BILL ANALYSIS
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Mark Leno, Chair A
2009-2010 Regular Session B
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AB 819 (Calderon)
As Amended July 9, 2009
Hearing date: July 14, 2009
Penal Code (URGENCY)
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INTELLECTUAL PROPERTY:
PIRACY PREVENTION AND PROSECUTION
HISTORY
Source: Author
Prior Legislation: AB 2750 (Krekorian) - Ch. 468, Stats. 2009
AB 64 (Cohn) - Ch. 9, Stats. 2006
SB 1506 (Murray) - Ch. 617, Stats. 2005
SB 438 (Johnston) - Ch. 906, Stats. 1998
Support: Unknown
Opposition:None known
Assembly Floor Vote: Ayes 77 - Noes 0
KEY ISSUES
SHOULD THE OFFICE OF THE ATTORNEY GENERAL INCLUDE A DIVISION OF
ORGANIZED CRIME AND INTELLECTUAL PROPERTY PIRACY (OCIP) TO
INVESTIGATE AND PROSECUTE INTELLECTUAL PROPERTY PIRACY,
ESPECIALLY MOVIE PIRACY, COMMITTED BY ORGANIZED CRIMINAL
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ENTITIES?
(CONTINUED)
SHOULD THE INTELLECTUAL PROPERTY PIRACY PREVENTION AND PROSECUTION
FUND BE CREATED WITHIN THE CONTROLLER'S OFFICE TO, UPON APPROVAL OF
THE ATTORNEY GENERAL, REIMBURSE LOCAL LAW ENFORCEMENT FOR THE COSTS
OF PROVIDING SUBSTANTIAL ASSISTANCE TO THE OCIP IN INTELLECTUAL
PROPERTY PIRACY CASES, AS SPECIFIED?
SHOULD THE NEW FUND BE ESTABLISHED WITH MONEY COLLECTED THROUGH THE
ENACTMENT OF AB 711 (CALDERON)?
SHOULD ALL FUNDS FROM PROSECUTIONS BY OCIP BE DEPOSITED IN THE NEW
FUND?
PURPOSE
The purpose of this bill is to 1) create in the Office of the
Attorney General the Division of Organized Crime and
Intellectual Piracy (OCIP) to investigate and prosecute
intellectual property piracy, as specified; 2) establish the
Intellectual Property Piracy Prevention and Prosecution (IPPPP)
Fund within the Controller's Office; 3) establish the IPPPP Fund
through money collected under AB 711 (Calderon); 4) use the
IPPPP to reimburse local law enforcement for the costs of
providing substantial assistance to the OCIP, as specified; 5)
provide that all fines in OCIP cases be deposited in the IPPPP
Fund; and 6) require an annual report to the Legislature.
Existing law states legislative intent to provide local law
enforcement and district attorneys with the tools necessary to
successfully interdict high technology crime. According to the
federal Law Enforcement Training Center, states will see a
tremendous growth in high technology crimes. High technology
crimes are those crimes in which technology is used as an
instrument in committing, or assisting in the commission of, a
crime, or which is the target of a criminal act. (Pen. Code
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13848, subd. (a).)
Existing law disperses funds through the High Technology Theft
Apprehension and Prosecution Program to ensure that law
enforcement is equipped with the necessary personnel and
equipment to successfully combat high technology crime,
including software piracy. (Pen. Code 13848, subd. (b)(5).)
Existing law establishes the High Technology Crime Advisory
Committee (HTCAC) to formulate comprehensive written strategy
for addressing high technology crime throughout California, with
the exception of crimes that occur on state property or are
committed against state employees, and to advise the California
Emergency Management Agency (CalEMA) on the appropriate
disbursement of funds to regional task forces. Priorities
identified include the apprehension and prosecution of criminal
organizations, networks, and groups of individuals engaged in
the creation and distribution of counterfeit software and other
digital information, including the use of counterfeit trademarks
to misrepresent the origin of that software or digital
information. Priorities include persons and groups engaged in
the creation and distribution of pirated sound recordings or
audiovisual works or the failure to disclose the origin of a
recording or audiovisual work. (Pen. Code 13848.6.)
Existing law requires the Director of CalEMA to appoint the
Chair and the following members to the HTCAC:
The California District Attorneys Association.
The California State Sheriffs Association.
The California Police Chiefs Association.
The Attorney General.
The California Highway Patrol.
The High Tech Criminal Investigators Association.
The representative of the agency of agencies
designated by the DOF Director.
The American Electronics Association to represent
computer system manufacturers.
The American Electronics Association to represent
software producers.
The California Cellular Carriers Association.
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The California Internet Industry Alliance.
The Semiconductor Equipment and Materials
International.
The California Cable Television Association.
The Motion Pictures Association of America.
Either the California Telephone Association or the
California Association of Long Distance Companies.
The California banking industry.
The Office of Privacy Protection.
The Department of Finance. (Pen. Code 13848.6,
subds. (c)-(d).)
Existing law states that the HTCAC shall not be required to meet
more than 12 times per year, and may create subcommittees of its
own membership which may meet as often as the members find
necessary. (Pen. Code 13848.6, subd. (e).)
This bill establishes the Division of Organized Crime and
Intellectual Piracy (OCIP) within the Office of the Attorney
General to investigate and prosecute intellectual property
piracy.
This bill establishes the Intellectual Property Piracy
Prevention and Prosecution (IPPPP) Fund within the Controller's
Office
This bill provides that the IPPPP Fund shall be established
through money collected under
AB 711 (Calderon).
This bill provides that the IPPPP Fund shall be used to
reimburse local law enforcement for the costs of providing
substantial assistance to the OCIP in the prosecution of
intellectual property piracy and theft, including movie and
music piracy, trademark and copyright infringement, commerce in
counterfeit goods, as specified.
This bill provides that all fines in OCIP cases be deposited in
the IPPPP fund.
This bill requires an annual report to the Legislature.
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RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION IMPLICATIONS
California continues to face a severe prison overcrowding
crisis. The Department of Corrections and Rehabilitation (CDCR)
currently has about 170,000 inmates under its jurisdiction. Due
to a lack of traditional housing space available, the department
houses roughly 15,000 inmates in gyms and dayrooms.
California's prison population has increased by 125% (an average
of 4% annually) over the past 20 years, growing from 76,000
inmates to 171,000 inmates, far outpacing the state's population
growth rate for the age cohort with the highest risk of
incarceration.<1>
In December of 2006 plaintiffs in two federal lawsuits against
CDCR sought a court-ordered limit on the prison population
pursuant to the federal Prison Litigation Reform Act. On
February 9, 2009, the three-judge federal court panel issued a
tentative ruling that included the following conclusions with
respect to overcrowding:
No party contests that California's prisons are
overcrowded, however measured, and whether considered
in comparison to prisons in other states or jails
within this state. There are simply too many
prisoners for the existing capacity. The Governor,
the principal defendant, declared a state of emergency
in 2006 because of the "severe overcrowding" in
California's prisons, which has caused "substantial
risk to the health and safety of the men and women who
work inside these prisons and the inmates housed in
them." . . . A state appellate court upheld the
Governor's proclamation, holding that the evidence
supported the existence of conditions of "extreme
----------------------
<1> "Between 1987 and 2007, California's population of ages 15
through 44 - the age cohort with the highest risk for
incarceration - grew by an average of less than 1% annually,
which is a pace much slower than the growth in prison
admissions." (2009-2010 Budget Analysis Series, Judicial and
Criminal Justice, Legislative Analyst's Office (January 30,
2009).)
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peril to the safety of persons and property."
(citation omitted) The Governor's declaration of the
state of emergency remains in effect to this day.
. . . the evidence is compelling that there is no
relief other than a prisoner release order that will
remedy the unconstitutional prison conditions.
. . .
Although the evidence may be less than perfectly
clear, it appears to the Court that in order to
alleviate the constitutional violations California's
inmate population must be reduced to at most 120% to
145% of design capacity, with some institutions or
clinical programs at or below 100%. We caution the
parties, however, that these are not firm figures and
that the Court reserves the right - until its final
ruling - to determine that a higher or lower figure is
appropriate in general or in particular types of
facilities.
. . .Under the PLRA, any prisoner release order that
we issue will be narrowly drawn, extend no further
than necessary to correct the violation of
constitutional rights, and be the least intrusive
means necessary to correct the violation of those
rights. For this reason, it is our present intention
to adopt an order requiring the State to develop a
plan to reduce the prison population to 120% or 145%
of the prison's design capacity (or somewhere in
between) within a period of two or three years.<2>
The final outcome of the panel's tentative decision, as well as
any appeal that may be in response to the panel's final
---------------------------
<2> Three Judge Court Tentative Ruling, Coleman v.
Schwarzenegger, Plata v. Schwarzenegger, in the United States
District Courts for the Eastern District of California and the
Northern District of California United States District Court
composed of three judges pursuant to Section 2284, Title 28
United States Code (Feb. 9, 2009).
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decision, is unknown at the time of this writing.
This bill does not appear to aggravate the prison overcrowding
crisis outlined above.
COMMENTS
1. Need for This Bill
According to the author:
California remains the capital of the motion picture
and television industry as well as a center for the
recording and software industries. In terms of
economic activity, television and movies generated a
total of $42.2 billion, split almost equally between
payroll expenditures and payments to vendors.
Approximately 266,000 people were directly employed in
the motion picture and television industry in
California, with an average salary of $80,600. When
indirect employment resulting from the industry is
factored in, the number of people working in
California as a result of television and movies totals
over 500,000.
Although piracy is a global problem, a recent study by
the Los Angeles County Economic Development
Corporation (LAEDC) notes that it affects the L.A.
region disproportionately due to the concentration of
the entertainment industry there. LAEDC estimates
that in 2005 losses to the motion picture industry
from piracy were $2.7 billion; the sound recording
industry $851 million; software publishing $355
million.
Not only is digital piracy a direct threat to the
industry, but its effects are felt by state and local
government in the form of lost tax revenues.
According to the same LAEDC study, piracy affecting
the entertainment industry just in LA cost nearly $134
million in state income taxes; $63.5 million in sales
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taxes; $2 million in LA City Business Taxes.
This is not just an LA problem. Digital piracy reaches
across the state, affecting the Silicon Valley and its
computer industry. According to the Business Software
Alliance, in 2003, software piracy alone cost the
California economy more than 13,000 jobs, $802 million
in wages and salaries, over $1 billion in retail sales
of business software applications, and roughly $239
million in total tax losses.
2. Late Amendments Rewrite the Bill
Prior to the amendments of July 9, 2009, the bill would have
created the Intellectual Property Piracy Prevention and
Prosecution (IPPPP) program, to fund grants for local law
enforcement and district attorneys for the purposes of
preventing and prosecuting intellectual property piracy. The
bill would have established the IPPPP Advisory Committee to
devise strategy and propose grants from a fund that was also
established by the bill. The entire program would be
administered by the Attorney General. Implementation of the
program was dependent upon an appropriation.
The program created in the previous version of the bill was
modeled on the High Technology Theft Apprehension and
Prosecution Program and the High Technology Crime Advisory
Committee (HTCAC). The bill would have eliminated movie, music
and software piracy from the purview of HTCAC and transferred
those subjects to the new intellectual property program.
The July 9, 2009, amendments eliminate the advisory committee
and create, instead, a Division of Organized Crime and
Intellectual Property (OCIP). The OCIP is tasked with
investigating and prosecuting intellectual property crimes. The
bill still includes creation of the Intellectual Property Piracy
Prevention and Prosecution (IPPPP) Fund within the Controller's
Office. The Attorney General would direct payments from the
fund to local law enforcement entities that provided assistance
to the OCIP in prosecuting intellectual property crimes.
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The July 9, 2009, amendments fund the IPPPP Fund through money
collected pursuant to
AB 711 (Calderon), which is pending in Senate Appropriations
Committee. The Revenue and Tax Committee analysis of the bill
states: "[AB 711 is designed] to increase revenues ?by
requiring larger businesses that are not already registered, to
register with the Board and remit use tax on their untaxed
purchases from out-of-state retailers." This bill and AB 711
are not joined or subject to a contingency. The amendments also
require that any fines imposed in OCIP cases be deposited in the
IPPPP Fund.
3. Creating Financial Incentives for Law Enforcement to
Concentrate Efforts on a Particular Kind of Crime
This bill requires that fines in crimes prosecuted by OCIP be
deposited into the Intellectual Property Piracy Prevention and
Prosecution Fund. This bill also directs the Attorney General
to reimburse local law enforcement for assistance to the OCIP in
investigating and prosecuting crimes within its mandate.
The use of a state fund to reimburse law enforcement for
investigation of a particular kind of crime and the deposit of
fines imposed in convictions for such crimes into the fund
raises issues concerning the creation of financial incentives
for law enforcement to concentrate efforts on one kind of crime
to the detriment of enforcement efforts in other crimes.
Funding for many law enforcement programs will be cut
considerably in the pending budget. For example, the Bureau of
Narcotics Enforcement will receive millions less in this budget
year than in years past.
Requiring a defendant convicted of an intellectual property
crime to pay fines into a fund for investigating and prosecuting
similar crimes can arguably be described as requiring a
defendant to pay restitution to a government entity for the
costs of investigating and prosecuting the crime.
Crimes other than intellectual property offenses may require
costly investigation by law enforcement. Murders and sex crimes
are often costly to investigate. Such crimes may involve
extensive forensic analysis - autopsies, medical examinations,
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DNA analysis, etc. This bill would require defendants in one
class of crime to pay the costs of investigation. A government
entity that incurs costs in prosecuting a crime is not a victim
of crime. (People v. Torres (1997) 59 Cal.App.4th at pp. 3-5 -
trial court could not order defendant to pay restitution for the
costs of undercover drug buys.)
Combined with the "bounty" of reimbursing law enforcement for
the cost of investigating intellectual property crimes,
requiring defendants to pay fines into the fund from which
reimbursement for investigation of intellectual property crimes
could significantly skew priorities for law enforcement. This
may be particularly true in these very difficult fiscal
circumstances.
DOES THIS BILL CREATE FINANCIAL INCENTIVES - THROUGH
REIMBURSEMENT FROM A STATE FUND AND DEDICATED FINES - FOR LAW
ENFORCEMENT TO CONCENTRATE EFFORTS ON INTELLECTUAL PROPERTY
CRIMES TO THE DETRIMENT OF INVESTIGATIONS INTO AND PROSECUTION
OF OTHER CRIMES?
4. Use of IPPPP Fund Money to Reimburse Law Enforcement for
Assisting the OCIP in Investigating and Prosecuting
Copyright Violations - Jurisdictional Issues
Federal law preempts state law in the area of copyright. A
state criminal law affecting copyright interests must be
based in a valid subject for state law. The most widely
used California music and movie piracy law requires a
person who distributes a musical or audiovisual work to
disclose the true name and address of the maker of the
work. While prosecution under the California music and
movie piracy laws may effectively promote or protect the
owners of the copyright in music or movies, the California
law cannot directly protect copyrights. In this regard, it
should be noted that the bill does also refer to music and
movie piracy generally.
SHOULD THE BILL BE AMENDED TO STRIKE THE REFERENCE TO
INVESTIGATION AND PROSECUTION OF COPYRIGHT VIOLATIONS, AS
FEDERAL COPYRIGHT LAW PREEMPTS STATE LAW?
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5. Recent Music and Movie Piracy Legislation - Piracy
Investigations by Industry Representatives
The Legislature has enacted a number of movie and music
piracy bills over the past five years:
AB 64 (Cohn) - Ch. 9, Stats. 2006, expanded the
felony in the true name and address music piracy law.
California can make no direct copyright infringement
statutes, as federal law preempts state law in this
regard. Instead, California law makes is a crime to
fail to disclose the true name and address of the
maker of a sound recording. Music and movie pirates
are unlikely to include their true name and address on
pirated CDs. DVDs and other recordings and audiovisual
works.
SB 1506 (Murray) - Ch. 617, Stats. 2004,
essentially extended the true name and address law for
hard-copy musical or audiovisual works to electronic
distribution through Internet file sharing.
SB 1032(Murray) - Ch. 670, Stats. 2003, defined the
misdemeanor crime of recording a motion picture in a
theatre without the express permission of the owner of
the theatre. The illicit recording of movies in
theatrical release was the subject of a well-known
"Seinfeld" episode - "The Little Kicks."
AB 2750 (Krekorian) - Ch. 468, Stats. 2008,
provided that in a music or movie piracy prosecutions,
the court can order the defendant to pay restitution
to a trade association (such as the Recording Industry
Association of America - RIAA), if the trade
association suffered economic loss from the
defendant's crime. AB 2750 specifically provided that
restitution includes the reasonable costs incurred by
the owner, producer or trade association to
investigate the piracy.
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In discussions on each of these bills, industry representatives
noted that the music and movie industries make substantial
efforts to investigate piracy under existing laws. The trade
associations employ investigators - often former law enforcement
officers - to investigate music and movie piracy. The trade
associations also employ attorneys - often former prosecutors -
to organize and prepare the evidence that would be used in
prosecution. The cases are then essentially turned over to
local law enforcement agencies and district attorneys for
prosecution. Also, especially in music piracy cases, trade
associations have sued persons who have downloaded or
electronically distributed pirated music. Trade association
lawyers vigorously pursue restitution claims following music or
movie piracy convictions.
The music and movie industries have direct and substantial
financial interests in preventing piracy, punishing piracy and
obtaining restitution from those who illegally obtain or
distribute music and movies. Arguably, a government-sponsored
piracy advisory organization and a program to fund piracy
investigations by law enforcement could be redundant of industry
efforts.
WOULD THE PROGRAM CREATED BY THIS BILL DUPLICATE CURRENT EFFORTS
AND ACTIVITIES OF MOVIE INDUSTRY COMPANIES AND TRADE
ASSOCIATIONS TO INVESTIGATE AND COUNTER PIRACY?
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6. LAO's 2008-2009 Budget Analysis: High Technology Theft
Apprehension and Prosecution Program - the Precursor or
Model of the Program Created by this Bill
The Legislative Analyst's Office (LAO) reviewed the High
Technology Theft Apprehension and Prosecution Program
(HTTAP) as part of the review of the 2008-2009 Budget. The
HTTAP appears to be the model for the program that would be
created by this bill. The LAO's analysis stated:
Background. High technology crimes are defined as
being those crimes in which technology is used as an
instrument in committing a crime, or in which
technology is the target of a crime (examples include
computer hacking and intellectual property theft).
Historically, the High Technology Theft Apprehension
and Prosecution Program provided about $10 million
from the General Fund to support five local high
technology crime task forces, and two related database
and training projects.
In 2001, the Legislature expanded the program to
include five regional identity theft units that focus
solely on identity theft crimes. As a result, funding
for the program increased to $13.3 million from the
General Fund. Under the program, equal grant
allocations go to high technology task forces in
Marin, Los Angeles, Sacramento, San Diego, and Santa
Clara Counties (each task force gets about $2.5
million), with additional resources allocated to DOJ
and the California District Attorneys Association to
maintain a crime database and to provide training. The
General Fund portion of program funding has a 25
percent local government match, bringing total program
funds to $16.6 million.
Administration's Proposal. The administration's
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budget proposes a 10 percent reduction in funding for
this program in the budget year (for a General Fund
reduction of $1.3 million). The result would be
approximately $12 million of continued General Fund
support for the program, for total program funding of
at least about $15 million when the local matching
funds requirement is taken into account.
$10 Million in Spending Focused on 1,500 Victims. In
2006-07, the program's high technology task forces
investigated about 1,000 crimes involving about 1,500
victims at a General Fund cost of $10 million. This
means that on average, the state spent more than
$10,000 per investigation, or $6,800 per victim on
these types of crimes. The identity theft task forces,
which were funded with $3.3 million of General Fund
support, investigated about 1,400 cases statewide
which involved nearly 17,000 victims of identity
theft. This means that on average, the state spent
more than $2,300 per identity theft investigation, or
about $200 per victim.
LAO Recommendation. As a result of the high cost to
the state of investigating each case, and to better
target funding in this program, we recommend that the
Legislature reduce total General Fund support to this
program by 25 percent ($3.3 million General Fund) by
reducing the funding provided for high-tech theft
cases. Our recommendation would hold harmless the
amount of existing funding to identity theft units and
to DOJ for the crimes database. This would result in
approximately $10 million General Fund support for the
program ($3.3 million for identity theft units, $6.7
million for other high-tech crimes units, and $60,000
to DOJ for crimes database).
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