as the manufacture of at least
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.
11)Defines a "manufacturer" as a person who replicates the
physical optical disc or produces the master used in any
optical disc replication process. This definition does not
include a person who manufactures optical discs for internal
use, testing, or review, or a person who manufactures blank
optical discs.
12)Defines "manufacturing equipment" as any machine, equipment,
or device, including mastering equipment, used for the
manufacture of optical discs or production parts.
13)Defines "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.
14)Defines "optical disc" as a disc capable of being read by a
laser or other light source on which data is stored in digital
form, including, but not limited to, discs known as "CDs",
"DVDs", or related mastering source materials. This
definition does not include blank optical discs.
15)Defines "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.
16)Defines "professional organization" as an organization whose
membership consists wholly or substantially of intellectual
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property rights owners, and which is mandated by those members
to enforce their rights against counterfeiting and piracy.
17)States that any manufacturer of optical discs found to be in
violation of this section is guilty of a misdemeanor and shall
be subject to a fine of not less than $500 and not more than
$25,000 for a first offense, and shall be subject to a fine of
not less than $5,000 and not more than $250,000 for a second
or subsequent offense.
18)Requires every manufacturer of optical discs for commercial
purposes to keep full and accurate records of its
manufacturing equipment, and shall make them available to law
enforcement. The records shall include current inventory of
manufacturing equipment, and every purchase, lease, sale,
disposal, or other transaction relating to any manufacturing
equipment, specifying the make, model, and serial number of
the equipment, the identification mark or unique identifying
code which the equipment has been adapted to apply, the date
and nature of each transaction, and the full name and address
of the party with whom the transaction was entered into.
19)Requires every person who manufactures optical discs for
commercial purposes shall keep all of the following for a
period of note less than five years from the date of
production:
a) One sample of each optical disc title manufactured by
it;
b) One copy in 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
address of the actual customer who originated the order.
EXISTING LAW :
1)States that any person who manufactures optical discs for
commerce shall permanently mark each disc with a mark that
identifies the manufacturer and the state in which the disc
was made. Alternatively, the manufacturer may mark the disc
with a unique identifying code that will allow law enforcement
to determine the manufacturer and the state of origin.
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(Business and Professions Code Section 21800.)
2)Requires that the identifying mark or code shall be affixed by
a permanent method and shall be visible without magnification
or special devices. (Business and Professions Code Section
21801.)
3)Defines "manufacturing for commercial purposes" as the
manufacturing of 10 discs in a 180-day period by storing
information on the disc for resale. (Business and Professions
Code Section 21802.)
4)Defines a "manufacturer" as a person who replicates the
physical disc or produces the master used in the replication
process. A manufacturer does not include a person who masters
blank discs or one who manufactures discs for internal use,
testing, or review. (Business and Professions Code Section
21802.)
5)Defines "optical disc" as a disc capable of being read by a
laser or other light source on which data is digitally stored.
It includes, but is not limited to, CDs, DVDs, or related
mastering materials. (Business and Professions Code Section
21803.)
6)States that a person who violates a disc manufacturing
statute, as specified, is guilty of a misdemeanor, punishable
by a fine of between $500 and $5,000 for a first offense. A
subsequent offense is punishable by a fine of between $5,000
and $50,000. (Business and Professions Code Section 21804.)
7)States that any person who buys, sells, receives, transfers,
or possess for purposes of sale or rental an optical disc
knowing that the disc was manufactured in California without
the required identification mark, or with a false mark, is
guilty of a misdemeanor, punishable by imprisonment in county
jail for up to a year, a fine of up to $10,000, or both.
(Business and Professions Code Section 21805.)
8)States that it is a misdemeanor to knowingly remove, deface,
cover, alter or destroy the required identification mark on an
optical disc. The crime is punishable by a jail term of up to
one year, a fine of up to $10,000, or both. (Business and
Professions Code Section 21806.)
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FISCAL EFFECT : Unknown
COMMENTS :
1)Authors Statement : According to the author, "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. In a 2007 report, The Los Angeles Economic
Development Corporation estimated the economic losses in Los
Angeles County to all industries exceed $5 billion annually.
Music and Movie losses make up more than half of that number.
The result of pirating is a loss of nearly half a billion tax
dollars a year to state and local governments.
"It also results in the loss of California jobs. 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. And, 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. To make matters worse, pirates
are now ordering pressed CDs containing hundreds of
unauthorized mp3 files of hit songs by popular artists of all
genres.
"The plants that choose to manufacture such illicit recordings
also tend to produce illegal optical discs and make huge
illegal profits. They make every effort to ensure that the
illegal goods they produce cannot be traced back to their
facilities. These are high volume, highly profitable illegal
operations. We need fines that will be an effective
deterrent."
2)Economic Harms from Piracy : In 2007, the Los Angeles County
Economic Development Corporation (LAEDC) published a report on
the economic harms of piracy on Los Angeles County. (A False
Bargain: The Los Angeles County Economic Consequences of
Counterfeit Products, February 2007.) According to the
report, "Global piracy disproportionately hurts Los Angeles
because so many of the firms that make the originals are
concentrated here. Hollywood movie studios, for example, lose
out whether a copied DVD is sold in Los Angeles, Dallas,
Athens or Shanghai. The LAEDC estimates that firms making
products prone to counterfeiting in nine at-risk sectors
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suffered combined losses of $5.2 billion in 2005. Motion
picture production accounted for the largest share of the
losses ($2.7 billion); followed by sound recording ($851
million); apparel, accessories, and footwear ($617 million);
and software publishing ($355 million). These figures
represent the losses to firms based in Los Angeles, without
specifying where the piracy takes place.
"The people who produce the legitimate items are hurt whenever
sales lost to pirated goods translate into fewer jobs. Lower
spending, in turn, hurts people throughout the local economy.
No one worries about counterfeit lattes or haircuts, for
example, but fewer workers in the sporting goods and motion
picture industries will translate into fewer customers for
restaurants and beauty care providers. There are
approximately 70,000 direct and indirect jobs missing from the
L.A. economy because of lower revenues at firms producing
piracy-prone goods. For comparison, this is roughly
equivalent to all grocery store workers in the county. There
are another 36,000 direct and indirect jobs missing from the
L.A. economy because the black market for pirated goods
diverted $2 billion from the legitimate retail sector in L.A.
during 2005. For comparison, the same number of jobs would be
lost if the entire aircraft equipment and parts manufacturing
sector closed shop and left Los Angeles.
"State and local governments lose three times from piracy.
First, they lose the sales tax that should have been paid on
the copied items. Next, they lose additional taxes when lost
business revenues translate into lower spending and fewer
jobs. And third, they bear the increased police, court and
prison costs associated with combating counterfeiting and
related criminal activity. The State of California lost $407
million, including $213 million lost in state income taxes,
and $194 million in sales taxes."
3)Fourth Amendment and Protections against Unreasonable Search
and Seizure : The Fourth Amendment of the United States
Constitution protects against unreasonable searches and
Seizures. (U.S. Const. 4th Amend.) Generally, a warrant is
required before government agents, including law enforcement
can enter into private property. ÝNew York v. Burger (1987)
482 U.S. 691, 699; Marshall v. Barlow's Inc. (1978) 436 U.S.
307, 312-313.] Exceptions to the warrant requirement include
exigent circumstances ÝWarden v. Hayden, 387 U.S. 294 (1967)],
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search incident to arrest ÝChimel v. California, 395 U.S. 752
(1969)], automobile searches ÝCarroll v. United States, 267
U.S. 132 (1925)], consent ÝSchneckloth v. Bustamonte, 412 U.S.
218 (1973)], plain view ÝMinnesota v. Dickerson, 508 U.S. 366
(1993)], and administrative searches ÝCamara v. Municipal
Court, 387 U.S. 523 (1967)].
In order for the administrative search warrant exception to
apply, the industry in question must be "closely regulated."
(New York v. Burger, 482 U.S. at 701.) In determining whether
a particular industry is closely regulated, the Court looks to
a history of regulation in the industry as well as the
hazardous nature of the industry. Examples of closely
regulated industries that fall under this exception include
auto dismantling yards (New York v. Burger, 482 U.S. 691) and
the mining industry. ÝDonovan v. Dewey, 452 U.S. 594 (1981).]
Here, the optical disc manufactures are subject to the
provisions of chapter 11.5 of the Business and Professions
Code, as well as 653h and 653w of the Penal Code. These
manufacturers are also subject to federal copyright
restrictions. These provisions may be enough for a court to
determine that this industry is closely regulated, and
therefore, potentially subject to administrative searches.
Additionally, California courts have held that an industry
need not be closely regulated if the industry is newer and
involves a "high risk of illegal conduct or of serious danger
to the public." ÝCurrier v. City of Pasadena, 48 Cal. App. 3d
810, 814 (1975).] Here, because of the high number of pirated
optical discs, the searches could fall under this exception to
a warrant requirement.
If the industry in question is found to be a closely regulated
industry, the Court also requires any administrative search be
reasonable. (New York v. Burger, 482 U.S. at 708.) In order
to be reasonable, the warrantless inspection must first serve
a substantial governmental interest; second, provide for
warrantless inspections that further a regulatory scheme; and
third, perform the functions of a warrant, including providing
a business owner legal notice of an inspection that has a
defined scope and grant limited discretion to law enforcement
officials conducting the inspection. (Id. at 708-12.)
Substantial Governmental Interest: The sponsor argues that
optical disc piracy is a substantial public concern. Piracy
results in significant losses of income, sales and business
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tax revenue for state and local government. Piracy reduces
employment in an important economic sector in California,
exacerbating numerous state problems. Copyright and consumer
protection are clearly interests advanced by federal and state
law respectively. State law can protect intellectual property
interests if the state law serves another purpose, such as
consumer protection. ÝAnderson v. Nidorf (9th Cir. 1994) 26
F.3d 100.]
Furtherance of Regulatory Scheme: The sponsor argues that it
is very difficult to determine who produced a pirated CD or
DVD. Unlike Internet piracy, there is no digital trail for
optical discs. A pirated CD or DVD is indistinguishable from
legitimate works, except for the lack of an identifying mark
that would be the main focus of an administrative search.
Without administrative inspections, this piracy will continue
unabated.
A counter argument can be made that the administrative search
provisions essentially create a presumption that any optical
disc manufacturer is involved in piracy. If law enforcement
has probable cause that a manufacturer is involved in piracy,
a warrant can be obtained.
Administrative Search Performing the Function of a Warrant:
In order to perform the function of a warrant, the warrantless
search must provide notice to the business owner of the
possible searches, and must grant only limited discretion to
the officer conducting the search. Here, similar to the New
York v. Burger, the statute will provide the notice to the
business owner that their business may be searched without
prior notice. The scope of the search is also limited in that
it must be conducted by officers whose primary
responsibilities include investigation of high-technology
crime or intellectual property piracy, will occur during
regular business hours, and is limited to areas of the
property where manufacturing equipment is located and where
optical discs and production parts are stored.
4)Argument in Support : According to the Recording Industry
Association of America , "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
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decimated the thousands of jobs of those who bring music to
the people.
"Exacerbating this already difficult problem is the increase in
counterfeiting products produced by commercial CD
manufacturers and replicators in California. Indeed, nine out
of ten 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.
"While current law does prohibit unauthorized manufacture of
sounds recordings at these facilities and requires
manufacturers to include proper information on these 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 businesses,
and California's economy, suffers as a result."
5)Argument in Opposition : According to the American Civil
Liberties Union , "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. Schad v. Borough of Mount Ephraim, 452 U.S. 61, 65
(1981); DVD Copy Control Ass'n, Inc. v. Bunner, 31 Cal.4th
864, 876 (2003); Comedy III Productions, Inc. v. Gary Saderup,
Inc., 25 Cal.4th 387, 398-99 (2001). 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. Minneapolis Star and
Tribune Co. v. Minnesota Com'r of Revenue, 460 U.S. 575, 583
(1983). And searches of entities engaged in protected speech
are also subject to heightened scrutiny: the 'courts apply the
warrant requirements with particular exactitude when First
Amendment interests would be endangered by the search.'
Zurcher v. Stanford Daily, 436 U.S. 547, 565 (1978). The
government therefore cannot justify searches of business
engaged in activities protected by the First Amendment on the
grounds that they are 'closely regulated.' J.L. Spoons, Inc.
v. City of Brunswick, 49 F.Supp.2d 1032, 1040 (N.D.Ohio 1999).
To the contrary, because such 'businesses enjoy a degree of
First Amendment protection, the government probably could not
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'closely regulate' them under the Burger line of cases without
running afoul of the First Amendment.' Id.
"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. Fort Wayne Books, Inc. v.
Indiana, 489 U.S. 46, 63-64 (1989)."
6)Previous Legislation :
a) AB 819 (Calderon), Chapter 351, Statutes of 2010,
increased the fines for intellectual property piracy.
b) AB 568 (Lieu), Chapter 453, Statutes of 2009, allowed
law enforcement to declare any non-residential property
unlawfully used for the manufacture, sale, or knowing
possession of counterfeit goods, a nuisance and authorized
various public and private remedies, including injunctions
and abatement orders to abate and prevent the nuisance.
c) AB 2750 (Krekorian), Chapter 468, Statutes of 2008,
required a court to order persons convicted of specified
crimes relating to music piracy to pay restitution to
persons who have suffered economic loss as a result of the
illegal activity, as specified.
d) AB 64 (Cohn), Chapter 9, Statutes of 2006, made the
possession or sale at least 100, rather than 1,000, audio
recordings punishable as an alternate felony/misdemeanor.
REGISTERED SUPPORT / OPPOSITION :
Support
American Association of Independent Music
City of Los Angeles
Los Angeles Area Chamber of Commerce
National Music Publishers' Association
Recording Industry Association of America
Sony Music Entertainment
The Recording Academy
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Universal Music Group
Valley Industry and Commerce Association
Opposition
American Civil Liberties Union
One private individual
Analysis Prepared by : Milena Nelson / PUB. S. / (916)
319-3744