Friday, March 25, 2011

Court Rejects Google Book Settlement

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

The federal district court in New York City has rejected the Amended Settlement Agreement proposed by Google, Inc. and groups representing publishers and authors regarding Google’s creation of a digital library because the terms were not “fair, adequate, and reasonable.”

The settlement proposed to resolve claims that Google violated copyright laws in 2004 by scanning books, creating an electronic database, and displaying copyrighted “snippets" without the permission of copyright holders.

Settlement Terms

Pursuant to the terms of the proposed Agreement, Google would deposit at least $45 million into a settlement fund to pay rights holders for works digitized before May 5, 2009. Going forward, 70% of net revenues Google derived from sales and advertising in connection with the book project would go to the plaintiffs, according to a distribution plan.

In exchange, Google would be allowed to:

(1) Continue to digitize books and inserts;

(2) Sell subscriptions to an electronic books database;

(3) Sell online access to individual books;

(4) Sell advertising on pages from books; and

(5) Make other uses described in the Agreement.

Google would be required to obtain prior express permission from rights holders (“opt-in”) in order to display in-print books. However, Google could display out-of-print books without authorization, but its right to do so would cease when and if a rights holder directed Google to stop (“opt-out”).

The Agreement also would create an independent Book Rights Registry, initially funded by Google, which would handle licensing payments intended for copyright holders who were unable to be located. The registry would be required to use “commercially reasonable efforts to locate rights holders.

The court acknowledged that the Google book project would provide significant benefits, including that more books would be available to libraries, schools, researchers, and disadvantaged populations; older, out-of-print books would be preserved and given new life; and authors and publishers would gain new readers and additional sources of income. But the benefits were outweighed by serious concerns, according to the court.

Scope of Dispute

The Agreement was problematic because it would implement a forward-looking business arrangement beyond the scope of the lawsuit. The dispute originally dealt with Google’s use of an indexing and searching tool and its display of “snippets,” not the sale of complete copyrighted works, the court noted.

The Agreement, on the other hand, would release Google from liability for future acts and transfer to Google rights over the digital commercialization of millions of books in exchange for future financial arrangements.

Class Representation

The court observed that there was a substantial question about the existence of antagonistic interests between the named plaintiffs and certain members of the class with divergent interests, such as the academic author objectors, or rights holders who were not represented.

Orphan Works

The most troubling aspect of the Agreement was the opt-out provisions, in the court’s view. Rightholders with interests in out-of-print or unclaimed “orphan works” who did not wish to participate in the project would be required to “opt-out” rather than “opt-in.”

Absent class members who failed to opt out would be deemed to have released their rights, even as to future infringing conduct. It would be “incongruous with the purpose of the copyright laws to place the onus on copyright owners to come forward to protect their rights when Google copied their works without first seeking their permission,” the court said. The court urged the parties to revise the opt-out provision.

Matter Suited for Congress

The establishment of a mechanism for exploiting unclaimed “orphan works” was a matter more suited for Congress, according to the court.

“The questions of who should be entrusted with guardianship over orphan books, under what terms, and with what safeguards are matters more appropriately decided by Congress than through an Agreement among private, self-interested parties,” the court opined.

In addition, the fact that other nations objected to the Agreement, on the grounds that it would violate international principles and treaties, further supported the notion that the matter was best left to Congress.

Antitrust Concerns

As noted by Google competitors, the Agreement raised antitrust concerns. The Agreement would give Google a de facto monopoly over unclaimed works. The Agreement also arguably would give Google control over the search market. Third parties (except nonprofit entities) would not be allowed to “index and search” or display “snippets” from scanned books without the rights holders and Google’s permission.

“Google’s ability to deny competitors the ability to search orphan books would further entrench Google’s market power in the online search market,” the court observed.

The March 22 decision in The Authors Guild v. Google, Inc. will appear at CCH Guide to Computer Law ¶ 50,145 and 2011-1 Trade Cases ¶77,387.

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