BILL ANALYSIS �
AB 1791
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1791 (Buchanan) - As Amended: March 29, 2012
SUBJECT : Public contracts: state contracts: computer software.
SUMMARY : Requires contractors to certify that they do not use
illegal business software in state contracts. Specifically,
this bill :
1)Requires contractors to certify that they do not use illegal
business software in state contracts.
2)Requires contractors failing to certify or making a false
certification to:
i) Work with all parties in good faith to informally
resolve the dispute; or,
ii) Submit a new certification with factual information
and a written statement signed by an authorized person
declaring the data is accurate and complete.
3)Requires the Department of General Services (DGS) to add the
certification requirement, as specified.
4)Deems provisions of this bill to be severable.
5)Defines "state agency" to mean each agency, department, board,
commission, and office of the executive branch.
6)Makes legislative findings and declarations related to the
economic impact of computer software piracy.
EXISTING FEDERAL LAW establishes copyright infringement laws
that provide for civil penalties for infringement, and provides
for criminal prosecution that may result in both fines and
imprisonment.
FISCAL EFFECT : Unknown
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COMMENTS :
Purpose of this bill . According to the author's office, "AB
1791 promotes lawful computer use by state contractors and
suppliers by affirming that it is state policy that contractors
and suppliers use only lawful computer software in their
business operations and establishing contracting provisions to
ensure lawful software use.
"Theft of computer software by businesses reduces the
profitability of California's information technology (IT)
industry and its ability to create jobs and generate tax
revenues for the State. In 2009, about 880,000 Californians
were employed in the IT sector, generating more than $76 billion
in annual wages. Worldwide, studies show that reducing software
theft by 10% would create $142 billion in new economic activity
while adding nearly 500,000 new high-tech jobs."
Background . In 1999, Governor Davis issued Executive Order (EO)
D-10-99, which directed state agencies to "work diligently to
prevent and combat computer software piracy" and "ensure that
only authorized computer software is acquired for and used on
the agency's computers."
EO D-10-99 directed DGS to develop appropriate language for
inclusion in state contracts to prohibit the use of state funds
for the acquisition, operation or maintenance of computer
software in violation of copyright laws. This language is
required in all state contracts involving the purchase or
utilization of computer software in the performance of such
contracts.
Currently, DGS' general provisions on IT state that a
"Contractor warrants and certifies that in the performance of
(a) Contract) it will comply with all applicable statutes,
rules, regulations, and orders of the United States and the
State of California, and agrees to indemnify the State against
any loss, cost, damage or liability by reason of the
Contractor's violation of this provision."
According to the Orange County Business Council's (OCBC) report,
"Economic Consequences on Software Piracy on California,"
software piracy results in a loss of business and tax revenue,
and job creation and retention. OCBC writes, "Software piracy
in California cost software vendors an estimated $1.36 billion,
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the highest of any state and higher than the national figure for
98 other countries. Lost revenues to a wider group of software
distributors and service providers cost an additional $3.88
billion, enough to hire nearly 16,000 tech workers." OCBC adds,
"According to the Bureau of State Audits, in 2007, California
had the second highest software piracy rate at 25% of eight
states measured in the report. This higher rate of software
piracy in the state acts as a deterrent for software companies
to develop and locate in the region for fear of lost revenues
and competitiveness with pirated products."
Support . According to the sponsor, Microsoft, "Theft of
computer software by businesses reduces the profitability of
California's IT industry and its ability to create jobs and
generate tax revenues for the State. The State of California
procures billions in goods and services and awards hundreds of
contracts annually. AB 1791 requires a small change in DGS
contracts that save thousands of California jobs.
"AB 1791 would stimulate job growth in California's IT sector by
helping to combat one of the principal threats confronting the
industry, namely the widespread use of stolen software. In a
2011 study, the Business Software Alliance reported that an
estimated 42% of the software used throughout the world in 2010
was stolen, with a commercial value of $59 billion. These high
rates of IT theft translate into fewer California jobs, reduced
tax revenues, and a slower economy recovery.
"The economic impact of stolen IT extends far beyond the
software industry to nearly every sector of the California
economy. In today's knowledge-based economy, IT is an essential
business tool for virtually every manufacturer doing business in
California, allowing them to increase productivity and
efficiency and thereby giving them a significant competitive
advantage.
Opposition . According to Verizon, "AB 1791 seeks to prevent the
use of pirated software when contracting with the state. While
Verizon supports the purpose of this bill, there are potential
problems with the reach of the language. This bill requires a
state contractor to certify that no unlawful software is used
anywhere in its 'business operations.' This would appear to
include every Verizon employee anywhere in the world, whether or
not involved with supplying services to the state, as well as
any subcontractor that Verizon partners with to fulfill its
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contract obligations. While Verizon would not knowingly allow
any employee to download unlawful software to a company-owned
computer, and goes to great lengths to safeguard the integrity
of its network and databases, it is unduly burdensome and
unrealistic to expect Verizon to certify that all 250,000+
employees spread around the globe have never violated existing
company policy that forbids using unauthorized software.
"The problem is even worse than described above because Verizon
frequently relies on subcontractors or third party suppliers to
meet obligations under a state contract. Existing state
procurement regulations already prohibit unlawful business
practices and Verizon would not knowingly supply unlawful
software to the state. Verizon, however, is simply not in
position to police the business practices of other companies at
the level this bill requires. This is particularly true when
cloud-based solutions are provided to the state. Cloud-based
solutions make use of available data processing capacity on
linked computers via Internet connections, and Verizon is in no
position to inspect or verify what software may or may not be
running on some other company's system.
"Despite these concerns, Verizon believes that AB 1791 can be
amended to focus on software that is supplied to the state under
contract, and amended to allow state contractors to rely on the
good faith certifications of suppliers and subcontractors that
it partners with in order to comply with the requirements of AB
1791."
REGISTERED SUPPORT / OPPOSITION :
Support
Microsoft (sponsor)
6th Street Consulting
AIMS360
Association for Competitive Technology
California Hispanic Chambers of Commerce
Central City Association
Eastman Technologies
High Street Consultants
InterKnowlogy
Los Angeles Area Chamber of Commerce
QuickStart Intelligence
roi Software Solutions
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State Building and Construction Trades Council
Valley Industry and Commerce Association
Opposition
Verizon
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301