BILL ANALYSIS �
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|SSENATE RULES COMMITTEE | SB 650|
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CONSENT
Bill No: SB 650
Author: Lieu (D)
Amended: 1/21/14
Vote: 21
SENATE JUDICIARY COMMITTEE : 6-0, 1/14/14
AYES: Evans, Corbett, Jackson, Leno, Monning, Vidak
NO VOTE RECORDED: Anderson
SUBJECT : Motion pictures
SOURCE : Directors Guild of America
Motion Picture Association of America
Screen Actors Guild-American Federation of
Television and Radio Artists
Writers Guild of America, West
DIGEST : This bill provides that a licensee of nonexclusive
rights in a motion picture that is produced pursuant to one or
more collective bargaining agreements (CBAs) governed by the
laws of the United States takes its nonexclusive license in such
motion picture subject to any perfected security interest
securing the obligation to pay residuals as set forth in the
applicable CBA and arising from exploitation under such license.
Specifies that the terms "motion picture" and "residuals" have
the meaning ascribed to such terms under the applicable CBAs and
removes a sunset on related provisions dealing with the rights
of a licensee under a nonexclusive license.
ANALYSIS :
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Existing law:
1.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 licensor,
even if the security interest is perfected and the licensee
knows of its existence.
2.Provides that a lessee in ordinary course of business takes
its leasehold interest free of a security interest in the
goods created by the lessor, even if the security interest is
perfected and the lessee knows of its existence.
3.Defines "licensee in ordinary course of business" as a person
that becomes a licensee of a general intangible in good faith,
without knowledge that the license violates the rights of
another person in the general intangible, and in the ordinary
course from a person in the business of licensing general
intangibles of that kind.
4.Includes a January 1, 2015 sunset date for the above added
provisions, unless a later enacted statute deletes or extends
that date.
This bill:
1.Deletes the January 1, 2015 sunset date for the above
provisions.
2.Adds that notwithstanding the above provisions a licensee of
nonexclusive rights in a motion picture that is produced
pursuant to one or more CBAs governed by the laws of the
United States takes its nonexclusive license in such motion
picture subject to any perfected security interest securing
the obligation to pay residuals as set forth in the applicable
CBA and arising from exploitation under such license.
Specifies that the terms "motion picture" and "residuals" have
the meaning ascribed to such terms under the applicable CBAs.
3.Deletes the provision in law that states that, operative
January 1, 2015, a lessee in ordinary course of business takes
its leasehold interest free of a security interest in the
goods created by the lessor, even if the security interest is
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perfected and the lessee knows of its existence.
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, or NCCUSL) 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
California's revised Article 9 became effective on July 1, 2001.
As a whole, the new Article 9 simplifies and clarifies the rules
for creation, perfection, priority and enforcement of a security
interest. More specific to this bill, 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 course of business.
At the time that California considered adoption of the revised
Article 9, 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. As reflected in
the Senate Judiciary Committee analysis of the 1999 revisions:
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 sub licensor if the
first license was "exclusive."
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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 then agreed to limit the operative effect of the new
Section 9321 by including a sunset date of January 1, 2004.
That original sunset date was subsequently extended four times,
most recently to January 1, 2015.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 1/21/14)
Directors Guild of America (co-source)
Motion Picture Association of America (co-source)
Screen Actors Guild-American Federation of Television and Radio
Artists (co-source)
Writers Guild of America, West (co-source)
ARGUMENTS IN SUPPORT : The co-sources of this bill, the
Directors Guild of America, Screen Actors Guild- American
Federation of Television and Radio Artists, Writers Guild of
America West, Inc., (Guilds) and the Motion Picture Association
of America (MPAA) state:
The need for the proposed Section 9321.1 came about as the
result of an extensive review by the Guilds and MPAA with
respect to business developments in our industry. In general,
licensees of intellectual property and other general intangibles
take their rights subject to security interests that previously
have been granted in that property by licensors. However, as
licenses were increasingly used in a variety of industries, the
current Section 9321(b) created an exception to this rule,
protecting the rights of nonexclusive licensees in the ordinary
course of business, such that these nonexclusive licensees are
able to take their rights free of the security interests granted
by the licensor. When Section 9321 was first enacted in 1999,
rights in motion pictures were almost invariably granted on an
exclusive basis, so this exception to the general rule had
little effect upon motion picture distribution.
However, as digital distribution techniques have evolved, motion
picture rights increasingly are licensed on a nonexclusive
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basis. This change in practice affects the ability of the
Guilds to protect payment of "Residuals" to Guild members. Each
Guild routinely obtains security interests from motion picture
producers, so that motion picture rights are collateral for
payment of Residuals based on exploitation of those rights; but
with nonexclusive licenses, the effectiveness of Guild liens
could be limited. The stability of Residuals payments are of
critical economic concern to the tens of thousands of
Guild-represented members who live and work in California.
Moreover, as the trade group for motion picture producers and
distributors in California and across the world, and with Guild
CBAs in effect among the Guilds and the MPAA member companies,
the MPAA also has a substantial interest in the need for clarity
with respect to the business problems presented by Section 9321
in general, and with respect to Residuals in particular.
This bill addresses Residuals collection issues in a manner that
will be advantageous to Californians working in or affected by
the motion picture industry:
Residuals collections will not be affected by whether a
particular motion picture license happens to be exclusive
or nonexclusive.
As the representative for the motion picture companies
that fund the great majority of Residuals payments, the
MPAA believes this approach is sensible.
Interests of nonexclusive licensees in any other
industry are not affected, as the proposed Section 9321.1
is specific to rights in motion pictures.
AL:e 1/21/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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