BILL ANALYSIS �
SB 6
Page 1
Date of Hearing: June 18, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 6 (Lieu) - As Amended: April 8, 2013
PROPOSED CONSENT
SENATE VOTE : 35-0
SUBJECT : BUSINESS: RESIDUAL PAYMENTS
KEY ISSUE : SHOULD THE LEGISLATURE REINSTATE, UNTIL JANUARY 1,
2015, PROVISIONS OF THE UNIFORM COMMERCIAL CODE THAT ENSURE
CONTINUING PAYMENT OF RESIDUALS TO PERFORMERS, WRITERS, AND
DIRECTORS BUT THAT SUNSET AT THE END OF 2012?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill seeks to reinstate certain
provisions of California's Uniform Commercial Code which had
been operative for the past twelve years, but that sunset on
January 1, 2013 when no legislation was timely introduced to
extend their operation past that date. According to the
directors, writers, and screen actors' guilds that are
sponsoring this bill, it is necessary to undo last year's repeal
of Section 9321 of the Commercial Code and restore the previous
language of this section, which ensures the continued payment of
residuals to its members by distributors of films and media when
such works are broadcast or shown. The bill is also supported
by the Motion Picture Association of America, representing
distributors who are responsible for making residual payments to
guild members pursuant to collective bargaining agreements with
the guilds. It is believed that a more permanent agreement
governing residual payments may be reached before the proposed
sunset date of January 1, 2015, eliminating the need for future
extensions of the sunset date. In the meantime, however, both
sides agree that this urgency bill is needed to quickly restore
protection for residual payments while the stakeholders near
completion of negotiations to secure more permanent terms for
handling such payments. There is no known opposition to this
bill, and it received no "No" votes in the Senate.
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SUMMARY : Re-enacts repealed provisions of the Uniform
Commercial Code relating to the rights that certain licensees
take under a nonexclusive license where there is a security
interest in a general intangible. Specifically, this bill :
1)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.
2)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)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.
4)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.
5)Establishes a sunset date of January 1, 2015 for these
provisions, and makes them retroactively operative on January
1, 2013, negating their prior repeal on that date.
6)States the intent of the Legislature to negate the repeal on
January 1, 2013 of existing provisions within Section 9321 of
the Commercial Code, in order to ensure economic stability and
continuity for the purposes of contract interpretation.
EXISTING LAW , Section 9321 of the Commercial Code, 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.
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COMMENTS : This non-controversial bill seeks to reinstate
certain provisions of California's Uniform Commercial Code which
had been operative for the past twelve years, but that sunset on
January 1, 2013 when no legislation was timely introduced to
extend their operation past that date. According to the
directors, writers, and screen actors' guilds that are
sponsoring this bill, it is necessary to undo last year's repeal
of Section 9321 of the Commercial Code and restore the previous
language of this section, which ensures the continued payment of
residuals to its members while they continue to engage in
negotiations to secure more permanent terms for handling such
payments.
Stated Need for the Bill. This bill is co-sponsored by the
Directors Guild of America, Screen Actors Guild-American
Federation of Television and Radio Artists, and Writers Guild of
America (hereafter "Guilds"). According to the sponsors,
Section 9321 is important to the financial interests of their
members because:
It is through the Guilds that writers, performers and
directors receive continuing payments, called residuals,
which are based on revenue derived from the continuing
exploitation of the works they create (e.g., home video,
new media and television exploitation). The Guilds rely on
security interests or liens to protect payment of
residuals. If distributors are able to take their licensed
rights free of Guild liens, the ability of the Guilds to
protect our members' financial interests will be
significantly impaired, even when those distributors are
contractually responsible for residual payments. . . It is
critical that California's Commercial Code does not provide
lesser protections for authors, creators and performers
than exist in other states-this would be especially ironic,
given that California is home to the entertainment
industry.
Background on UCC Article 9. According to the Uniform Law
Commission, Article 9 of the UCC governs secured transactions in
personal property. Hundreds of millions of dollars of
commercial and consumer credit are granted every year in secured
transactions under UCC Article 9. Specifically, Article 9
provides rules that govern any transaction, other than a finance
lease, that involves the granting of credit coupled with a
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creditor's interest in a debtor's personal property. If the
debtor defaults, the creditor may possess and sell the property
to satisfy the debt. The creditor's interest is called a
security interest, and perfection of the creditor's security
interest establishes the creditor's priority over other
creditors. Article 9 specifies who has the first rights in the
collateral when two or more competing creditors have legally
enforceable interests in the collateral. (Uniform Law
Commission, "UCC Article 9 Amendments Enacted in 26 States", May
22, 2012.)
The last major revision of Article 9 occurred in 1999, when all
fifty states adopted provisions drafted by the Uniform Law
Commission seeking to simplify and clarify the rules governing
these types of secured transactions. Among other things, the
1999 revisions to Article 9 enacted Section 9321 to create
rights for licensees of general intangibles (such as
intellectual property) comparable to the rights of buyers of
goods in the ordinary course of business.
Compensation of guild members under previous Section 9321. This
bill seeks to re-enact, until January 1, 2015, the language of
Section 9321 that was recently repealed by operation of a
December 31, 2012 sunset clause. According to the sponsors,
guild members-writers, directors, performers-receive
compensation (known as "residuals") when the movies and TV
programs they worked on are broadcast through different media
such as cable television and DVDs, long after they have
completed their work on those works. The sponsors note that
residuals provide a substantial portion of their members'
earnings, worth billions of dollars, and are typically paid by
the distributor of those works pursuant to collective bargaining
agreements with the guilds.
According to the sponsors, the language of Section 9321 that
this bill seeks to re-enact was structured to protect consumers
and other licensees of intellectual property under non-exclusive
licenses, while at the same time ensuring that the guilds can
continue to pay out residuals in circumstances where a motion
picture distributor (also a licensee of intellectual property)
is not paying. Section 9321 achieved this, they state, by
distinguishing non-exclusive licenses from the exclusive
licenses that are prevalent in the film industry. Under the
language proposed to be re-enacted, when a consumer legally
purchases a movie, he or she receives a non-exclusive license
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for the movie, and the consumer is protected from any action by
an actor, director, or writer seeking to enforce against any
security interest in the movie itself. At the same time, the
language proposed to be re-enacted allows the guilds to use
security interests to protect the residual payments that
distributors must make to their members.
Re-enactment until January 1, 2015 is intended to maintain
previous protections while allowing current negotiations for a
more permanent solution to conclude before that date. This
urgency bill would reinstate the repealed provisions of Section
9321 with an operative of January 1, 2013, and state the intent
of the Legislature to negate the prior repeal in order to ensure
economic stability and continuity for purposes of contract
interpretation. The bill would sunset on January 1, 2015,
unless subsequent legislation is enacted to extend or repeal
that date.
When Section 9321 was first enacted with the larger set of 1999
revisions to UCC Article 9, the guilds asked for time to
evaluate the impact of the new law on their members as it
applied to payment of residuals. The Legislature 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 repeal that sunset date.
Accordingly, then-existing Section 9321 was repealed on January
1, 2013, 12 years after it first took effect, thus leading to
the introduction of this urgency bill to restore those
provisions.
According to the stakeholders, including the three major Guilds
and the Motion Picture Association of America (MPAA), the
previous language of Section 9321 should be reinstated to allow
current discussions between the stakeholders to reach a more
permanent solution specific to the entertainment industry. It
is believed that a successful solution may be reached before the
sunset date of January 1, 2015 proposed by this bill, thus
eliminating the need for future legislation to re-extend the
sunset date for Section 9321.
REGISTERED SUPPORT / OPPOSITION :
Support
SB 6
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California Commission on Uniform State Laws (sponsor)
Directors Guild of America
Motion Picture Association of America, Inc. (MPAA)
Screen Actors Guild-American Federation of Television and Radio
Artists
Writers Guild of America, West
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334