Inside Google

In a big blow to Google’s efforts to build a massive digital-books marketplace and library, the U.S. Department of Justice (DOJ) has come out against the revised agreement to settle copyright lawsuits brought against Google by authors and publishers.

Google, the Authors Guild and the Association of American Publishers (AAP) had hoped that by revising their original settlement agreement they would satisfy the concerns raised by the DOJ in September 2009 and be able to legitimize Google’s book-scanning program.

While the DOJ commended the parties for substantially revising the complex settlement agreement in good faith, it was unequivocal in stating that the revision falls way short of addressing the problems the DOJ had identified in the original document.

In particular, the DOJ remains dissatisfied with the proposed agreement’s use of the class-action mechanism and its validity under U.S. copyright and antitrust law.

"The [revised settlement proposal] 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," reads the DOJ’s filing with the U.S. District Court for the Southern District of New York on Thursday, its deadline for submitting its comments to the court.

For that reason, the revised proposal attempts to grant rights that are at odds with the "core principle" of U.S. copyright law, which is that copyright owners have control over "whether and how to exploit" their works. "Those rights, in turn, confer significant and possibly anticompetitive advantages on a single entity – Google," the DOJ’s filing reads.

"Under the [revised proposal], Google would remain the only competitor in the digital marketplace with the rights to distribute and otherwise exploit a vast array of works in multiple formats. Google also would have the exclusive ability to exploit unclaimed works — including so-called ‘orphan works’ — without risk of liability. The [proposed settlement’s] pricing mechanisms, though in some respects much improved, also continue to raise antitrust concerns," reads the DOJ’s 31-page filing.

The DOJ is recommending that the court instruct Google and the plaintiffs to once again revise their proposed settlement, adding that the DOJ makes itself available for consultation throughout the process.

Google and the plaintiffs issued a statement that seems to imply they don’t plan to revise the settlement proposal again, saying they "look forward" to Judge Denny Chin’s review of the DOJ’s filing and comments from the backers of the proposal.

"The Department of Justice’s filing recognizes the progress made with the revised settlement, and it once again reinforces the value the agreement can provide in unlocking access to millions of books in the U.S.," the statement reads.

"If approved by the court, the settlement will significantly expand online access to works through Google Books, while giving authors and publishers new ways to distribute their works," it adds.

The DOJ’s filing, technically a "statement of interest," expresses the agency’s opinion on the matter, which ultimately will be resolved by the judge. However, it’s fair to say that the DOJ’s opinion carries more weight than the opinion of any of the other individuals and organizations who have commented for and against the settlement. The filing gives a clear indication that, should the settlement be approved in its current form, the DOJ would be likely to challenge it in court.

Back in November, Judge Chin set Feb. 18 as the date for the final hearing on the settlement proposal.

Consumer Watchdog, a critic of the settlement, praised the DOJ’s opinion and predicted the judge will not approve the proposal. "The Department of Justice should be commended for standing firm in opposing this private deal that unfairly benefits the narrow agenda of one company," said John M. Simpson, a consumer advocate with Consumer Watchdog, in a statement.

The litigation started in 2005, when the Authors Guild and the AAP separately filed class-action lawsuits charging Google with massive copyright infringement over the company’s program to scan millions of library books without always getting permission from copyright owners.

Google defended its program under the fair use principle, saying that while it indexes and makes searchable the books’ text, it only displays snippets of the content if it doesn’t have permission from the copyright owner to show more content.

In October 2008, Google and the plaintiffs hammered out a lengthy and by all accounts extremely complex agreement to settle their lawsuits. Google admitted to no wrongdoing.

That settlement proposal called for Google to shell out US$125 million and for the plaintiffs to grant it rights to display longer portions of these in-copyright books.

The settlement also makes it possible for people and institutions to buy online access to the books through individual purchases or subscriptions. Revenue will also be generated from Google’s online ads.

An independent, nonprofit entity called the Book Rights Registry would be created to locate copyright owners and compensate authors and publishers for access to their works via a royalty system.

Opposition to the proposed settlement has come from a wide variety of quarters: Google competitors like Amazon.com and Microsoft; legal experts; legislators; international and U.S. authors and publishers; and academic scholars.

The criticism centered on concerns that Google would have too much control over the books and their prices, especially so-called "orphan works," whose copyright owners can’t be located and which are often out of print.

The most prominent objector, however, was the DOJ, which in September 2009 recommended that the court reject the settlement because it didn’t comply fully with U.S. antitrust and copyright laws.

That objection sent Google and the plaintiffs scrambling to revise the settlement so that it would address the DOJ’s concerns. They submitted the revised proposal in November 2009.

The changes included a narrowing of the scope of the settlement to books registered with the U.S. Copyright Office or published in the U.K., Australia or Canada.

Also new was a requirement that the Registry search for rightsholders who haven’t yet been located and hold revenue on their behalf. The settlement proposal was also made more explicit regarding the right for any book retailer to sell consumers online access to the out-of-print books, including orphan works. Rightsholders would receive 63 percent of the revenue, while retailers keep the rest.

The revision also provided more detail about how Google will set book prices through the use of an automated algorithm-based system, which will mimic prices in a competitive market. Another change was the removal of a "most favored nation" clause benefitting Google’s licensing of unclaimed works. That change would allow the Registry to license these books to other vendors without necessarily extending the same terms to Google.

While the DOJ had remained silent until now on the revised settlement, critics almost unanimously expressed disappointment with the revision, saying it doesn’t address key concerns over a potential Google monopoly and the handling of orphan works.