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.

Justice Department Opposes New Google Book Settlement

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Despite the substantial progress reflected in the proposed amended settlement agreement in The Authors Guild Inc. et al. v. Google Inc., the U.S. Department of Justice has advised the federal district court in New York City that class certification, copyright, and antitrust issues remain.

The settlement agreement between Google and the authors and publishers aims to resolve copyright infringement claims brought against Google by The Authors Guild and five major publishers in 2005, arising from Google's efforts to digitally scan books contained in several libraries and to make them searchable on the Internet.

In a Statement of Interest filed with the court on February 4, the Justice Department said:

“Although the United States believes the parties have approached this effort in good faith and the amended settlement agreement is more circumscribed in its sweep than the original proposed settlement, the amended settlement agreement suffers from the same core problem as the original agreement: it is an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute before the court in this litigation.”

On September 18, 2009, the Justice Department submitted views to the court on the original proposed settlement agreement.

At that time, it proposed that the parties consider changes to the agreement, such as imposing limitations on the most open-ended provisions for future licensing, eliminating potential conflicts among class members, providing additional protections for unknown rights holders, addressing the concerns of foreign publishers and authors, and providing a mechanism by which Google’s competitors can gain comparable access. (For further inforamtion on the Justice Department's objections, see September 21, 2009 posting on Trade Regulation Talk.)

In last week’s filing, the Justice Department recognized that the parties made substantial progress on a number of these issues.For example, the proposed amended settlement agreement:

 Eliminates certain open-ended provisions that would have allowed Google to engage in certain unspecified future uses,

 Appoints a fiduciary to protect rights holders of unclaimed works,

 Reduces the number of foreign works in the settlement class, and

 Removes a “most-favored nation” provision that would have guaranteed Google optimal license terms into the future.

The changes, however, do not fully resolve the government's concerns. The agency commented that the revised amended settlement agreement still confers significant and possibly anticompetitive advantages on Google as a single entity, thereby enabling the company to be the only competitor in the digital marketplace with the rights to distribute and otherwise exploit a vast array of works in multiple formats.

The Justice Department’s filing with court regarding the amended settlement is available here on the Department of Justice Antitrust Division’s web site.

Revised Google Book Settlement Attempts to Address U.S. Competition Concerns

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

After consulting with the U.S. Department of Justice, lawyers representing the parties in a copyright dispute brought by authors and publishers against online search engine Google have filed a revised settlement agreement with the federal district court in New York City.

The settlement would resolve claims that Google violated copyright laws by scanning books, creating an electronic database, and displaying excerpts without the permission of copyright holders. Google has denied the claims.

On November 13, 2009, the revised settlement proposal was filed with the court for preliminary approval. The revised proposal comes after the Justice Department expressed concerns that an earlier settlement agreement could harm competition. Specifically, the Justice Department questioned the proposed settlement’s pricing terms and its creation of "de facto exclusive rights for the digital distribution of orphan works."

The latest settlement proposal, which narrows the scope of the books involved, "clarifies how Google's algorithm will work to price books competitively," according to the parties. It will simulate the prices in a competitive market. Moreover, the new proposal removes the so-called "most-favored nation" clause, which pertains to licensing of unclaimed works.

The Justice Department had contended that the most-favored nation clause in the earlier settlement could discourage potential competitors from attempting to compete with Google in digital-book distribution.

Whether these concessions will satisfy the Justice Department's competition concerns is unclear. It has been reported that the Justice Department will provide its views on the revised settlement early next year.

Another change to the proposed settlement limited its scope to books published in the U.S., Great Britain, Canada, and Australia. This change was prompted by objections by foreign governments, rather than the Department of Justice.

Text of the revised settlement agreement in The Authors Guild, Inc. v. Google, Inc., appears here. In the next week, the federal district court is expected to set a date for a “fairness hearing.”

Justice Department, States Object to Google Book Search Settlement

This posting was written by Janette Spencer-Davis, Editor of CCH Copyright Law Reporter, and Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Department of Justice and five state attorneys general were among the hundreds of commenters objecting to the settlement agreement between Google and the Association of American Publishers and the Authors Guild.

Pursuant to the terms of the agreement, awaiting approval in the federal district court in New York City, Google would pay $125 million, while earning the right to continue to digitize books and inserts; sell subscriptions to an electronic books database; sell online access to individual books; sell advertising on pages from books; and make other uses described in the agreement.

The agreement also creates an independent Book Rights Registry that would ultimately keep licensing payments intended for copyright holders that cannot be located.

On September 18, the Justice Department proposed that the parties consider a number of changes to the agreement that might help address the government’s concerns, including:

 Imposing limitations on the most open-ended provisions for future licensing,

 Eliminating potential conflicts among class members,

 Providing additional protections for unknown rights holders,

 Addressing the concerns of foreign authors and publishers,

 Eliminating the joint-pricing mechanisms among publishers and authors, and

 Providing some mechanism by which Google’s competitors can gain comparable success.

A Friday, September 18, Department of Justice news release appears here. The statement of interest filed with the court appears here.

State Attorney General Objections

The objections of the attorneys general focused primarily on unclaimed payments. Several stated that the agreement’s proposed treatment of unclaimed payments would circumvent state unclaimed property laws and could “constitute a misdemeanor.”

Some states require that abandoned property, including unclaimed payments, be deposited with the state treasurer. The states might also be interested in the antitrust impact of the settlement.

Connecticut Attorney General Richard Blumenthal has been reported as saying that the settlement might raise antitrust and copyright issues. A press release on Blumenthal’s comments appears here.

The final “fairness hearing” on the settlement is scheduled to take place on October 7, 2009.