BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 1241|
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                                   THIRD READING 


          Bill No:  AB 1241
          Author:   Calderon (D) 
          Amended:  3/26/15 in Assembly
          Vote:     21 

           SENATE PUBLIC SAFETY COMMITTEE:  7-0, 6/21/16
           AYES:  Hancock, Anderson, Glazer, Leno, Liu, Monning, Stone

           ASSEMBLY FLOOR:  78-0, 5/4/15 (Consent) - See last page for  
            vote

           SUBJECT:   Crimes:  audiovisual work:  recording


          SOURCE:    Recording Industry Association of America

          DIGEST:  This bill requires a sentencing court to impose a  
          mandatory minimum fine of at least $1,000 for a second or  
          subsequent conviction of audio or video piracy.

          ANALYSIS:  
          
          Existing law:

          1)Provides that a person is guilty of the failure to disclose  
            the origin of a recording or audiovisual work (piracy) if, for  
            commercial advantage or private financial gain, he or she  
            knowingly advertises or offers for sale or resale, or sells or  
            resells, or causes the rental, sale or resale, or rents, or  
            manufactures, or possesses for these purposes, any recording  
            or audiovisual work, the outside cover, box, jacket, or label  
            of which does not clearly and conspicuously disclose the  
            actual true name and address of the manufacturer thereof and  








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            the name of the actual author, artist, performer, producer,  
            programmer, or group thereon.  (Pen. Code, § 653w, subd.  
            (a)(1).)

          2)Provides that if the offense involves at least 100 articles of  
            audio recordings or audiovisual works, or the commercial  
            equivalent thereof, then the punishment is imprisonment in a  
            county jail not to exceed one year, by imprisonment pursuant  
            to criminal justice realignment for two, three, or five years,  
            by a fine not to exceed $500,000, or by both that fine and  
            imprisonment.  (Pen. Code § 653w, subd. (b)(1).)

          3)Punishes any other first-time violation of the crime by  
            imprisonment in a county jail not to exceed one year, by a  
            fine of not more than $50,000, or by both that fine and  
            imprisonment. (Pen. Code § 653w, subd. (b)(2).)

          4)Punishes a second or subsequent conviction by imprisonment in  
            a county jail not to exceed one year, or by imprisonment  
            pursuant to criminal justice realignment, by a fine not more  
            than $200,000, or by both that fine and imprisonment.  (Pen.  
            Code § 653w, subd. (b)(3).)

          5)Defines "recording" as any "tangible medium upon which  
            information or sounds are recorded or otherwise stored,  
            including, but not limited to, any phonograph record, disc,  
            tape, audio cassette, wire, film, memory card, flash drive,  
            hard drive, data storage device, or other medium on which  
            information or sounds are recorded or otherwise stored, but  
            does not include sounds accompanying a motion picture or other  
            audiovisual work."  (Pen. Code § 653w, subd. (a)(2).)

          6)Defines "audiovisual works" as the "physical embodiment of  
            works that consist of related images that are intrinsically  
            intended to be shown using machines or devices, such as  
            projectors, viewers, or electronic equipment, together with  
            accompanying sounds, if any, regardless of the nature of the  
            material objects, such as films, tapes, discs, memory cards,  
            flash drives, data storage devices, or other devices, on which  
            the works are embodied."  (Pen. Code § 653w, subd. (a)(3).)

          7)Requires, in addition to any other penalty or fine, the court  
            to order a person who has been convicted of a music or video  
            piracy to make restitution to an owner or lawful producer, or  







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            trade association acting on behalf of the owner or lawful  
            producer, of a phonograph record, disc, wire, tape, film, or  
            other device or article from which sounds or visual images are  
            derived that suffered economic loss resulting from the  
            violation.  (Pen. Code § 1202.4, subd. (r)(1).)


          8)Requires the restitution order be based on the aggregate  
            wholesale value of lawfully manufactured and authorized  
            devices or articles, and to also include reasonable costs  
            incurred as a result of the investigation undertaken by the  
            owner, lawful producer, or trade association acting on behalf  
            of the owner.  (Pen. Code § 1202.4, subd. (r)(1).

          This bill imposes a mandatory minimum fine of not less than  
          $1,000 for a second or subsequent conviction for the crime of  
          music or video piracy, as prosecuted under the California law  
          that requires a person to disclose the true name and address of  
          the manufacturer of a musical or audio work.

          Background:

          According to the author:

               Crimes related to piracy are often viewed as  
               victimless.  As such, they are often treated lightly  
               by the courts.  While there are opportunities for the  
               courts to establish fines, there is no mandatory fine  
               in cases involving piracy of copyright, intellectual  
               property, despite the unquestioned impact upon the  
               entertainment and other industries affected by these  
               illegitimate activities.  AB 1241 would create a  
               minimum fine of $1,000 on a second offense.

          In audio and audio-visual piracy, restitution is defined to  
          include the value of unsold items seized from the defendant.  As  
          the items did not actually replace a legitimate sale, the value  
          of these items is not truly restitution for a loss.  (People v.  
          Garcia (2011) 194 Cal.App.4th 612, 614-622.)  The restitution is  
          essentially a fine paid to the victim in an amount measured by  
          the value of the illegitimate sales the defendant would have  
          made if he or she had actually sold the items.  This form of  
          restitution is a penalty based the defendant's criminal intent,  
          not actual losses suffered by the victim and appears to be  







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          similar to punitive damages ordered in a civil suit.

          This bill requires payment of a traditional fine.  A criminal  
          fine is paid to the government, not the victim.  Criminal fines  
          are generally imposed based on the culpability of the defendant.  
           The fact that a defendant would have made additional illicit  
          sales had he or she not been caught is such a consideration.  A  
          fine can also reflect the harm the defendant's conduct more  
          generally caused society.

          Federal law preempts state law in the area of copyright.  State  
          laws related to copyright interests are generally called "true  
          name and address" laws, which are intended to protect consumers  
          and prohibit specified forms of unfair competition.  Penal Code  
          Section 653w is a form of true name and address law.  In  
          Anderson v. Nidorf (9th Cir. 1994) 26 F.3d 100, the United  
          States 9th Circuit Court of Appeals upheld the California true  
          name and address law.  The defendant's claim that the true name  
          and address law (Pen, Code § 653w) is preempted by federal  
          copyright has been rejected by the 9th Circuit.  A state law can  
          protect copyright interests if the law has other purposes that  
          are legitimate subjects of state law.   

          The "underground economy" refers to those individuals and  
          businesses that deal in cash and/or use other schemes to conceal  
          their activities, identities, and true tax liabilities from  
          government licensing, regulatory, and taxing agencies.  The  
          activities that occur in the underground economy include the  
          sale or transfer of illegal goods, such as pirated music or  
          movies, counterfeit pharmaceutical drugs and numerous other  
          products.  The Board of Equalization estimates that the State of  
          California losses about $8.5 billion dollars annually in tax  
          revenue due to the underground economy.  This revenue is needed  
          to fund critical programs such as education, public safety,  
          infrastructure and social services.
          
          Setting the penalty for a crime is an inherently legislative  
          function.  The Legislature does have the power to require a  
          minimum fine or other specific sentence.  (Keeler v. Superior  
          Court (1970) 2 Cal.3d 619, 631.)  Sentencing, however, is solely  
          a judicial power.  (People v. Tenorio (1970) 3 Cal.3d 89, 90-93;  
          People v. Superior Court (Fellman) (1976) 59 Cal.App.3d 270,  
          275.)  California law effectively directs judges to impose an  
          individualized sentence that fits the crime and the defendant's  







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          background, attitude, and record.  (Cal. Rules of Court, rules  
          4.401-4.425.)  This bill limits judicial discretion and requires  
          a minimum fine of $1,000 to be imposed in each case in which a  
          defendant has already suffered a prior conviction for piracy,  
          regardless of the facts.  A sentencing court also has the  
          authority and discretion to impose a much higher fine than the  
          minimum required under this bill.  The maximum fine under  
          existing law is $200,000 - approximately $800,000 with penalty  
          assesssments.  There is no evidence that this amount is not  
          already being imposed in these types of cases.  

          Penalty assessments and fees must be assessed on the base fine  
          for a crime.  
          Assuming a defendant was fined $1,000 as the fine for a criminal  
          offense, a host of penalty assessments would actually require  
          the defendant to pay a fine of over $4,000.   The fine does not  
          include victim restitution, a mandatory restitution fine, and  
          other fines and fees.
          
          Current law under Penal Code section 1203.1d prioritizes the  
          order in which delinquent court-ordered debt received is to be  
          satisfied. The priorities are 1) victim restitution, 2) state  
          surcharge, 3) restitution fines, penalty assessments, and other  
          fines, with payments made on a proportional basis to the total  
          amount levied for all of these items, and 4) state/county/city  
          reimbursements, and special revenue items.  

          The fine at issue in this bill has a fairly low priority in the  
          collection order, falling in the third category.  Given that  
          victim restitution in these types of cases is to be on the  
          aggregate wholesale value of lawfully manufactured and  
          authorized devices or articles, and to also include reasonable  
          costs incurred as a result of the investigation undertaken by  
          the owner, lawful producer, or trade association acting on  
          behalf of the owner (Pen. Code, § 1202.4, subd. (r)(1)), it  
          could very well be the case that this fine is unlikely to be  
          collected, especially if the defendant is ordered to pay special  
          restitution based on the value of unsold pirated works.

          A recent San Francisco Daily Journal article noted, "California  
          courts and counties collect nearly $2 billion in fines and fees  
          every year.  Nevertheless, the state still has a more than $10.2  
          billion balance of uncollected debt from prior years, according  
          to the most recent date from 2012."  (See Jones & Sugarman,  







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          State Judges Bemoan Fee Collection Process, San Francisco Daily  
          Journal, (January 5, 2015).)  "The annual growth in delinquent  
          debt partly reflects a supply of money that doesn't exist to be  
          collected."  (Ibid.)   In the same article, the Presiding Judge  
          of San Bernardino County was quoted as saying "the whole concept  
          is getting blood out of a turnip."   (Ibid.)   
          
          FISCAL EFFECT:   Appropriation:         No   Fiscal Com.:   
          NoLocal:                   No


          SUPPORT:   (Verified6/23/16)


          Recording Industry Association of America (source)


          OPPOSITION:   (Verified6/23/16)


          None received

          ASSEMBLY FLOOR:  78-0, 5/4/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau,  
            Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd,  
            Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia,  
            Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,  
            Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Campos, Dahle

          Prepared by:Jerome McGuire / PUB. S. / 
          6/24/16 14:33:37


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