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AB-473 Unfair competition.(2011-2012)

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AB473:v97#DOCUMENT

Amended  IN  Assembly  April 25, 2011
Amended  IN  Assembly  April 07, 2011

CALIFORNIA LEGISLATURE— 2011–2012 REGULAR SESSION

Assembly Bill
No. 473


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   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.

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 sfacture, 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 party 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 third-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.