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 June 22, 2010
Hearing date: June 29, 2010
Penal Code (URGENCY)
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INTELLECTUAL PROPERTY PIRACY
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 CRIMES INVOLVING COUNTERFEIT GOODS BE EXPANDED TO INCLUDE
POSSESSION, USE, DISPLAY OR TRANSPORTING, AS SPECIFIED, OF SUCH
GOODS, AND THE ITEMS COVERED BY THE OFFENSE EXPANDED TO INCLUDE
ANY COMPONENT OF A TRADEMARK GOOD OR SERVICE, INCLUDING
PACKAGING, CONTAINERS, OR DOCUMENTATION, AS SPECIFIED?
SHOULD THE PENALTIES FOR CRIMES INVOLVING COUNTERFEIT GOODS NOT
DEPEND ON THE NUMBER OF ITEMS INVOLVED IN THE CRIME, AND SHOULD
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THE FINES FOR SUCH CRIMES BE GREATLY INCREASED?
(CONTINUED)
SHOULD RESTITUTION IN A CASE OF PIRACY OF AN UNRELEASED AUDIO
WORK OR AN AUDIOVISUAL WORK THAT HAS NOT BEEN RELEASED ON DISC
BE CALCULATED AS PROVEN LOSSES FROM THE PIRACY OR FIVE TIMES THE
VALUES OF EACH PIRATED WORK?
SHOULD NUMEROUS CRIMES CONCERNING AUDIO WORKS ALSO APPLY TO
AUDIOVISUAL WORKS?
SHOULD THE FINES FOR CRIMES INVOLVING AUDIO WORKS AND
AUDIOVISUAL WORKS BE GREATLY INCREASED, AS SPECIFIED?
SHOULD A LAW THAT ALLOWS RESTITUTION IN A MUSIC OR VIDEO PIRACY
CASE TO BE PAID TO A TRADE ASSOCIATION ALSO APPLY TO CASES
INVOLVING COUNTERFEIT GOODS AND SERVICES?
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
ENTITIES?
UPON APPROPRIATION BY THE LEGISLATURE AND APPROVAL OF THE
ATTORNEY GENERAL, SHALL THE CONTROLLER MAKE PAYMENTS FROM THE
FUND TO LOCAL LAW ENFORCEMENT AGENCIES THAT PROVIDE SUBSTANTIAL
ASSISTANCE TO THE OCIP IN INTELLECTUAL PROPERTY PIRACY CASES, AS
SPECIFIED?
SHOULD ALL FUNDS FROM PROSECUTIONS BY OCIP BY DEPOSITED IN THE
NEW FUND?
PURPOSE
The purposes of this bill are to 1) create in the Department of
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Justice the Division of Organized Crime and Intellectual Piracy
(OCIP) to investigate and prosecute intellectual property
piracy, as specified; 2) to establish the Intellectual Property
Piracy Prevention and Prosecution (IPPPP) Fund within the
Controller's Office, and, upon appropriation by the Legislature,
use the fund to reimburse local law enforcement for the costs of
providing substantial assistance to the OCIP, as specified; 3)
to provide that all fines in OCIP cases be deposited in the
IPPPP fund; 4) to expand the acts constituting crimes involving
counterfeit goods, as specified; to greatly increase the fines
for crimes involving counterfeit goods,
5) to expand numerous crimes involving audio works to include
audiovisual works; 6) to greatly increase the fines for crimes
involving audio and audiovisual works; 7) to define and expand
restitution for audiovisual and audio works; and 8) to allow
restitution in a counterfeit goods case to be paid to a trade
association, as specified.
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
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
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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 specified representatives of law enforcement, and high
technology, telecommunications, film and finance industries to
the HTCAC (Pen. Code 13848.6, subds. (c)- (d).)
This bill establishes in the Office of the Attorney General the
Division of Organized Crime and Intellectual Piracy (OCIP) 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.
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This bill requires an annual report to the Legislature.
This bill eliminates provisions that set penalties based on the
number of items involved the crime.
This bill increases the fine for a first conviction for a
misdemeanor involving counterfeit goods from $5,000 to $2
million for an individual and $100,000 to $5 million for a
business.
This bill increases the fine for a repeated conviction for a
crime involving counterfeit goods from $50,000 or $250,000 to $5
million for an individual, and from $200,000 or $500,000 to $15
million for a business.
This bill provides that where a crime involving counterfeit
goods results in death or great bodily injury to a person using
an item for its intended purpose, the fine shall be raised from
$50,000 to $5 million for an individual and from $200,000 to $15
million for a business.
Trademark Crimes
Existing law (Pen. Code 350, subd. (a)) states that any person
who willfully manufactures, intentionally sells, or knowingly
possesses for sale any counterfeit of a mark registered with the
California Secretary of State or registered on the United States
Patent and Trademark Office shall be punishable as follows:
If the offense involves less than 1,000 of the articles with a
total retail value less than the standard for grand theft (over
$400 - 487) the defendant is guilty of a misdemeanor,
punishable by a fine of not more than $5000, imprisonment in a
county jail for up to one year; or by both. If the defendant is
a corporation, by a fine of not more than $100,000.
When the crime involves 1,000 or more articles,
or has a total retail value that meets the standard
for grand theft (over $400 - 487), the crime is an
alternate felony-misdemeanor, punishable by
imprisonment in a county jail for up to one year, or
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in the state prison for 16 months, 2 years or 3
years; by a fine not to exceed $250,000, or both.
If the defendant is a corporation, the maximum fine
is $500,000.
Existing law provides that a repeated violation of the
counterfeit trademark statute is an alternate
felony-misdemeanor, punishable by a fine of not more than
$50,000, imprisonment in a county jail for not more than one
year, or in the state prison for 16 months, or 2 or 3 years, or
both. If the defendant is a corporation, the maximum fine is
$200,000. (Pen. Code 350, subd. (b).)
Existing law states that any person whose trademark violation
has directly and foreseeably caused death or great bodily injury
to another through reliance on the counterfeited item for its
intended purpose is guilty of a felony, punishable by
imprisonment for 2, 3, or 4 years, a fine of not more than
$50,000, or by both. The maximum fine for a corporation is a
fine of not more than $200,000. (Pen. Code 350, subd. (c).)
Existing federal law provides that it is a crime to "traffic" or
"attempt to traffic" in counterfeit goods. The crime is
punishable by a fine of up to $2,000,000, imprisonment for up to
10 years, or both. The maximum fine for a corporation or an
entity other than an individual is $5,000,000. Repeated
convictions are punishable by imprisonment for up to 20 years, a
fine of up to $5,000,000, or both. Where the convicted
defendant of repeated violations is other than an individual the
maximum fine is $15,000,000. (18 U.S.C. 2320.)
Existing federal law includes the Federal Sentencing Guidelines,
which provide very detailed factors a judge shall consider in
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imposing sentence within an extensive range of possible
penalties. (See, 18 U.S.C. 3553 et seq. as to application of
the guidelines by the sentencing court.)
Existing federal law defines trafficking thus: [T]he term
"traffic" means to transport, transfer, or otherwise dispose of,
to another, for purposes of commercial advantage or private
financial gain, or to make, import, export, obtain control of,
or possess, with intent to so transport, transfer or otherwise
dispose of. (18 U.S.C. 2320 (e)(2.).)
This bill expands the acts constituting violations of the
trademark law to provide that it is a crime to use, possession,
use, display, or transporting of counterfeit goods.
This bill expands the items subject to the counterfeit law to
include boxes, containers, cans, cases, or any other components,
as specified.
Music and Audiovisual Piracy
California True Name and Address (Music Piracy) Law as Amended
by this Bill
Existing law (Pen. Code 653w) provides that a person is guilty
of a crime when he or she knowingly attempts to sell, rent or
manufacture, or possess for these purposes, an illicit audio
recording or audiovisual work. It is an element of this offense
that the defendant failed to disclose the true name and address
of the manufacturer and the name of the artist.
A violation of Section 653w involving at least 100 copies of
an audio recording an audiovisual work is an alternative
felony-misdemeanor, punishable by imprisonment for up to one
year in the county jail, or in state prison for 2, 3, or 5
years, or a fine of up to $250,000, or both.
First violation involving less than 100 copies of an audio
recording or an audiovisual work is a misdemeanor, punishable
by up to one year in county jail, or a fine not exceeding
$25,000, or both.
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Subsequent violation involving less than 100 copies of an
audio recording or an audiovisual work is an alternative
felony-misdemeanor, punishable by up to one year in county
jail, 16 months, 2 years, or 3 years in state prison, or a
fine not exceeding $100,000, or both. (Penal Code 653w.)
This bill changes the fines for the crimes described in Section
653w as follows:
The fine for a misdemeanor violation that involves between 25
and 100 units of a sound recording, or between 7 and 65 such
audiovisual recordings, shall be a maximum of $150,000.
If the defendant has a prior conviction, the fine shall be a
maximum of $250,000.
The maximum fine for a fist offense that involves less than 25
units of a sound recording or less than 7 units of an
audiovisual work shall be $50,000.
This bill provides that a violation of this section that
involves between 25 and 100 units is an alternate
felony-misdemeanor, punishable by a jail term of up to one year
or a prison term of 16 months, two years or three years.
Transferring or Transporting Sound Recordings
Existing law - Penal Code Section 653h, subdivision (a),
prohibits:
Transferring any recording for purposes of sale or
commercial public performance.
Transporting transferred recordings for financial gain.
Section 653h, subd. (d) prohibits selling, or offering for
sale etc., illegally transferred recording.
This bill adds audiovisual works to the crimes of 1)
transferring or transporting, for commercial advantage, any
sounds that have been recorded on a record, disc, or any article
for recording sounds, as specified, and 2) selling, offering for
sale, renting or offering for rent, such items, with knowledge
of the illegal transferring or transporting.
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Section 653h, subd. (a) is punished thus:
Offense involving at least 1000 units - wobbler (alternate
felony-misdemeanor), with prison triad of 2, 3 or 5 years and
$250,000 fine
Offense involving less than 1000 units - misdemeanor
Second conviction for under 1000 units - straight felony, with
a maximum fine of $100,000
Section 653h, subd. (d) punishment:
First offense involving at least 100 units - misdemeanor, with
maximum 1-year jail term and maximum $10,000 fine
Second conviction - wobbler, with maximum $25,000 fine\
First offense involving less than 100 units - misdemeanor,
with maximum 6-months' jail term and maximum $5,000 fine
Second offense involving less than 100 units - misdemeanor,
with maximum 1-year jail term and maximum $10,000 fine
Third offense involving less than 100 units - wobbler, with
maximum $25,000 fine
This bill provides that the fine for a misdemeanor violation
that involves between 100 and 1,000 units of a sound recording,
or between 7 and 65 audiovisual recording, shall be a maximum of
$150,000.
This bill provides that the fine for a conviction under this
section that involves at least 65 audiovisual works shall be a
maximum of $250,000.
This bill eliminates the provisions setting specified penalties
for commerce in illegally transferred works by the number of
convictions the defendant has suffered.
Crimes Involving Illegal Recordings of Live Performances
Existing law (Pen. Code 653s, subdivision (a), prohibits any
person from, without consent of the owner of the live recording,
transporting any recording of a live performance for monetary or
other. Section 653s, subd. (a) is punished thus:
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Offense involving at least 1,000 units - wobbler (alternate
felony-misdemeanor), with prison triad of 2, 3 or 5 years and
$250,000 fine. (Pen. Code 653s, subd. (g).)
Offense involving less than 1,000 units:
o First offense is a misdemeanor, punishable by a jail
term of up to one year, a fine of up to $25,000, or both.
o Second or subsequent offense is an alternate
felony-misdemeanor, punishable by a jail term of up to one
year, a prison terms of 16 months, two years or three
years, a fine of up to $100,000, or both. (Pen. Code
653s, subd. (h).)
Existing law (Pen. Code 653s, subd. (i), provides that any
person who sells or offers to sell any unauthorized live
recording is guilty of a crime, defined and punished as follows:
If the offense involves less than 100 units, the person is
guilty of a misdemeanor, punishable by imprisonment in the
county jail for up to six months, a fine of up to $5,000, or
both.
A second conviction is a misdemeanor, punishable by a jail
term of up to one year, a fine of up to $10,000, or both.
A third or subsequent conviction is an alternate
felony-misdemeanor, punishable a jail term of up to one year,
a prison term of 16 months, two years or three years, a fine
of up to $25,000, or both. (Pen. Code 653s, subd. (i)(2).)
If the offense involves at least 100 units, the crime is a
misdemeanor, punishable by a jail term of to one year, a fine
of up to $10,000, or both. A second or subsequent conviction
is an alternate felony-misdemeanor, punishable by a jail term
of up to one year, a prison term of 16 months, two years or
three years, a fine of up to $25,000, or both. (Pen. Code
653s, subd. (i)(2).)
This bill adds audiovisual works to the crimes based on, without
consent, transporting for commercial advantage a recording of a
live performance.
This bill adds the acts of selling, offering for sale, renting
or offering for rent, illegal recordings of live performances.
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This bill changes the fines for the crimes described in Section
653s as follows:
The fine for a misdemeanor violation that involves between 100
and 1,000 units of an illegally recorded live sound
performance, or between 7 and 65 such audiovisual recordings,
shall be a maximum of $150,000.
The fine for a conviction under this section that involves at
least 65 audiovisual works shall be a maximum of $250,000.
This bill eliminates the provisions setting specified penalties
for commerce in illegally recorded live performances by the
number of convictions the defendant has suffered.
Illegal Recording or Mastering of a Live Performance on any
Article
Existing law provides that any person who, without consent,
records or masters on any article the sound of a live
performance is guilty of a crime, punishable as follows:
Offense involving at least 1,000 units - wobbler (alternate
felony-misdemeanor), with prison triad of 2, 3 or 5 years and
$250,000 fine. (Pen. Code 653u, subd. (d).)
Offense involving less than 1,000 units:
o First offense is a misdemeanor, punishable by a jail
term of up to one year, a fine of up to $25,000, or both.
o Second or subsequent offense is an alternate
felony-misdemeanor, punishable by a jail term of up to one
year, a prison terms of 16 months, two years or three
years, a fine of up to $100,000, or both. (Pen. Code
653s, subd. (e).)
This bill includes audiovisual works in this crime.
This bill provides the following additional fines for this
crime:
The fine for a misdemeanor violation of this section that
involves between 100 and 1,000 units of a sound recording
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article, or between 7 and 65 such audiovisual recordings,
shall be a maximum of $150,000.
The fine for a conviction under this section that involves at
least 65 audiovisual works shall be a maximum of $250,000.
Existing law provides that "every person who operates a
recording device in a motion picture theater while a motion
picture is being exhibited, for the purpose of copying the
motion picture," without authority of the owner of the theater,
is guilty of a misdemeanor, punishable by a county jail term not
exceeding one year, by a fine not exceeding $2,500, or both
(Pen. Code 653z.)
This bill raises the maximum fine for a first conviction to
$25,000.
This bill raise the maximum fines for a second and third
conviction to $50,000 and $100,000 respectively.
Existing law provides that any person located in California who,
knowing that a particular recording or audiovisual work is
commercial, knowingly electronically disseminates all or
substantially all of that recording or work without disclosing
his or her true name and address and the title of the recording
or work, is guilty of a misdemeanor punishable by a fine of up
to $2,500 and up to a year in county jail. The defendant must
know that the work was disseminated to more than 10 persons.
(See Pen. Code 653aa.)
Restitution for Intellectual Property Crimes
Existing law requires the court in a music or audio-visual
piracy case to order the defendant to pay restitution to any
owner, producer, or trade association acting on behalf of the
owner or lawful producer.
restitution shall be calculated as the average aggregate
wholesale value of lawfully manufactured and authorized
musical or audio-visual works unless a greater amount can
be determined in the case of 1) an unreleased audio work,
or 2) an audiovisual work that had not been made available
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for sale to the public in the U.S. on digital versatile
disc.
The order of restitution shall also include reasonable
costs incurred as a result of any investigation of the
violation undertaken by the owner, lawful producer, or
trade association acting on behalf of the owner or lawful
producer. (Pen. Code 1202.4, subd. (r).)
This bill includes convictions for trademark violations and
Internet piracy as underlying convictions subject to the special
rules for restitution in cases involving audio or audio-visual
piracy.
This bill amends the audio and audio visual piracy restitution
rules to eliminate the reference a proving a higher value than
aggregate wholesale value of covered works. The bill replaces
that provision with this: In the case of (A) an unreleased
audio work, or (B) an audiovisual work that has not been made
available in copies for sale to the general public in the [U.S.]
on a digital versatile disc the order of restitution shall also
include either proven economic loss incurred from lost profits
or no less than five times the aggregate value of each
nonconforming article or device.
This bill states that intellectual piracy presents a significant
threat to consumers who may be deceived and misled about
products that are "palmed off as legitimate authorized goods."
RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION
The severe prison overcrowding problem California has
experienced for the last several years has not been solved. In
December of 2006 plaintiffs in two federal lawsuits against the
Department of Corrections and Rehabilitation sought a
court-ordered limit on the prison population pursuant to the
federal Prison Litigation Reform Act. On January 12, 2010, a
federal three-judge panel issued an order requiring the state to
reduce its inmate population to 137.5 percent of design capacity
-- a reduction of roughly 40,000 inmates -- within two years.
In a prior, related 184-page Opinion and Order dated August 4,
2009, that court stated in part:
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"California's correctional system is in a tailspin,"
the state's independent oversight agency has reported.
. . . (Jan. 2007 Little Hoover Commission Report,
"Solving California's Corrections Crisis: Time Is
Running Out"). Tough-on-crime politics have increased
the population of California's prisons dramatically
while making necessary reforms impossible. . . . As a
result, the state's prisons have become places "of
extreme peril to the safety of persons" they house . .
. (Governor Schwarzenegger's Oct. 4, 2006 Prison
Overcrowding State of Emergency Declaration), while
contributing little to the safety of California's
residents . . . California "spends more on
corrections than most countries in the world," but the
state "reaps fewer public safety benefits." . . . .
Although California's existing prison system serves
neither the public nor the inmates well, the state has
for years been unable or unwilling to implement the
reforms necessary to reverse its continuing
deterioration. (Some citations omitted.)
. . .
The massive 750% increase in the California prison
population since the mid-1970s is the result of
political decisions made over three decades, including
the shift to inflexible determinate sentencing and the
passage of harsh mandatory minimum and three-strikes
laws, as well as the state's counterproductive parole
system. Unfortunately, as California's prison
population has grown, California's political
decision-makers have failed to provide the resources
and facilities required to meet the additional need
for space and for other necessities of prison
existence. Likewise, although state-appointed experts
have repeatedly provided numerous methods by which the
state could safely reduce its prison population, their
recommendations have been ignored, underfunded, or
postponed indefinitely. The convergence of
tough-on-crime policies and an unwillingness to expend
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the necessary funds to support the population growth
has brought California's prisons to the breaking
point. The state of emergency declared by Governor
Schwarzenegger almost three years ago continues to
this day, California's prisons remain severely
overcrowded, and inmates in the California prison
system continue to languish without constitutionally
adequate medical and mental health care.<1>
The court stayed implementation of its January 12, 2010 ruling
pending the state's appeal of the decision to the U.S. Supreme
Court. On Monday, June 14, 2010, The U.S. Supreme Court agreed
to hear the state's appeal in this case.
This bill appears to aggravate the prison overcrowding crisis
described 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
----------------------
<1> Three Judge Court Opinion and Order, 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 (August 4, 2009).
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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
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. 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:
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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
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
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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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This bill requires that fines in crimes prosecuted by OPIC be
deposited into the IPPPP Fund. The use of fines from a specific
crime to pay for prosecutions of similar crimes 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. For
example, the Bureau of Narcotics Enforcement will receive
millions less in this budget year than in years past.
WILL REQUIRING THE FINES FOR CRIMES PROSECUTED BY OCIP BE
DEPOSITED IN A FUND TO REIMBURSE LAW ENFORCEMENT FOR ASSISTING
OPIC CREATE AN INCENTIVE FOR LAW ENFORCEMENT TO CONCENTRATE
EFFORTS ON SUCH CRIMES TO THE DETRIMENT OF INVESTIGATIONS INTO
AND PROSECUTION OF OTHER CRIMES?
3. 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?
4. Recent Music and Movie Piracy Legislation - Piracy
Investigations by Industry Representatives
The Legislature has enacted a number of movie and music
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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.
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
AB 819 (Calderon)
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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?
5. Federal Law Controls Copyright - State Law Generally Involves
Other Defined Offenses
Federal law preempts state law in the area of copyright. State
laws related to copyright are generally called "true name and
address" laws, which essentially prohibit specified forms of
unfair competition. California Penal Code Section 653w is a
form of true name and address law. Other statutes including
statements that the crimes are meant to protect other valid
state interests. This bill includes a statement that
intellectual piracy poses a substantial threat to consumers. It
appears that this statement is intended, at least in part, to
defeat any claims of federal preemption.
The United States 9th Circuit Court of Appeals upheld the
California true name and address law in Anderson v. Nidorf (9th
Cir. 1994 26 F.3d 100). Cletus Anderson was convicted under
Penal Code Section 653w for failing to disclose the origin of a
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sound recording: Anderson's claim that Section 653w is
preempted by federal copyright law was rejected by the 9th
Circuit. The court in Anderson explained its holding that the
California law, in protecting interests beyond and apart from
federal copyright law, was not preempted by federal law:
. . . [T]he district court stated: [] "[Anderson's]
argument ignores [that] 653w was designed to serve:
'assisting consumers in this state by mandating that
manufacturers market products for which consumers can
go back to the source if there are any problems or
complaints.' Preemption would frustrate the State's
objective of consumer protection through disclosure."
[] Federal copyright laws do not . . . protect
consumers. They are designed to protect the property
rights of copyright owners.
?Because Section 653w does not prohibit the
reproduction of copyrighted works, but rather
prohibits selling recordings without disclosing the
manufacturer and author of the recording (regardless
of its copyright status), the federal copyright laws
do not preempt the state statute. (Internal
citations omitted, bold type added.)
The decision in Anderson did not consider whether the California
true name and address statute would be preempted by federal law
if the sole intent of the law were to prevent piracy. However,
such an argument can be made from the decision in Anderson,
which focused on the consumer protection aspect of the
California law.
6. Difficulty of Adapting Federal Criminal Sentences to
California Law - Federal Sentences and Fines are Imposed
Pursuant to Detailed Sentencing Guidelines Designed to Produce
Proportionate and Appropriate Sentences within a Wide Range .
Federal courts impose sentence pursuant to the Federal
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Sentencing Guidelines, which provide very detailed factors a
judge shall consider in imposing sentence within an extensive
range of possible penalties. (See, 18 U.S.C. 3553 et seq. as
to application of the guidelines by the sentencing court.)
Courts are essentially directed to add or decrease prison time,
and to increase or decrease fines according to relatively
certain schedules and chats. California sentences are imposed
pursuant to much looser guidelines than the federal sentencing
guidelines. Comparing California and federal sentences is very
difficult.
The commentary to the general guidelines for intellectual
property crimes states:
This guideline treats copyright and trademark
violations much like theft and fraud. Similar to the
sentences for theft and fraud offenses, the sentences
for defendants convicted of intellectual property
offenses should reflect the nature and magnitude of
the pecuniary harm caused by their crimes.
Accordingly, similar to the loss enhancement in the
theft and fraud guideline, the infringement amount in
subsection (b)(1) serves as a principal factor in
determining the offense level for intellectual
property offenses.
Essentially, the maximum fines and sentences in federal
intellectual property law are for truly high-level crime, likely
involving such acts as international smuggling of large amounts
of pirated goods.
Under the federal sentencing guidelines for intellectual
property crimes, the court essentially determines the base
sentencing level of the crime. It appears that the base level
for trafficking in counterfeit goods is 8. The court then
calculates increases or decreases in levels for various
circumstances. It appears that commercial motivation adds two
levels. The levels increase based on the value of property. If
the value of the property is between $2,000 and $5,000 in value,
add one level. A chart guides the court in increasing levels
for higher values.
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For example, a defendant sentenced in a typical commercial
counterfeit goods case involving property valued at $10,000
would receive a sentence such as the following: A prison term
of 10-16 months and a fine of between $3,000 and $30,000.
In contrast, California sentencing law includes various statutes
imposing sentence enhancements and increased fines when the
crime involved a large amount of money or the value of the
property taken or lost was high.
ESPECIALLY IN COPYRIGHT LAW, SHOULD LARGE-SCALE INTELLECTUAL
PROPERTY CRIME, ESPECIALLY CRIME INVOLVING MULTIPLE STATES AND
FOREIGN COUNTRIES, BE HANDLED IN FEDERAL COURT?
7. Mandatory Penalty Assessments Multiply a Criminal Fine Nearly
Four Times
Criminal fines are subject to mandatory penalty assessments.
Penalty assessments fund numerous programs. Penalty assessments
generally are imposed at 280% of the base fine, although the
exact amount varies from county to county. An individual
defendant (not a business entity) who is ordered to pay a fine
authorized by this bill of $2 million would actually be required
to pay a fine of approximately $7.6 million.
IF INCREASED INTELLECTUAL PROPERTY FINES ARE TO BE MODELED ON
FEDERAL LAW, SHOULD THAT BE DONE IN LIGHT OF THE FACT THAT
FEDERAL FINES ARE IMPOSED THROUGH DETAILED CONSIDERATION OF
NUMEROUS FACTORS SET OUT IN THE FEDERAL SENTENCING GUIDELINES?
8. Restitution Issues
The primary purpose of restitution is to compensate the victim
for the harm caused by the defendant. (Cal. Const. Art. 1
28(b).) Pen. Code 1204, subd. (a)(1).) Restitution also
serves as a form of rehabilitation in that it can bring the
defendant to understand and appreciate the losses or harms he or
she has caused. (People v. Crow (1993) 6 Cal.4th 952, 958 It is
questionable whether restitution can properly have a punitive
purpose. Restitution was originally imposed as a condition of
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probation. (Witkin & Epstein (3rd Ed. 2000) 3 Crim. Law,
Punishment, 97 Probation is essentially a grant of leniency to
allow the defendant to make amends.
This bill provides that restitution for cases involving pirated
unreleased audio works and audiovisual works that have not been
released on disc shall be proven economic losses or "five times
the aggregate value of each non-conforming article or device."
This provision raises an issue as to whether such a formula more
than compensates the victim for losses. While it can be argued
that distribution of unreleased works is particularly harmful,
as new works of music or video may quickly lose value following
release. That is, part of the value of an audio or audiovisual
work is the newness or novelty of the work. However, the method
of calculation of restitution must be reasonable. (People v.
Giordano (2007) 42 Cal.4th 644.)
A predetermined restitution amount of five times the value of a
work would likely be challenged as arbitrary and punitive.
Further, if a restitution provision is determined to be
punishment, courts could find that the amount must be determined
by a jury. (Blakely v. Washington (2004) 542 U.S. 296.)
IS A RESTITUTION FORMULA SETTING THE AMOUNT OWED AS FIVE TIMES
THE VALUE OF UNRELEASED AUDIO AND AUDIOVISUAL WORKS ARBITRARY
AND PUNITIVE?
9. Recent Amendments Substantially Rewrite the Bill
This bill was substantially amended on June 22, 2010. The
amendments included all of the provisions in the bill except the
Intellectual Property Piracy Prevention and Prosecution Act and
related sections creating a fund for reimbursing investigation
and prosecution costs in such cases and creation of the Division
of Organized Crime and Intellectual Property Piracy in the
Department of Justice to approve grants from the fund. These
provisions have been in the bill for approximately one year.
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The other sections in the bill are new. These sections increase
the scope of numerous intellectual property piracy crimes and
greatly increase fines for those crimes. The bill also includes
new restitution entitlement and calculation provisions. None of
these provisions were heard in policy or fiscal committees in
the Assembly. Arguably, these new provisions should be
carefully examined by the Legislature and interested parties.
HAS THERE BEEN ADEQUATE TIME FOR PUBLIC REVIEW OF THE
SIGNIFICANT AMENDMENTS ONLY RECENTLY MADE TO THE BILL?
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