Google Book-Scanning Deal Still in Limbo

Published December 2, 2009

A federal judge has given his preliminary approval to Google’s plan to digitize tens of millions of out-of-print books, with a final decision expected in mid-February in a case rife with copyright and antitrust questions.

The November 19 decision by Judge Denny Chin of the Southern District of New York puts on hold, for now, a proposed $125 million class-action lawsuit settlement among Google, the Association of American Publishers, and the Authors Guild.

Further complicating Google’s effort was a letter by a coalition of authors, independent publishers, and nonprofit organizations asking the judge for more time to review the settlement. The coalition’s objections echo concerns raised in September by the U.S. Justice Department that the settlement might violate federal antitrust laws.

Other Parties Intervened

Chin had given Google and the authors and publishers until November 9 to submit an amended settlement agreement—then extended the deadline until November 17—with the goal of holding a final hearing on the proposal on February 18.

A group led by the Electronic Frontier Foundation, including the National Writers Union, Consumer Watchdog, and Google rivals Yahoo and Microsoft, argued in an October 22 letter that the judge should delay any resolution until other parties could review the settlement. The judge agreed.

Competitors Entering Market

Yahoo, Microsoft, and each have their own book digitization projects underway, but they are much smaller in size and scope. The Google rivals say they don’t want Google’s settlement to put them at a competitive disadvantage.

Although the major parties to the case are still working out changes, the settlement is generally understood as allowing Google to scan and digitize tens of millions of out-of-print books and pay licensing fees to publishers and authors.

The settlement stems from a 2005 copyright infringement lawsuit against Google by the Authors Guild and U.S. publishers. The plaintiffs originally claimed Google Books, the search-engine company’s project to digitize every book ever published, violated copyright law simply by scanning copyrighted material. But over the intervening four years the case has evolved into something far more complicated.

“The current settlement agreement raises significant issues, as demonstrated not only by the number of objections, but also by the fact that the objectors include countries, states, nonprofit organizations, and prominent authors and law professors,” Chin wrote in his October 7 order. “Clearly, fair concerns have been raised.”

Federal Antitrust Objections

A September 18 court filing by the Justice Department, which urged the court to reject the settlement on antitrust grounds, prompted the judge’s early October order.

According to the Justice Department’s 32-page brief, the government believes the settlement gave Google “de facto exclusive rights for the digital distribution of orphan works,” books whose copyright owners cannot be found. The Justice Department also raised concerns the settlement would give book publishers the power to “restrict price competition” in violation of antimonopoly laws.

“As presently drafted the proposed settlement does not meet the legal standards this court must apply,” the government wrote in its brief. “This court should reject the proposed settlement and encourage the parties to continue negotiations to comply with [class-action lawsuit rules] and the copyright and antitrust laws.”

Loosening Google’s Grip

The Justice Department’s objections resonate with some free-market observers.

“Google’s logic–that without them, certain books would not presently be made available to the public–is not sufficient to justify a de facto monopoly in digitized orphan books for years to come,” says Gabriel Okolski, a fellow at George Mason University’s Mercatus Center in Arlington, Virginia.

“Instead of creating an arrangement that benefits consumers but stifles future competition, any deal should ensure that a vibrant market emerges as an alternative to a single supplier,” Okolski said.

Timothy B. Lee, a fellow at the Washington, DC-based Cato Institute, said there are “structural problems” with the proposed settlement.

“When you allow a small number of parties to negotiate in a smoke-filled room, then present the results to a judge, it’s a fair bet somebody will get shortchanged,” Lee said.

‘Surprised at Resistance’

Google insists the government and free-market critics are missing the broader picture.

During an appearance at the Web 2.0 Summit in San Francisco on October 22, Google cofounder and president Sergey Brin told the audience he was “surprised at the level of resistance” to the settlement proposal.

In the case of orphan works, “reasonable default pricing and access policies are assumed,” Brin wrote in a New York Times op-ed October 8. “This allows access to the many orphan works whose owners have not yet been found and accumulates revenue for the rights holders, giving them an incentive to step forward.”

Brin also insisted that contrary to Justice Department objections, the settlement under discussion would not impose a compulsory license arrangement on authors or publishers who don’t opt out of the settlement, which is standard in most class-action cases.

Public Utility?

One possible compromise might be for the government to treat Google like a public utility. Columbia University law professor Tim Wu, a former Obama election campaign technology advisor, argued for that option in Slate.

But Lee says Wu’s case for treating Google as a public monopoly makes little sense.

“I don’t think there is any reason for a private company like Google to do that,” Lee said, noting public utility regulation typically results in mediocre service and limited innovation.

But if a sweeping settlement gives Google “de facto monopoly power,” the public utility route would be a “second-best” option, Lee said. The better option would be to let the parties work out their disagreements with minimal government interference, he said.

Ben Boychuk ([email protected]) is a freelance writer and syndicated columnist based in Rialto, California.