BILL ANALYSIS �
SB 650
Page 1
Date of Hearing: June 10, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 650 (Lieu) - As Amended: January 21, 2014
PROPOSED CONSENT
SENATE VOTE : 33-0
SUBJECT : Motion Pictures: Non-Exclusive Rights: Residuals
KEY ISSUE : Should a licensee of non-exclusive rights in a
motion picture take those rights subject to an obligation to pay
residuals, if such residuals are required by a collective
bargaining agreement?
SYNOPSIS
This non-controversial bill removes a sunset, and thus makes
permanent, a provision in the California Commercial Code which
states that a licensee of non-exclusive rights in "intangible"
property (e.g. intellectual property) takes its rights free from
any security obligation that was created by the licensor. At
the same time, this bill would add an exception to that general
rule: a licensee of non-exclusive rights in a motion picture
takes its rights subject to the obligation to pay residuals, but
only if the motion picture was produced pursuant to a collective
bargaining agreement governed by federal law and the obligation
to pay residuals was set forth in the collective bargaining
agreement. According to the author, this bill conforms to
existing expectations of the interested parties and reflects the
well-understood, collectively-bargained system of residual
payments. Historically, the general rule that a licensee of
non-exclusive rights takes its rights free of any obligations
created by the grantor of those rights did not greatly affect
the motion picture industry, largely because the major studios
granted only "exclusive" rights to film distributors, and
exclusive rights, unlike non-exclusive rights, always come
subject to any security interest created by the grantor. In
sum, the licensee paid its portion of the residuals out of any
proceeds that it received for showing the film. However, in
recent years, with the increased number of independent film
makers and the wider distribution networks made possible by
modern media, the granting of non-exclusive rights has become
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more common. As a result, according to the author and
supporters, there are an increasing number of situations in
which actors, writers, and others are not receiving the
residuals to which they are contractually entitled because the
grantor has granted non-exclusive rights and then -
intentionally or unintentionally - failed to contractually
require the recipient of those non-exclusive rights to pay
residuals. This bill simply clarifies that, where a motion
picture is produced under a federally-governed collective
bargaining agreement, and that agreement provides for the
payment of residuals, the licensee that profits from showing
that film will assume the obligation to pay a corresponding
portion of the residuals. This bill is supported by the Motion
Picture Association of America as well as the several guilds.
There is no known opposition to this bill.
SUMMARY : Provides that a licensee of nonexclusive rights in a
motion picture that is produced pursuant to a collective
bargaining agreement takes the license subject to the obligation
to pay residuals as set forth in the collective bargaining
agreement. Specifically this bill :
1)Removes a sunset date, and thus makes a permanent, a statute
providing that a licensee in the ordinary course of business
takes the rights under a nonexclusive license free from a
security interest created by the licensor, even if the
security interest is perfected and the licensee knows of its
existence.
2)Provides, notwithstanding the above, that a licensee of
nonexclusive rights in a motion picture that is produced
pursuant to one or more collective bargaining agreements, as
specified, takes its nonexclusive license in the motion
picture subject to any perfected security interest securing
the obligation to pay residuals as set for in the applicable
collective bargaining agreement and arising from exploitation
under the license.
EXISTING LAW :
1)Provides, until January 1, 2015, that a licensee in the
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
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existence. (Commercial Code Section 9321 (b).)
2)Defines "licensee in ordinary course of business," for
purposes of the above, to mean 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. (Commercial Code Section 9321 (a).)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : In 1999 California adopted Article 9 of the Uniform
Commercial Code (UCC), as modified and "modernized" by the
Uniform Law Commission earlier in the 1990s. Article 9 of the
UCC adopted a version of an older common law principle that a
licensee of non-exclusive rights takes its rights free of any
obligations or security interests created by the grantor of
those rights. The licensee of exclusive rights, on the other
hand, traditionally took its rights subject to those obligations
and security interests. The legislation adopting Article 9 - SB
45 (Chapter 991, Statutes of 1999) - contained a sunset
provision that has been extended by statute four times. Under
existing law, this provision is set to expire on January 1,
2015.
This non-controversial bill does two things. First, it removes
the sunset in existing law, thus making the general rule in
Article 9 permanent. Second, this bill would, at the same time,
create an exception to that general rule in Article 9: that is,
under this bill a licensee of non-exclusive rights in a motion
picture would take its rights subject to any obligation to pay
residuals, but only if the motion picture was produced pursuant
to a collective bargaining agreement governed by federal laws
and residuals are provided for in the collective bargaining
agreement.
According to the author, this bill seeks to address an
unintentional conflict between California's adoption of a
provision of the Uniform Commercial Code in 1999 and the
well-understood system of residual payments in California's film
industry. When California adopted Article 9 in 1999, it had
little or no effects on the motion picture industry and its
system for paying residuals. At that time, major producers
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typically granted only "exclusive" rights to film distributors,
which were of course subject to any obligation or security
interest - including an obligation to pay residuals - that had
been created by the grantor. Since 1999, however, with the
increased number of independent film makers and wider
distribution networks made possible by modern digital media, the
granting of non-exclusive rights has become more common. As a
result, the author and supporters claim, there are an increasing
number of situations in which actors, writers, and other artists
are not receiving the residuals to which they are contractually
entitled because non-exclusive rights have been granted without
any contractual requirement that the licensee pay residuals.
This bill simply specifies that, where a motion picture is
produced under a collective bargaining agreement that provides
for residuals, the licensee that profits from the re-showing of
that film will assume the obligation to pay its corresponding
portion of the residuals.
ARGUMENTS IN SUPPORT : The authors and supporters note that,
historically, motion picture productions were typically
distributed based on exclusive licenses, which meant the
licensee was required to pay any residuals to which writers,
actors, and other artists were entitled under a collective
bargaining agreement. More recently, the author writes, that
"distribution is fracturing due to the expansive nature of
mobile media. Nonexclusive distribution of film productions
challenges the ability of MPAA members and the Guilds to
maintain the highly-structured, well-understood, and
collectively-bargained system of residual payments . . . SB 650
would enable the motion production industry to continue its
practice of paying some compensation to artists by use of
'residuals,' delayed payment based on rebroadcast or
exploitation of productions. This exemption protects residuals
in the case of nonexclusive licenses, which under Section
9321(b) [Article 9 provisions of UCC, discussed above] are not
subject to security interests. [SB 650] preserves the use of
residuals, a time-honored practice in the industry, which
Section 9321(b) could upset."
REGISTERED SUPPORT / OPPOSITION :
Support
Directors Guild of California
SB 650
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Motion Picture Association of America
Screen Actors Guild - American Federation of Television and
Radio Artists (SAG-AFTRA)
Writers Guild of America West, Inc.
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334