Inside Google

The Justice Department’s inquiry into Google’s controversial book search settlement with authors and publishers has put the internet giant on notice that the government is watching very closely as the company moves to expand its power into areas beyond the search advertising market, where Google already holds a commanding lead.

The inquiry may or may not lead to a formal objection to the settlement, but one thing is for sure: the Obama administration’s newly minted Justice Department is taking antitrust concerns about Google seriously.

The inquiry is in its initial phase, and may not result in a formal investigation, let alone an official objection. But Eric Goldman, Director of the High Tech Law Institute at Santa Clara University School of Law, said the government’s inquiry is designed — at least in part — to send Google a message that it is watching the internet giant very closely.

“This deal has been ripe for antitrust review from day one,” Goldman told Wired.com.

But rather than pursue a full-bore showdown with Google over the book settlement, a development Goldman views as unlikely, the Justice Department’s initial inquiry is meant to put Google on notice.

“Whether the Justice Department pursues an action or not, it has already sent a message to Google just by having the investigation publicly revealed — we’re watching, and we’re suspicious,” Goldman said. “I think Google already knew it was going to tangle with the Justice Department during the Obama administration, but this sends the message loud and clear.”

After Google’s tussles with the Bush Justice Department, most notably the down-to-the-wire showdown over Google’s proposed search ad deal with Yahoo, industry watchers have been waiting for a test case to indicate how aggressively the Obama Justice Department will handle antitrust concerns about the internet giant, especially given fact that Google chief executive Eric Schmidt is a top technology adviser to President Obama.

In recent weeks, Justice Department lawyers have asked Google for information about the settlement, and further inquiries are planned, according to a source familiar with the matter. The government’s initial probe began after critics of the deal, including Santa Monica-based public interest group Consumer Watchdog, raised objections.

Earlier this month, Consumer Watchdog sent a letter to Attorney General Eric Holder arguing that the deal between Google and the Author’s Guild raises antitrust concerns and hasn’t been adequately scrutinized with the public’s interest in mind.

Consumer Watchdog objected to two components of the deal, arguing they create barriers to entry for potential Google competitors, thereby giving Google an unfair advantage in the nascent marketplace for digital books.

The group’s first issue is a clause called “most favored nation,” which would prevent the Book Rights Registry, the non-profit which would be set up to administer digital book rights, from offering better terms to Google’s future competitors. The second issue concerns so-called “orphan works,” books for which no author or rights holder can be found. The settlement would give Google the upper hand in negotiating with any such rights-holders, should they emerge, according to Consumer Watchdog.

“The most favored nation provision should be eliminated to remove barriers of entry and the orphan works provision should be extended to cover all who digitize books,” Consumer Watchdog said in a statement accompanying its letter.

On Tuesday, the judge overseeing the settlement granted U.S. literary copyright holders a four-month extension to allow them more time to evaluate the 334-page settlement before deciding whether to participate, object, or opt out of the deal entirely. The original deadline was May 5th.

A spokesperson for Google declined to comment on the probe, and a spokesperson for the Justice Department was not immediately available for comment. Under the settlement Google would pay $125 million to create a Book Rights Registry, a clearinghouse for authors and publishers to register works and receive compensation sales.