BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 6|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: SB 6
Author: Lieu (D)
Amended: 4/8/13
Vote: 27 - Urgency
SENATE JUDICIARY COMMITTEE : 7-0, 4/2/13
AYES: Evans, Walters, Anderson, Corbett, Jackson, Leno, Monning
SUBJECT : Business
SOURCE : Directors Guild of America
Screen Actors Guild-American Federation of
Television and Radio
Artists
Writers Guild of America, West
DIGEST : This bill, until January 1, 2015, re-enacts repealed
provisions of California's Uniform Commercial Code, relating to
the rights that certain licensees take under a nonexclusive
license where a security interest exists in a general
intangible.
ANALYSIS : Existing law provides that a lessee in ordinary
course of business takes its leasehold interest free of a
security interest in the goods created by the lessor, even if
the security interest is perfected and the lessee knows of its
existence.
This bill:
CONTINUED
SB 6
Page
2
1.Provides that a licensee in ordinary course of business takes
its rights under a nonexclusive license free of a security
interest in the general intangible created by the licensor,
even if the security interest is perfected and the licensee
knows of its existence.
2.Defines "licensee in ordinary course of business" as a person
that becomes a licensee of a general intangible in good faith,
without knowledge that the license violates the rights of
another person in the general intangible, and in the ordinary
course from a person in the business of licensing general
intangibles of that kind. The bill provides that a person
becomes a licensee in the ordinary course if the license to
the person comports with the usual or customary practices in
the kind of business in which the licensor is engaged or with
the licensor's own usual or customary practices.
3.States the intent of the Legislature to negate the repeal on
January 1, 2013, of, and to enhance, existing provisions
within Section 9321 of the Uniform Commercial Code relating to
a licensee in ordinary course of business in order to ensure
economic stability and continuity for purposes of contract
interpretation.
4.Includes a January 1, 2015, sunset date for the above added
provisions, unless a later enacted statute deletes or extends
that date, as specified.
5.Provides that, operative January 1, 2015, a lessee in ordinary
course of business takes its leasehold interest free of a
security interest in the goods created by the lessor, even if
the security interest is perfected and the lessee knows of its
existence.
Background
Article 9 of the Uniform Commercial Code covers security
interests in personal property. It was rewritten and modernized
by the Uniform Law Commission (ULC, formerly the National
Conference of Commissioners on Uniform State Laws, or NCCUSL) in
the late 1990s and in the process the ULC addressed security
interests in general intangible property (such as intellectual
property). Every state has adopted Article 9 as revised, and
California's revised Article 9 became effective on July 1, 2001.
CONTINUED
SB 6
Page
3
As a whole, the new Article 9 simplifies and clarifies the rules
for creation, perfection, priority and enforcement of a security
interest. More specific to this bill, the 1999 revisions to
Article 9 of the Uniform Commercial Code created rights for
licensees of general intangibles such as intellectual property
comparable to the rights of buyers of goods in the ordinary
course of business.
At the time that California considered adoption of the revised
Article 9, the Directors Guild of America, Inc. and the Screen
Actors Guild expressed concerns about how the proposed revision
to Section 9321 would affect their operations. As reflected in
the Senate Judiciary Committee analysis of the 1999 revisions:
The Screen Actors Guild is concerned about the application
of this rule to their industry. They say that with the
rapidly developing technology in their industry, it is
difficult for them at this time to forego the value of a
perfected security interest from a licensee, even if the
license is a nonexclusive license. Example is given of an
actor's residuals from movie rights to a film rented out by
Blockbuster Video, a nonexclusive licensee. Technology may
develop such that they should be able to enforce their
security interest against a nonexclusive licensee they say,
in three years or so, and therefore suggest that this
particular provision sunset in three years, subject to
reenactment.
The drafters of Article 9 resist this vigorously. They
state that a nonexclusive licensee will not "take free" of
a security interest created by the licensor to its
sublicensor if the first license was "exclusive."
While the ULC assured them at the time that the then-proposed
language of Section 9321 would not have a negative impact in
practice, the groups asked for time to evaluate the impact of
the new Section 9321 on their actual operations. The
Legislature then agreed to limit the operative effect of the new
Section 9321 by including a sunset date of January 1, 2004.
That original sunset date was subsequently extended three times,
most recently to January 1, 2013. However, no bill was
introduced in the 2011-12 legislative session to extend or
CONTINUED
SB 6
Page
4
repeal that sunset date. Accordingly, the "new" Section 9321
was repealed on January 1, 2013, 12 years after it first took
effect.
Comments
According to the author's office, "Section 9321 of the
Commercial Code sunset on January 1, 2013. In order to ensure
that California's authors, creators and performers have the same
protections as other states, it is imperative that California
reinstates this uniform code with urgency."
Under this language, when a customer legally purchases a movie
from retailer, the customer would receive a nonexclusive license
for the movie, and the actors/directors/writers would not be
able to go after the consumer to collect on any security
interest in the movie itself.
Senate Judiciary Committee staff notes that while this is the
first time since the enactment of the revised Section 9321 that
the sunset has been allowed to lapse, an urgency bill was
required in the 2009-10 legislative session to extend the sunset
to January 1, 2013.
While Senate Judiciary Committee staff also notes that any
uncertainty that arose after the lapse of Section 9321's sunset
date on January 1, 2013 cannot, as a practical matter, be
entirely erased, as a matter of public policy, it is arguably
preferable to reinstate those provisions immediately to both
minimize the effect of any confusion and provide certainty
moving forward.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 4/1/13)
Directors Guild of America (co-source)
Screen Actors Guild-American Federation of Television and Radio
Artists (co-source)
Writers Guild of America, West (co-source)
California Commission on Uniform State Laws
Motion Picture Association of America, Inc.
CONTINUED
SB 6
Page
5
ARGUMENTS IN SUPPORT : According to the Motion Picture
Association of America, Inc., "It is important to the conduct of
commerce within the state that section 9321 be reinstated. This
section of the Commercial Code affords stability in commercial
dealings by protecting the transfer of intangible rights, such
as the licensing of intellectual property, and ensuring that a
license may be relied upon by the license."
AL:nl 4/8/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED