Bill Text: CA AB473 | 2011-2012 | Regular Session | Amended
Bill Title: Unfair competition.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2012-02-01 - Died pursuant to Art. IV, Sec. 10(c) of the Constitution. From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB473 Detail]
Download: California-2011-AB473-Amended.html
BILL NUMBER: AB 473 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 25, 2011
AMENDED IN ASSEMBLY APRIL 7, 2011
INTRODUCED BY Assembly Member Charles Calderon
FEBRUARY 15, 2011
An act to add Section 17052 to Chapter 4.5
(commencing with Section 17120) to Part 2 of Division 7 of the
Business and Professions Code, relating to unfair competition.
LEGISLATIVE COUNSEL'S DIGEST
AB 473, as amended, Charles Calderon. Unfair competition.
Existing law defines unfair competition and makes unlawful
specified business practices intended to injure competitors or
destroy competition. Existing law specifies criminal penalties and
civil remedies for violations, including injunctive relief and
damages.
This bill would make it unlawful for any person to manufacture any
article or product that is sold or offered for sale in this state
while using stolen or misappropriated information technology, as
defined, in its business operations in competition with another
article or product manufactured without the use of stolen or
misappropriated information technology, except as specified. The bill
would require written notice containing specified information under
penalty of perjury to be provided to a defendant prior to
commencement of an action under these provisions. The bill would make
violations of its provisions subject to specified civil remedies,
including injunctive relief and recovery of damages, would provide
that existing criminal penalties would not apply to those violations,
and would authorize certain persons and entities, including the
Attorney General, to bring actions under these provisions. The bill
would authorize claims for damages against certain 3rd parties who
sell or offer for sale products made in violation of these
provisions, except as specified.
Because this bill would expand the scope of the existing crime of
perjury, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) Manufacturers are a vital source of jobs and economic growth
in the State of California. Law-abiding manufacturers in this state
suffer lost sales, market share, and jobs when they are forced to
compete against companies that use stolen or misappropriated
information technology to reduce production costs and gain a
competitive edge.
(b) The theft of American information technology is particularly
rampant in foreign markets, reaching as high as 90 percent in some
countries. Intellectual technology theft costs the United States
economy thousands of jobs and billions of dollars in economic growth.
(c) The use of stolen or misappropriated information technology
can unfairly lowers lower
manufacturers' costs of production by tens if not hundreds of
thousands of dollars. Manufacturers that knowingly use significant
amounts of stolen or misappropriated information technology to reduce
their costs should not be allowed to benefit from their illegal
acts.
(d) Existing laws relating to unfair trade practices do not
always adequately address the harm that occurs when
manufacturers use stolen or misappropriated information technology to
gain an unfair competitive advantage over companies that play by the
rules.
(e) It is the purpose of this act to enable effective recourse
against manufacturers that obtain an unlawful competitive advantage
by using stolen or misappropriated information technology to make
goods.
(f) To accomplish this purpose, law-abiding manufacturers who have
suffered economic harm from a directly competing manufacturer's sale
of products made using stolen or misappropriated information
technology should be allowed to pursue a cause of action against the
company that used the stolen or misappropriated information
technology.
(g) The remedies available to the law-abiding manufacturer in
these cases should be limited to ensure that the relief obtained is
proportional to the harm and should protect businesses that make good
faith efforts to act in accordance with their legal
responsibilities.
(h) It is the intent of the Legislature that this act shall be
construed in ways that appropriately remedy the competitive harm that
occurs when articles or products manufactured by businesses using
stolen or misappropriated information technology are sold or offered
for sale in this state.
SEC. 2. Section 17052 is added to the Business
and Professions Code, to read:17052.
SEC. 2. Chapter 4.5 (commencing with Section 17120) is
added to Part 2 of Division 7 of the Business and Professions Code,
to read:
CHAPTER 4.5. STOLEN AND MISAPPROPRIATED INFORMATION
TECHNOLOGY
17120. (a) (1) For purposes of this section, the
following definitions apply:
(A) "Article or product" means any tangible article or product,
but shall exclude: (i) any services sold, offered for sale, or made
available in this state, including free services and online services,
(ii) any product subject to regulation by the United States Food and
Drug Administration and that is primarily used for medical or
medicinal purposes, (iii) food and beverages, and (iv) restaurant
services.
(B) "Copyrightable end product" means a work within the subject
matter of copyright as specified in Section 102 of Title 17 of the
United States Code and , for the purposes of this section,
includes mask works protecton protection
as specified in Section 902 of Title 17 of the United States
Code.
(C) "Essential component" means a component of an article or
product provided or to be provided to a thirdparty
third party pursuant to a contract, including a purchase
order, without which that article or product will not perform as
intended and for which there is no substitute component available
that offers a comparable range and quality of functionalities and is
available in comparable quantities and at a comparable price.
(D) "Manufacture" means to directly manufacture, produce, or
assemble an article or product subject to paragraph (2), in whole or
substantial part, but shall not include contracting with or otherwise
engaging another person (or that person engaging another person) to
develop, manufacture, produce, or assemble an article or product
subject to paragraph (2).
(E) "Material competitive injury" means at least a 3 percent
retail price difference between the article or product made in
violation of paragraph (2) designed to harm competition and a
directly competing article or product that was manufactured without
the use of stolen or misappropriated information technology, the
price difference occurring over a four-month period of time.
(F) "Retail price" of stolen or misappropriated information
technology is the retail price of the information technology charged
at the time of, and in the jurisdiction where, the alleged theft or
misappropriation occurred, multiplied by the number of stolen or
misappropriated items used in the business operations of the person
alleged to have violated paragraph (2).
(G) (i) "Stolen or misappropriated information technology" means
hardware or software that the person referred to in paragraph (2)
acquired, appropriated, or used without the authorization of the
owner of the information technology or the owner's authorized
licensee in violation of applicable law, but shall not include
situations in which the hardware or software alleged to have been
stolen or misappropriated was not available for retail purchase on a
stand-alone basis at or before the time it was acquired,
appropriated, or used by the person.
(ii) Information technology shall be considered to be used in a
person's business operations if the person uses the technology in the
manufacture, distribution, marketing, or sales of the articles or
products subject to paragraph (2).
(2) Any person who manufactures any article or product while using
stolen or misappropriated information technology in its business
operations after notice and opportunity to cure as provided in
subdivision (b) and, with respect to remedies sought under paragraph
(6) of subdivision (c) or subdivision (d), causes a material
competitive injury as a result of the use of stolen or
misappropriated information technology, shall be deemed to engage in
an unfair act if the article or product is sold or offered for sale
in this state, either separately or as a component of another article
or product, and in competition with an article or product sold or
offered for sale in this state that was manufactured without
violating this subdivision. Any person who engages in a violation of
this subdivision, and any articles or products manufactured by the
person in violation of this subdivision, shall be subject to the
liabilities and remedial provisions of this section in an action by
the Attorney General or any person described in paragraph (5) of
subdivision (c), except as provided in paragraphs (3) and (4) and in
subdivisions (b) to (f), inclusive.
(3) No action may be brought under this section, and no liability
shall result, under any of the following:
(A) The end article or end product sold or offered for sale in
this state and alleged to violate paragraph (2) is:
(i) A copyrightable end product.
(ii) Merchandise manufactured by or on behalf of, or pursuant to a
license from, a copyright owner and which displays or embodies a
name, character, artwork, or other indicia of or from a work that
falls within clause (i), or merchandise manufactured by or on behalf
of, or pursuant to a license from, a copyright or trademark owner and
which displays or embodies a name, character, artwork, or other
indicia of or from a theme park, theme park attraction, or other
facility associated with a theme park.
(iii) Packaging, carrier media, or promotional or advertising
materials for any end article, end product, or merchandise that falls
within clause (i) or (ii).
(B) The allegation that the information technology is stolen or
misappropriated is based on a claim that the information technology
or its use infringes a patent or misappropriates a trade secret under
applicable law or that could be brought under any provision of Title
35 of the United States Code.
(C) The allegation that the information technology is stolen or
misappropriated is based on a claim that the defendant's use of the
information technology violates the terms of a license that allows
users to modify and redistribute any source code associated with the
technology free of charge.
(D) The allegation is based on a claim that the person violated
paragraph (2) by aiding, abetting, facilitating, or assisting someone
else to acquire, appropriate, use, sell, or offer to sell, or by
providing someone else with access to, information technology without
authorization of the owner of that information technology or the
owner's authorized licensee in violation of applicable law.
(4) No injunction may be issued against a person other than the
person adjudicated to have violated paragraph (2), and no attachment
order may be issued against articles or products other than articles
or products in which the person alleged to violate paragraph (2)
holds title. A person other than the person alleged to violate
paragraph (2) includes any person other than the actual manufacturer
who contracts with or otherwise engages another person to develop,
manufacture, produce, market, distribute, advertise, or assemble an
article or product alleged to violate paragraph (2).
(5) A violation of this section shall not be subject to
Section 17100 and the provisions of Chapter 4
(commencing with Section 1700) or Chapter 5
(commencing with Section 17200) of Part 2 of Division 7
and the provisions of those chapters shall not
apply to this section. The remedies provided under this section are
the exclusive remedies for the parties.
(b) (1) No action may be brought under paragraph (2) of
subdivision (a) unless the person subject to those provisions
received written notice of the alleged use of the stolen or
misappropriated information technology from the owner or exclusive
licensee of the information technology or the owner's agent and the
person did either of the following:
(A) Failed to establish that its use of the information technology
in question did not violate paragraph (2) of subdivision (a).
(B) Failed, within 90 days after receiving the notice,
to cease use of the owner's stolen or misappropriated information
technology; provided, however, that if the person commences and
thereafter proceeds diligently to replace the information technology
with information technology whose use would not violate paragraph (2)
of subdivision (a), that period shall be extended for an additional
period of 90 days, not to exceed 180 days total. The information
technology owner or its agent may extend any period described in this
paragraph.
(2) To satisfy the requirements of this subdivision, a written
notice shall, under penalty of perjury:
(A) Identify the stolen or misappropriated information technology.
(B) Identify the lawful owner or exclusive licensee of the
information technology.
(C) Identify the applicable law the person is alleged to be
violating and state that the notifier has a reasonable belief that
the person has acquired, appropriated, or used the information
technology in question without authorization of the owner of the
information technology or the owner's authorized licensee in
violation of the applicable law.
(D) To the extent known by the notifier, state the manner in which
the information technology is being used by the defendant.
(E) State the articles or products to which such information
technology relates.
(F) Specify the basis and the particular evidence upon which the
notifier bases the allegation.
(3) The written notification shall state that, after a reasonable
and good faith investigation, the information in the notice is
accurate based on the notifier's reasonable knowledge, information,
and belief. This written notification shall be made under penalty of
perjury.
(c) (1) No earlier than 90 days after the provision of notice in
accordance with subdivision (b), the Attorney General, or a person
described in paragraph (5), may bring an action against any person
that is subject to paragraph (2) of subdivision (a):
(A) To enjoin a violation of paragraph (2) of subdivision (a),
including by enjoining the person from selling or offering to sell in
this state articles or products that are subject to paragraph (2) of
subdivision (a), except as provided in paragraph (6); provided that
the injunction shall not encompass articles or products to be
provided to a thirdparty third party
that establishes that the thirdparty third
party has satisfied one or more of the affirmative defenses set
forth in paragraph (1) of subdivision (e) with respect to the
manufacturer alleged to have violated paragraph (2) of subdivision
(a).
(B) After Only after a determination
by the court that the person has violated paragraph (2) of
subdivision (a), to recover the greater of either of the following:
(i) Actual direct damages, which may be imposed only against the
person who violated paragraph (2) of subdivision (a).
(ii) Statutory damages of no more than the retail price of the
stolen or misappropriated information technology, which may be
imposed only against the person who violated paragraph (2) of
subdivision (a).
(2) If the person alleged to have violated paragraph (2) of
subdivision (a) has been subject to a final judgment or has entered
into a final settlement, or any products manufactured by the person
and alleged to violate paragraph (2) of subdivision (a) have been the
subject of an injunction or attachment order, in any federal or
state court in this state or any other state, arising out of the same
theft or misappropriation of information technology, the court shall
dismiss the action with prejudice. If the person is a defendant in
an ongoing action, or any products manufactured by the person and
alleged to violate paragraph (2) of subdivision (a) are the subject
of an ongoing injunction or attachment order, in any federal or state
court in this state or any other state, arising out of the same
theft or misappropriation of information technology, the court shall
stay the action against the person pending resolution of the other
action. In the event the other action results in a final judgment or
final settlement, the court shall dismiss the action with prejudice
against the person. Dismissals under this paragraph shall be res
judicata to actions filed against the person alleged to have violated
paragraph (2) of subdivision (a) arising out of the same theft or
misappropriation of information technology.
(3) (A) After determination by the court that a person has
violated paragraph (2) of subdivision (a) and entry of a judgment
against the person for violating those provisions, the Attorney
General, or a person described in paragraph (5), may add to the
action a claim for actual direct damages against a
thirdparty third party who sells or offers to
sell in this state products made by that person in violation of
paragraph (2) of subdivision (a), subject to the provisions of
subdivision (e); provided, however, that damages may be imposed
against a thirdparty third party only
if all of the following apply:
(i) The thirdparty's third-party's
agent for service of process was properly served with a copy of a
written notice sent to the person alleged to have violated paragraph
(2) of subdivision (a) that satisfies the requirements of subdivision
(b) at least 90 days prior to the entry of the judgment.
(ii) The person who violated paragraph (2) of subdivision (a) did
not make an appearance or does not have sufficient attachable assets
to satisfy a judgment against the person.
(iii) The person either manufactured the final product or produced
a component equal to 30 percent or more of the value of the final
product.
(iv) The person has a direct contractual relationship with the
thirdparty third party respecting the
manufacture of the final product or component.
(v) The thirdparty third party has
not been subject to a final judgment or entered into a final
settlement in any federal or state court in this state or any other
state arising out of the same theft or misappropriation of
information technology; provided, however, that in the event the
thirdparty third party is a party to an
ongoing suit for damages, or has entered an appearance as an
interested thirdparty third party in
proceedings in rem, in any federal or state court in this state or
any other state arising out of the same theft or misappropriation of
information technology, the court shall stay the action against the
thirdparty third party pending
resolution of the other action. In the event the other action results
in a final judgment or final settlement , the court shall
dismiss the action with prejudice against the thirdparty
third party and dismiss any in rem action as to
any articles or products manufactured for the thirdparty
third party or that have been or are to be
supplied to that thirdparty third party
. Dismissals under this section paragraph
shall be res judicata to actions filed against the person
alleged to have violated paragraph (2) of subdivision (a) arising out
of the same theft or misappropriation of information technology.
(B) An award of damages against the thirdparty
third party pursuant to this paragraph shall be the lesser
of the retail price of the stolen or misappropriated information
technology at issue or two hundred fifty thousand dollars ($250,000),
less any amounts recovered from the person adjudicated to have
violated paragraph (2) of subdivision (a), and subparagraph (A) of
paragraph (4) shall not apply to the award or recovery against the
thirdparty third party .
(C) An award of damages pursuant to this paragraph shall not be
made enforced against a third party
prior to July 1, 2013.
(4) A court may do any of the following in an action under this
section:
(A) In an action against the person adjudicated to have violated
paragraph (2) of subdivision (a), increase the damages up to three
times the damages authorized by subparagraph (B) of paragraph (1) if
the court finds that the person's use of the stolen or
misappropriated information technology was willful.
(B) With respect to an award under paragraph (1) only, award costs
and reasonable attorney's fees to either of the following:
(i) A prevailing plaintiff in actions brought by an injured person
under paragraph (2) of subdivision (a).
(ii) A prevailing defendant in actions brought by an allegedly
injured person.
(C) With respect to an action under paragraph (3) brought by a
private plaintiff only, award costs and reasonable attorney's fees to
a thirdparty third part y
for all litigation expenses, including, without limitation, discovery
expenses , incurred by that party if it prevails on the
requirements requirement set forth in
clause (iii) of subparagraph (A) of paragraph (3) or to a
thirdparty who qualifies for an affirmative defense under
subdivision (e); provided, however, in a case in which the
thirdparty third party received a copy of the
notification described in clause (i) of subparagraph (A) of paragraph
(3) at least 90 days before the filing of the action under paragraph
(3), that with respect to a thirdparty's
third-party's reliance on the affirmative defenses set forth in
subparagraphs (C) and (D) of paragraph (1) of subdivision (e), the
court may award costs and reasonable attorney's fees only if all of
the conduct on which the affirmative defense is based was undertaken
by the thirdparty third party , and the
thirdparty third party notified the
plaintiff of that conduct, prior to the end of the 90-day period.
(5) A person shall be deemed to have been injured by the sale or
offer for sale of a directly competing article or product subject to
paragraph (2) of subdivision (a) if the person establishes all of the
following by a preponderance of the evidence:
(A) The person manufactures articles or products that are sold or
offered for sale in this state in direct competition with articles or
products that are subject to paragraph (2) of subdivision (a).
(B) The person's articles or products were not manufactured using
stolen or misappropriated information technology of the owner of the
information technology.
(C) The person suffered economic harm, which may be shown by
evidence that the retail price of the stolen or misappropriated
information technology was twenty thousand dollars ($20,000) or more.
(D) If the person is proceeding in rem or seeks injunctive relief,
that the person suffered material competitive injury as a result of
the violation of paragraph (2) of subdivision (a).
(6) (A) If the court determines that a person found to have
violated paragraph (2) of subdivision (a) lacks sufficient attachable
assets in this state to satisfy a judgment rendered against it, the
court may enjoin the sale or offering for sale in this state of any
articles or products subject to paragraph (2) of subdivision (a),
except as provided in paragraph (4) of subdivision (a).
(B) To the extent that an article or product subject to paragraph
(2) of subdivision (a) is an essential component of a
thirdparty's th ird-party's article
or product, the court shall deny injunctive relief as to the
essential component, provided that the thirdparty
third party has undertaken good faith efforts within the
thirdparty's third-party's rights under
its applicable contract with the manufacturer to direct the
manufacturer of the essential component to cease the theft or
misappropriation of information technology in violation of paragraph
(2) of subdivision (a), which may be satisfied, without limitation,
by the thirdparty third party issuing a
written directive to the manufacturer demanding that it cease that
theft or misappropriation and demanding that the manufacturer provide
the thirdparty third party with copies
of invoices, purchase orders, licenses, or other verification of
lawful use of the information technology at issue.
(7) The court shall determine whether a cure period longer than
the period established reflected in
subdivision (b) would be reasonable given the nature of the use of
the information technology that is the subject of the action and the
time reasonably necessary either to bring the use into compliance
with applicable law or to replace the information technology with
information technology that would not violate paragraph (2) of
subdivision (a). If the court deems that a longer cure period would
be reasonable, the action shall be stayed until the end of that
longer cure period. If by the end of that longer cure period, the
defendant has established that its use of the information technology
in question did not violate paragraph (2) of subdivision (a), or the
defendant ceased use of the stolen or misappropriated information
technology, the action shall be dismissed.
(d) (1) In a case in which the court is unable to obtain personal
jurisdiction over a person subject to paragraph (2) of subdivision
(a), the court may proceed in rem against any articles or products
that are subject to paragraph (2) of subdivision (a) and sold or
offered for sale in this state in which the person alleged to have
violated paragraph (2) of subdivision (a) holds title. Except as
provided in paragraph (4) of subdivision (a) and paragraphs (2) to
(4), inclusive, all such articles or products shall be subject to
attachment at or after the time of filing a complaint, regardless of
the availability or amount of any monetary judgment.
(2) At least 90 days prior to the enforcement of an attachment
order against articles or products pursuant to paragraph (1), the
court shall notify any person in possession of the articles or
products of the pending attachment order. Prior to the expiration of
the 90-day period, any person for whom the articles or products were
manufactured, or to whom the articles or products have been or are to
be supplied, pursuant to an existing contract or purchase order, may
do either of the following:
(A) Establish that the person has satisfied one or more of the
affirmative defenses set forth in paragraph (1) of subdivision (e)
with respect to the manufacturer alleged to have violated paragraph
(2) of subdivision (a), in which case the attachment order shall be
dissolved only with respect to those articles or products that were
manufactured for the person, or have been or are to be supplied to
the person, pursuant to an existing contract or purchase order.
(B) Post a bond with the court equal to the retail price of the
allegedly stolen or misappropriated information technology or
twenty-five thousand dollars ($25,000), whichever is less, in which
case the court shall stay the enforcement of the attachment order
against those articles or products and shall proceed on the basis of
its jurisdiction over the bond. The person posting the bond shall
recover the full amount of the bond, plus interest, after the
issuance of a final judgment.
(3) If the person posting the bond pursuant to subparagraph (B) of
paragraph (2) is entitled to claim an affirmative defense in
subdivision (e), and that person establishes with the court that it
is entitled to that affirmative defense, the court shall award costs
and reasonable attorney's fees to the person posting the bond and
against the plaintiff in the event the plaintiff proceeds with an
action pursuant to paragraph (3) of subdivision (c) against the
person posting the bond.
(4) If that the court does not provide
notification as described in paragraph (2), the court, upon motion of
any thirdparty third party , shall
stay the enforcement of the attachment order for 90 days as to
articles or products manufactured for the thirdparty
third party , or that have been or are to be
supplied to the thirdparty third party
, pursuant to an existing contract or purchase order, during which
90-day period the thirdparty third party
may avail itself of the options set forth in paragraph (2).
(e) (1) A court shall not award damages against any
thirdparty third party pursuant to paragraph (3)
of subdivision (c) if that party, after having been afforded
reasonable notice of at least 90 days by proper service upon the
party's agent for service of process and
an opportunity to plead any of the affirmative
defenses set forth in this paragraph, establishes by a preponderance
of the evidence any of the following:
(A) The person is the end consumer or end user of an article or
product subject to paragraph (2) of subdivision (a), or acquired the
article or product after its sale to an end consumer or end user.
(B) The person is a business with annual revenues not in excess of
fifty million dollars ($50,000,000).
(C) The person either:
(i) Acquired the articles or products and had code of conduct or
other written document governing the person's commercial
relationships with the manufacturer adjudicated to have violated
paragraph (2) of subdivision (a) that includes commitments, such as
general commitments to comply with applicable laws, that prohibit use
of the stolen or misappropriated information technology by the
manufacturer, or written assurances from the manufacturer of the
articles or products that the articles or products, to the
manufacturer's reasonable knowledge, were manufactured without the
use of stolen or misappropriated information technology in the
manufacturer's business operations; provided, that within 180 days of
receiving written notice of the judgment against the manufacturer
for violation of paragraph (2) of subdivision (a) and a copy of a
written notice that satisfies the requirements of subdivision (b),
the person undertakes commercially reasonable efforts to do any of
the following:
(I) Exchange written correspondence confirming that the
manufacturer is not using such stolen or misappropriated information
technology in violation of paragraph (2) of subdivision (a), which
may be satisfied, without limitation, by obtaining written assurances
from the manufacturer accompanied by copies of invoices, purchase
orders, licenses, or other verification of lawful use of the
information technology at issue.
(II) Direct the manufacturer to cease the theft or
misappropriation, which may be satisfied, without limitation, by the
thirdparty third party issuing a
written directive to the manufacturer demanding that it cease the
theft or misappropriation and demanding that the manufacturer provide
the thirdparty third party with copies
of invoices, purchase orders, licenses, or other verification of
lawful use of the information technology at issue. A
thirdparty third party shall not be required to
take any other action to fully avail itself of this affirmative
defense.
(III) In a case in which the manufacturer has failed to cease the
theft or misappropriation within the 180-day period, and the
thirdparty has not fulfilled either subclause (I) or (II), cease the
future acquisition of the articles or products from the manufacturer
during the period in which the manufacturer continues to engage in
the theft or misappropriation subject to paragraph (2) of subdivision
(a) where doing so would not constitute a breach of an agreement
between the person and the manufacturer for the manufacture of the
articles or products in question that was entered into on or
before July 1, 2012.
(ii) Acquired the articles or products pursuant to an agreement
between the person and a manufacturer for the manufacture of the
articles or products in question that was entered into on or
before July 1, 2012; provided that within 180 days of receiving
written notice of the judgment against the manufacturer for
violation of paragraph (2) of subdivision (a) and a copy of a written
notice that satisfies the requirements of subdivision (b), the
person undertakes commercially reasonable efforts to do any of the
following:
(I) Obtain from the manufacturer written assurances that the
manufacturer is not using such stolen or misappropriated information
technology in violation of paragraph (2) of subdivision (a), which
may be satisfied, without limitation, by obtaining written assurances
from the manufacturer accompanied by copies of invoices, purchase
orders, licenses, or other verification of lawful use of the
information technology at issue.
(II) Direct the manufacturer to cease the theft or
misappropriation, which may be satisfied, without limitation, by the
thirdparty third party issuing a
written directive to the manufacturer demanding that it cease the
theft or misappropriation and demanding that the manufacturer provide
the thirdparty third party with copies
of invoices, purchase orders, licenses, or other verification of
lawful use of the information technology at issue. A
thirdparty third party shall not be required to
take any other action to fully avail itself of this affirmative
defense.
(III) In a case in which the manufacturer has failed to cease the
theft or misappropriation within the 180-day period, and the
thirdparty third party has not fulfilled either
subclause (I) or (II), cease the future acquisition of the articles
or products from the manufacturer during the period that the
manufacturer continues to engage in the theft or misappropriation
subject to paragraph (2) of subdivision (a) where doing so would not
constitute a breach of the agreement.
(D) The person has made commercially reasonable efforts to
implement practices and procedures to require its direct
manufacturers, in manufacturing articles or products for the person,
not to use stolen or misappropriated information technology in
violation of paragraph (2) of subdivision (a). A person may satisfy
this subparagraph by doing either of the following:
(i) Adopting and undertaking commercially reasonable efforts to
implement a code of conduct or similar written requirements that are
applicable to the person's direct manufacturers and that prohibit use
of stolen or misappropriated information technology by the
manufacturer, subject to a right of audit, and the person either (I)
has a practice of auditing its direct manufacturers on a periodic
basis in accordance with generally accepted industry standards, or
(II) requires in its agreements with its direct manufacturers that
they submit to audits by a thirdparty third
party , which may include a thirdparty
third- party association of businesses representing
the owner of the stolen or misappropriated intellectual property, and
further provides that a failure to remedy any deficiencies found in
the audit that constitute a violation of the applicable law of the
jurisdiction where the deficiency occurred shall constitute a breach
of the contract, subject to cure within a reasonable period of time.
(ii) Adopting and undertaking commercially reasonable efforts to
implement a code of conduct or similar written requirements that are
applicable to the person's direct manufacturers and that prohibit use
of stolen or misappropriated information technology by the
manufacturer, and the person undertakes practices and procedures to
address compliance with the prohibition against the use of the stolen
or misappropriated information technology in accordance with the
applicable code of conduct or written requirements.
(E) The person does not have a contractual relationship with the
person alleged to have violated paragraph (2) of subdivision (a)
respecting the manufacture of the articles or products alleged to
have been manufactured in violation of paragraph (2) of subdivision
(a).
(2) A thirdparty third party shall
have the opportunity to be heard regarding whether an article or
product is an essential component provided or to be provided to the
thirdparty third party , and shall have
the right to file a motion to dismiss any action brought against it
under paragraph (3) of subdivision (c).
(3) The court shall not enforce any award for damages against the
thirdparty third party until after the
court has ruled on that party's claim of eligibility for any of the
affirmative defenses set out in this subdivision, and prior to the
ruling may allow discovery, in an action under paragraph (3) of
subdivision (c), only on the particular defenses raised by the
thirdparty third party .
(4) The court shall allow discovery against a thirdparty
third party on an issue only after all discovery
on that issue between the parties has been completed and only if the
evidence produced as a result of the discovery does not resolve an
issue of material dispute between the parties.
(5) Any confidential or otherwise sensitive information submitted
by a party pursuant to this subdivision shall be subject to a
protective order.
(f) The provisions of this section are severable. If any provision
of this section or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.
SEC. 3. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
