HB1670 CD1

SECTION 1. The legislature finds and declares that:

(1) Intellectual property is an essential source of competitive advantage in the global economy;

(2) Inventors and other creators of intellectual property are an important engine of sustainable economic growth;

(3) Whether working independently or employed by corporations, the vast majority of inventors and other creators of intellectual property have neither the collective representation, institutional strength, nor the financial resources necessary to exercise and enforce their property rights;

(4) Hawaii needs to attract inventors and to build its reputation as a center of innovation to diversify and strengthen its economy;

(5) Protecting labor and environmental standards in Hawaii depends, in part, upon strengthening labor and environmental standards both nationally and globally; and

(6) Teaching innovation techniques in our schools is a wise investment in the State's future prosperity.

The ingenuity company, which will be governed by a board of directors representing both the creators of intellectual property and educational or labor beneficiaries, provides an opportunity to focus the financial rewards of ingenuity on education and workforce development that will in turn lead to additional inventions and innovations. In this way, it will create a continuing incentive for seasoned inventors and for developing new talent in Hawaii.

The purpose of this Act is to establish an entity, in this case the ingenuity company, to hold patents and other intellectual property that has been acquired by the entity to fund educational initiatives contributing to increased workforce skills out of royalties generated from use of the patents; and to otherwise leverage intellectual property for the benefit of education and workforce development.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

INGENUITY CHARTER

§ -1 Definitions. As used in this chapter, unless the context otherwise requires:

"Board" means the board of directors of the company.

"Company" means the ingenuity company.

"Inventor" means any creator of intellectual property whose work may result in the grant of a patent, copyright, trademark, or other type of intellectual property.

"Labor organization" means a formally organized association of workers who have united to represent their collective views on wages, hours, and working conditions.

"Pass through entity" means an entity that is not itself subject to tax, and where all applicable taxes are assessed to members of the entity, which report their distributive or pro rata shares of the entity's income, gains, losses, deductions, and credits on their own tax returns.

§ -2 Ingenuity company established; purpose. There is established the ingenuity company, which shall be a body corporate and a private, for-profit, non-stock, limited liability company chartered by the State to:

(1) Acquire, invest in, license, use, and sell intellectual property and other property for the overall benefit of inventors, labor unions, and public educators;

(2) Enforce the intellectual property rights of inventors to encourage and reward innovation, as well as to forge an anchor for good jobs in a manner that strengthens labor rights and enhances environmental protection nationally and internationally;

(3) Engage in any lawful business that is of potential benefit to inventors, labor unions, or public educators, including insuring intellectual property and investing in intellectual property;

(4) Promote Hawaii's role as a center of innovation;

(5) Support the teaching of innovation and its application for the common good; and

(6) Use the right to exclude conferred by intellectual property to raise global labor and environmental standards.

§ -3 General powers of the company. The company shall have the power to do any lawful acts or things reasonably necessary or desirable to carry out its purposes and protect the lawful rights and interests of its members in connection therewith.

§ -4 Membership classes. There shall be five classes of company members:

(1) Educator members;

(2) Inventor members;

(3) Labor union members;

(4) Investor members; and

(5) The managing member.

§ -5 Member qualifications, selection, rights, and obligations. (a) Educator members shall be appointed by the Hawaii State Teachers Association and the National Education Association, which shall each appoint one educator member to the board. The appointment process for each position shall be determined by each organization.

Educator members shall be entitled to a sixty per cent share of the profits of the company after deducting expenses incurred by the company, including corporate management costs, managing member fees, intellectual property insurance, royalty payments to inventor members, and return payments to investor members. The sixty per cent share shall be divided equally between the two educator members. Each educator member shall allocate its share of the company's profits to support the teaching of innovation in a manner that is in compliance with the company's bylaws and policies as adopted by the board.

Educator membership shall only expire by an act of the legislature.

(b) An inventor member may be a natural person or another entity. Inventor members shall enter into contracts with the company and one or more other members, and shall license, assign, or otherwise grant to the company rights to intellectual property on which the person or entity holds a patent, trademark, trade name, or copyright.

The Professional Inventors Alliance and the members of the National Inventors Hall of Fame shall each appoint an inventor member to the board of the company. The appointment process shall be determined by each organization; provided that the National Inventors Hall of Fame shall provide its members with the opportunity to both nominate and vote on its representative to the board. Neither the Professional Inventors Alliance nor the National Inventors Hall of Fame shall be an inventor member. These inventor members shall have no voting rights in the company other than those granted by the Professional Inventors Alliance or the National Inventors Hall of Fame members. The managing member shall also appoint an inventor member.

An inventor's membership shall expire at the termination of a member's contract. If an inventor member is engaged in several contracts, membership expires at the end of the last contract.

(c) A labor union member shall be any labor organization that enters into a contract with the company, including any local, state, regional, national, or amalgamated body, and any national or international labor federation. The American Federation of Labor and Congress of Industrial Organizations, and Change to Win labor federation shall each appoint one member to the board. These labor union members shall have no voting rights in the company other than those granted by the American Federation of Labor and Congress of Industrial Organizations, and the Change to Win labor federation. The managing member shall also appoint one labor union member to the board.

Labor union members shall enter into one or more contracts with the company. Each labor union member shall be entitled to a forty per cent share of the profits derived from contracts it is a party to, after deducting expenses incurred by the company, including corporate management costs, managing member fees, intellectual property insurance, and royalty payments to inventor members and return payments to investor members. These funds shall be expended by labor union members for training of workers or safety and health related practices, in a manner that is in compliance with the company's bylaws and policies as adopted by the board.

Labor union membership shall expire at the termination of a member's contract. If a labor union member is engaged in several contracts, membership expires at the end of the last member contract.

(d) An investor member may be a natural person or another entity. Investor members shall have no voting rights in the company. Investor members shall invest real, tangible, or intangible assets in the company by entering into an investment contract with the company. Investor members shall enter into one or more contracts with the company to provide capital for the company or any of its members. In exchange for investing capital in the company or any of its members' contracts, investor members shall be entitled to investor return payments enumerated in its member contract. Investor return payments shall be paid out of contract returns after deducting expenses incurred by the company, including corporate management costs, managing member fees, intellectual property insurance, and royalties paid to inventor members before calculating profits to be allocated to labor union members and educator members.

Investor membership shall expire at the termination of an investor member's contract. If an investor member is engaged in several contracts, membership expires at the end of the last member contract.

(e) The managing member shall be a Hawaii domestic non-profit corporation that has the ability to perform the tasks necessary to carry out the purposes of this chapter on behalf of all of the company's member classes. The principal office of the managing member shall be located in the state. The majority of the members of the corporation's board shall be residents of Hawaii and a majority of the assets of the corporation, including its real property and monetary holdings, shall be located within the state, or held by a financial or other institution or entity with a principal office located within the state. The managing member shall be selected by the president of the senate and the speaker of the house of representatives in consultation with the governor, within thirty days of the effective date of this Act.

The managing member shall recruit new members and seek opportunities for members to contract with one another for mutual benefit. The managing member shall interpret the meaning of the company's member contracts when there is any dispute between members who are party to the member contract. Appeal from any interpretation may be made to the entire board. The directors may overturn the managing member's decision by a majority vote of the board.

The managing member may be removed and replaced by a majority vote of both houses of the legislature.

§ -6 Membership meetings. (a) There shall be an annual membership meeting held at a time to be determined by the board; provided that a membership meeting is held approximately every twelve months.

(b) The board shall create the means to permit members to participate from a distance by electronic or other means.

(c) The chair of the board and the chief executive officer shall present an annual report to the members on the company's affairs, including a financial report and a general description of the number and nature of the board's member contracts and how these contracts met the board's purposes.

(d) Special meetings of the members may be called any time by the chair of the board. The chair of the board shall call a special meeting of the membership at the written request of three directors upon a petition signed by at least fifty per cent of any class of members, or twenty-five per cent of all members.

§ -7 Member's right to sue. Members may sue the board for failure to conduct the business of the company in the best interests of all of the members or according to the purposes of the charter. If the board has created an internal appeal process overseen by a neutral outside party, the right to sue shall only be available after exhaustion of the internal appeal process. Hawaii courts shall give the same deference to this internal process that they would give to any state agency administrative tribunal.

§ -8 The board of directors. (a) There shall be nine board members chosen by various constituencies pursuant to this chapter. The members shall be appointed in the following numbers by the following organizations:

(1) One member by the Hawaii State Teachers Association;

(2) One member by the National Education Association;

(3) One member by the Professional Inventors Alliance;

(4) One member by a vote of the members of the National Inventors Hall of Fame;

(5) One member by the American Federation of Labor and Congress of Industrial Organizations;

(6) One member by the Change to Win labor federation;

(7) Three members by the managing member, of whom:

(A) One member shall represent a labor organization;

(B) One member shall be an inventor or represent an inventor's organization; and

(b) If an organization fails to appoint a member to the company under this section within sixty days of a written request by the managing member, the managing member shall appoint an acting board representative for that organization from among the constituency represented by the organization.

§ -9 Terms of office. (a) Each member of the board shall be appointed for a term of five years; provided that the terms of members first appointed to the board shall be as follows:

(1) Two-year terms: the members appointed respectively by the Hawaii State Teachers Association, Change to Win labor federation, and the Professional Inventors Alliance;

(2) Three-year terms: the members appointed respectively by the American Federation of Labor and Congress of Industrial Organizations, National Education Association, and the managing member to represent inventors;

(3) Four-year terms: the members appointed respectively by the National Inventors Hall of Fame and the managing member to represent labor; and

(4) Five-year term: the chair of the board.

(b) A board member may be recalled at any time without cause by formal action by the appointing body and replaced by another member who shall serve out the remainder of the former director's term. A member may serve any number of terms and may be removed from office for cause, by a vote of a majority of the remaining board members then in office.

§ -10 Duties of the board of directors. The board of directors shall:

(1) Elect all officers besides the chair, including a secretary, a treasurer, and one or more vice-chairs;

(2) Hire, fire, evaluate, and determine compensation for the chief executive officer;

(3) Determine policy for the company, operate the company to fulfill the purposes of this charter, and serve as fiduciaries in the best interests of all the members;

(4) Review company member contracts to ensure that they comply with the company's purpose, which may include the creation of criteria for contract evaluation and delegation of the contract review function to staff;

(5) Hold an annual membership meeting; and

(6) Create and amend the company's bylaws to further the purposes of this charter.

§ -11 Board meetings. (a) The board shall meet monthly, unless rescheduled by the chair of the board.

(b) Meetings may be held in any location convenient to the board or in multiple locations. Directors may participate in the meeting by any electronic or other method that allows each director to speak, hear, and be heard by all the others.

(d) Unanimous board action may be taken without a meeting; provided that all directors sign a resolution noting their agreement.

(e) Special meetings of the board may be called at any time by the chair, or by a notice signed by three directors.

(f) Special meetings of the board or company members shall be called by the chair upon a petition signed by at least twenty per cent of any class of members or ten per cent of all members.

§ -12 Board member compensation. A member of the board of directors shall not be paid more than the average annual compensation for the members of the Hawaii State Teachers Association, plus actual expenses incurred in carrying out the member's duties.

§ -13 Executive committee. The board of directors may delegate its duties to an executive committee made up of its officers. The executive committee may also act on behalf of the board when action is needed between meetings, subject to authorization or rescission at the next board meeting.

§ -14 Officers. (a) The officers of the board shall be elected by the board at its annual meeting.

(b) The chief executive officer may be hired on a contract exceeding one year if the board so chooses.

(1) Provide monthly reports to the board and annual reports to the members;

(2) Hire staff and consultants as necessary to carry out the purpose and business of the company; and

(3) Prepare an annual report on the company to the legislature.

The board of directors shall review and approve the annual report. The chief executive officer and the treasurer shall sign a statement attesting to the veracity of the information in the annual report provided to the legislature.

(d) The board shall designate a vice-chair to assume the duties of the chair whenever the chair is unavailable to chair a meeting or is otherwise incapacitated or unreachable.

(e) The secretary shall:

(1) Maintain all books and records of the company and be responsible for all required legal filings;

(2) Maintain accurate records of the current membership status of all current and past members; and

(3) Maintain records of the board members' staggered terms of office and provide notice to the board ninety days before each annual meeting of the terms that will expire at that annual meeting.

The secretary or the chair may sign contracts on behalf of the company.

(f) The treasurer shall:

(1) Maintain and oversee the financial records of the company;

(2) Make a financial report at every regular meeting of the board and at the annual membership meeting; and

(3) Prepare the financial report that shall be included in the annual report to the legislature.

§ -15 Taxation and distributions to members. The company shall be a limited liability company within the meaning of chapter 428, but shall not be subject to the registration requirements of the department of commerce and consumer affairs. As a pass through entity, income of the company shall not be subject to state income tax at the company level. Distribution of the company's profits, property, or assets to any member shall be reported on that member's income tax returns.

§ -16 Disposition of assets. Upon dissolution of the company, assets shall be allocated as follows:

(1) Forty per cent to be divided equally between the American Federation of Labor and Congress of Industrial Organizations, and the Change to Win labor federation to support strategic alliances between labor unions and inventors; and

(2) The remaining sixty per cent to be divided equally between the Hawaii State Teachers Association and the National Education Association for allocation by them to programs teaching innovation.

§ -17 Charter amendments. (a) Amendments to this charter shall be made by an act of the legislature.

(b) The board may create and may amend bylaws to further elaborate the company's purpose, structure, and processes; provided that such bylaws do not conflict with this charter.

§ -18 Duration. This charter is perpetual unless rescinded by a two-thirds vote of both houses of the legislature.

§ -19 Conflict of laws. This chapter does not supersede any existing labor laws of the State. If there is any conflict between the two, the labor law shall prevail."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $30,000 or so much thereof as may be necessary for fiscal year 2007-2008 to capitalize the ingenuity company.

The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 4. This Act shall take effect on July 1, 2007.

HOUSE OF REPRESENTATIVES	H.B. NO.	1670
TWENTY-FOURTH LEGISLATURE, 2007		H.D. 2
STATE OF HAWAII		S.D. 2
		C.D. 1