New Google Settlement Not Likely to Draw DOJ Knives—Yet

The most obvious change to the settlement is its narrowed scope. In a response to criticisms from other governments including those of France and Germany (WID Sept 4 p3), the works available will be limited to ones registered in the U.S., the U.K., Canada and Australia. An estimated 95 percent of foreign-language works that would have been included are now off the table, said Richard Sarnoff, co- chairman of Bertelsmann, speaking for the Association of American Publishers on a conference call with other parties. The most-favored-nations clause -- under which competitors couldn’t get better terms from rights holders than Google does -- has been scrapped, and a new pricing algorithm will “simulate how the market works,” he said. The parties have done a “fair amount to accommodate” Justice concerns.

The “lion’s share” of unclaimed works, which can include out-of-print and orphan works, won’t be included in the registry, said Paul Aiken, the Authors Guild’s executive director. A new “independent fiduciary” will handle orphan works. The registry will hold money produced by orphan works 10 years. After that, they'll be distributed to charities in countries whose works are in the registry. That will resolve “any appearance of conflict” between known rights holders, who would have received the proceeds of orphan works, and unknown rights holders, he said. The registry will have an “explicit obligation” to locate rights holders under a new provision that allocates up to 25 percent of orphans’ proceeds for searches for their owners after five years.

The Open Book Alliance called the new agreement “sleight of hand” by Google, the guild and big publishers to “distract people from their continued efforts to establish a monopoly over digital content access and distribution” and usurp congressional copyright authority. Aiken said the alliance, whose members include Amazon, Yahoo and Microsoft, were only concerned about their own interests. “These are substantial changes,” but the parties “protected the core” of the original agreement. Sarnoff said the parties were responsive to “the most important” concerns from all those concerned, including Justice.

But some of DOJ’s concerns were “very fundamental” to the settlement’s structure, and the parties couldn’t acquiesce by, say, licensing orphan works to competitors, said Dan Clancy, Google director of the book project. “To the extent they are able to do it by law,” competitors could license such works from the registry, he said, alluding to the prohibition under federal law for using orphan works. Google would still have the exclusive rights to offer orphan works, but the proposed fiduciary “would give a platform” for competitors to offer orphan works should Congress revise the law, Clancy said.

It doesn’t make sense to leave orphan works out of the agreement, Aiken said, because “we don’t know which ones are the orphan works.” The term refers to books for which efforts to locate rights holders have been exhausted. The success rate for finding rights holders is “quite good” when they have the chance to collect owed revenue from their works, he said. Unclaimed works constitute a “rights- clearance mess that only a class action can clean up,” he said. “The transaction costs are unfathomable” otherwise.

It’s not clear whether the new settlement will prompt Congress to act. Several lawmakers at a House Judiciary hearing in September said Congress should stay out of the settlement but work on orphan-works legislation to resolve the competitive impasse (WID Sept 11 p1). Senate Judiciary last considered an orphan-works bill a year ago. We couldn’t reach leaders of either committee for comment. The settlement changes are “reasonable and pragmatic,” antitrust lawyer Michael Hazzard told us. “This Justice Department really hasn’t shown its hand one way or another,” but there’s a “good chance” the department ultimately will sign off, he said. The new settlement will “fill in some of the blank spaces on the map” that had worried Justice, and though the department probably will want more changes, “it’s hard to say that Google hasn’t taken an honest step forward,” especially by narrowing the class to English-language works, Hazzard said.

A provision clarifying the settlement doesn’t give the parties “antitrust immunities” may seal the deal for Justice, at least initially, said Randal Picker, who teaches antitrust law at the University of Chicago law school and who testified at the September hearing. Without that provision, Justice “faced a possible all-or-nothing judgment about whether to challenge the agreement now,” because the department could have been precluded from objecting later. Justice can wait for the consumer response to the new digital-book market enabled by the settlement and use civil investigative demands as necessary, he said. If consumers aren’t interested, “possible competition issues about the pricing algorithm are purely academic and not worthy of attention for either the court system or DOJ.”

But the fiduciary for unclaimed works - first suggested by Chairman Hank Johnson, D-Ga., of the House Judiciary Antitrust Subcommittee -- isn’t as friendly to those unknown authors as the settlement suggests, Picker said. The settlement implies that the fiduciary would have authority in place of the registry to decide a disputed work’s status for the purpose of “display uses” but not to remove works from the registry database. And it’s not clear on what basis Justice could challenge Google or the Authors Guild “for failing to create a license of the orphan works to another competitor,” which isn’t a “traditional antitrust question,” Picker said. The new settlement has “unnecessarily hobbled” the fiduciary by preventing it from licensing unclaimed works to third parties. “Be very clear: The settlement agreement is giving Google rights directly to use the orphan works,” apart from the “permitted by law” formulation that would govern potential competitors, Picker said.

The fiduciary provision is “a very clever hack,” but “I have my doubts whether it’s legal,” said James Grimmelmann, an associate professor at New York Law School and a vocal critic of the original settlement. If Congress doesn’t act to clarify the status of orphan works, Google will have the exclusive legal right to sell them. “The speculative possibility that Congress might someday act to open up the market to others doesn’t create actual competition now,” Grimmelmann said. “'To the extent permitted by law’ changes nothing.” Even if Congress changes the law, that raises the question, “Why do we need the class action?” he said.