BILL ANALYSIS �
SB 650
Page 1
Date of Hearing: June 24, 2014
ASSEMBLY COMMITTEE ON ARTS, ENTERTAINMENT, SPORTS, TOURISM, AND
INTERNET MEDIA
Ian C. Calderon, Chair
SB 650 (Lieu) - As Amended: January 21, 2014
SENATE VOTE : 33-0
SUBJECT : Motion pictures.
SUMMARY : Would repeal the sunset of the provision in existing
law which provides that a licensee in ordinary course of
business takes its rights under a non-exclusive 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, and also provides that a
licensee of non-exclusive 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 of January 1, 2015, for the statute
which provides that a licensee in the ordinary course of
business takes the rights under a non-exclusive 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, that a licensee of non-exclusive rights in a motion
picture that is produced pursuant to one or more collective
bargaining agreements, as specified, takes its non-exclusive
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
non-exclusive license free of a security interest in the
general intangible created by the licensor, even if the
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security interest is perfected and the licensee knows of its
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 : Unknown
COMMENTS :
1)Background: Intangible Property (Intellectual Property)
License Rights and Residual Payments : This bill would remove
the sunset, and thus makes permanent, the 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.
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.
2)Author and Supporters' Statement of Need for Legislation: New
Media Has Changed the Landscape : According to supporters,
"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 non-exclusive 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 non-exclusive
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 collective bargaining
agreements 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.
"Proposed Section 9321.1 reflects the Guilds' and MPAA's
cooperation in crafting a surgical exception to Section 9321,
pertaining solely to the motion picture industry. In effect,
Section 9321.1 is an exception to the exception that was
created by Section 9321(b). The Guilds and MPAA believe
Section 9321.1 addresses Residuals collection issues in a
manner that will be advantageous to Californians working in or
affected by the motion picture industry:
a) "Residuals collections will not be affected by whether a
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particular motion picture license happens to be exclusive
or non-exclusive.
b) "As the representative for the motion picture companies
that fund the great majority of Residuals payments, the
MPAA believes this approach is sensible.
c) "Interests of non-exclusive licensees in any other
industry are not affected, as Section 9321.1 is specific to
rights in motion pictures.
d) "Finally, the California Legislature no longer needs to
face the recurring situation of Section 9321(d), which is a
"sunset clause" that has been in place since 1999, and
which has forced triennial re-examination and re-enactment
of Section 9321 in its entirety. With enactment of Section
9321.1, Section 9321(d) can be deleted."
3)Prior Related Legislation :
a) SB 6 (Lieu), Chapter 54, Statutes of 2013, re-enacted
the provisions of Section 9321 which lapsed on January 1,
2003 as an urgency measure and extended the sunset to
January 1, 2015.
b) AB 224 (Portantino), Chapter 315, Statutes of 2009,
extended the sunset to January 1, 2013.
c) AB 2302 (Committee on Judiciary), Chapter 567, Statutes
of 2006, extended the sunset to January 1, 2010.
d) SB 283 (Sher), Chapter 235, Statutes of 2003, extended
the sunset to January 1, 2007.
e) SB 45 (Sher), Chapter 991, Statutes of 1999, amended the
Business & Professions, Civil, and Commercial Codes as it
relates to lessees and third parties.
REGISTERED SUPPORT / OPPOSITION :
Support
Directors Guild of California
Motion Picture Association of America
Screen Actors Guild - American Federation of Television and
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Radio Artists (SAG-AFTRA)
Writers Guild of America West, Inc.
Opposition
None on file
Analysis Prepared by : Dana Mitchell / A.,E.,S.,T. & I.M. /
(916) 319-3450