BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 224
Assemblymember Portantino
As Amended August 25, 2009
Hearing Date: August 26, 2009
Commercial Code
GMO:jd
SUBJECT
Uniform Commercial Code: Security Interest in Intangible
Property
DESCRIPTION
Existing law provides that a licensee in ordinary course of
business takes its rights under a nonexclusive license free of a
security interest in the intangible property created by the
licensor and takes its leasehold interest free of a security
interest in the goods created by the lessor, as specified. This
provision of the Uniform Commercial Code is scheduled to sunset
on January 1, 2010.
This bill would extend the sunset date of that provision to
January 1, 2011.
The bill is an urgency measure.
BACKGROUND
Article 9 of the Uniform Commercial Code (UCC) 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) 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 became
effective in California on July 1, 2001.
The 1999 revisions to Article 9 of the UCC created rights for
licensees of general intangibles such as intellectual property
comparable to the rights of buyers of goods in the ordinary
(more)
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course of business. (U. Com. Code Sec. 9321.) When California
was considering adoption of the revised Article 9 of the UCC,
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. According to these groups,
exclusive licenses granted to investors and others who may have
perfected security interests or rights to proceeds from a film
production (employees, for example) may end up with diminished
rights to security interests in the goods (the film) that may be
asserted by nonexclusive licensees (for example, DVD rental
stores). The Senate Judiciary Committee analysis of SB 45
(Sher, Ch. 991, Stats. 1999) states:
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 agreed to then limit the operative effect of the new
Section 9321 to a sunset date of January 1, 2004, which was
subsequently extended twice, to January 1, 2007 and finally to
January 1, 2010.
CHANGES TO EXISTING LAW
Existing law 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
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licensor, even if the security interest is perfected and the
licensee knows of its existence. This provision, as well as a
definition of "licensee in ordinary course of business" would
sunset on January 1, 2010.
This bill would change the sunset date for these provisions to
January 1, 2011.
This bill contains an urgency provision.
COMMENT
1. Stated need for the bill
The sponsor of AB 224, the Directors Guild of America, Inc.,
believes that another sunset extension is necessary to maintain
the status quo regarding Section 9321. According to both the
UCL and the sponsors of this bill, the extension is also
necessary in order to allow the involved parties to evaluate the
effect of Section 9321 on exclusive and nonexclusive licensees
in the context of existing and continually evolving technology
to deliver goods (e.g., such as "streaming media to cell
phones").
However, since the bill has been amended, the stakeholders (the
UCL and the sponsors of the bill), have come to the conclusion
that they need more than the one-year extension currently in the
bill, and would prefer the originally proposed three year
extension. They state that the time is needed in order to flesh
out the need to further refine the statute or draft a new one in
light of the advances in technology and new, creative licensing
agreements that may have evolved since this issue was last
revisited.
Suggested amendments:
On page 2, line 21, strikeout "2011" and insert: 2013
On page 2, line 23, strike out "2011" and insert: 2013
On page 2, line 33, strike out "2011" and insert: 2013
2. AB 244 is an urgency measure
Because of the sponsor's "inattention" to seeking an extension
of the sunset date earlier in the session, AB 244 is now an
urgency bill, so that any potential impact of the sunset taking
effect on all licensees of intellectual property may be averted
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for one more year (three more years if the amendment suggested
above is taken).
Support : Uniform Law Commission
Opposition : None Known
HISTORY
Source : Directors Guild of America, Inc. (sponsor)
Related Pending Legislation : None Known
Prior Legislation :
AB 2303 (Judiciary, Ch. 567, Stats. 2006) extended the sunset
date to January 1, 2010.
SB 283 (Sher, Ch. 235, Stats. 2003) extended the sunset date to
January 1, 2007.
SB 45 (Sher, Ch. 991, Stats. 1999) enacted Section 9321 as part
of a revision of Article 9 of the Uniform Commercial Code.
Prior Vote : N/A
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