Google Settlement Retains ‘Core Problem,’ Justice Says, Urging Further Talks

Despite many changes between versions, including a proposed “Unclaimed Works Fiduciary” and scrapping of a most-favored nations provision for Google, the deal is still “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,” Justice said. It goes beyond the “core principles” of the Copyright Act and confers benefits on Google that could be anticompetitive, despite changes in the proposed pricing mechanisms, the filing said.

Justice acknowledged the law was ill-suited to digital distribution of books on the scale that Google and the plaintiffs proposed, “thereby denying the public the full corpus of 20th century books and, perhaps, unknown benefits of future creativity and economic innovation.” But the department must “reluctantly” oppose the deal for usurping congressional authority: It is “a bridge too far.” Justice said nevertheless it wants settlement talks to continue and offered its help both on a deal and on “legislative or market-based solutions” for the digital-book market.

If there were a properly-represented class, it could settle a suit over past conduct by licensing a “somewhat broader range of conduct,” but what Google and plaintiffs propose is much broader than the original claims of infringement from scanning and displaying snippets of books in search results, Justice said. Google’s sale of scanned books without authorization would have contradicted its pre-settlement strategy that relied on fair use to show snippets, it said. Case law also limits the scope of settlements to a judge’s “remedial authority,” historically imposing more burdens on the defendant -- in contrast, Google would actually get benefits it couldn’t even get through private negotiation, Justice said.

The Constitution’s copyright clause pursues its objective -- the free flow of information -- through a congressional delegation of exclusive rights to authors, contrary to the settlement’s opt-out structure, the filing said. To get out of Google’s book library, rightsholders have to list their works with the proposed Book Rights Registry and mark them off-limits on a work-by-work basis, and in two years, they won’t be able to opt out at all and will lose their right to sue, Justice said. The benefits of wide digital distribution would come “in spite of and not in furtherance of” the Copyright Act.

Though associations in Canada, the U.K. and Australia have subsequently participated in settlement negotiations, they may not represent authors outside those countries whose books were published there, Justice said. It’s also unclear how independent the proposed fiduciary for unclaimed works will be from the registry, since it’s not mentioned in the registry charter and the fiduciary is missing crucial powers such as the right to renegotiate revenue splits, set prices and yank books. Justice warned that the lead plaintiffs appear poised to negotiate separate deals with Google that would exempt them from “forward-looking” parts of the settlement, raising a conflict-of-interest issue with regard to their representation of absent class members. Judge Chin should ensure that notice of the amended settlement is distributed far and wide to class members, with particular attention to foreign rightsholders, the filing said.

The amended settlement sets up procedures to decide “highly individualized disputes” between authors and publishers -- for example, 50-50 revenue splits for post-1987 books -- and gives Google the exclusive digital rights to works, Justice said. This resolution of rights “prospectively” suggests a possible conflict of interest for representational purposes, it said. Though Google will be able to renegotiate wholesale revenue splits on a bilateral basis and remove disputed books under the new deal, a “positive development,” that provision applies only to “commercially available works” -- those most at risk of being pulled out of the settlement under future negotiations with Google, Justice said. Hence, non-commercially available works would still be subject to non-competitive pricing, which can be deemed “per se” unlawful: It “hardly seems onerous” to grant Google the right to include them in negotiations as well. While the U.S. doesn’t object to Google’s use of a pricing algorithm, the fact that publishers and authors have a horizontal agreement to abide by that algorithm is “unlawful,” the filing said flatly -- and bilateral negotiations are “far preferable."

The department called “poor public policy” Google’s exclusive rights to a new book market created by the settlement. “There is no serious contention that Google’s competitors are likely to obtain comparable rights independently,” including Amazon, which started authorized scanning in 2002 yet is millions of books behind Google. A competitor would have to copy books en masse without permission to prompt another class-action suit and seek a similar settlement, or alternatively, try to distribute works without first resolving digital rights, a “cost-prohibitive undertaking on a work-by-work basis,” Justice said. The reseller clause in the deal, ostensibly a check on Google’s market power, still leaves Google in control of “upstream” access, and Google’s dominant search business could also get an artificial boost from its exclusive access.

If the court disagrees and sees a viable settlement, Justice said, it should impose safeguards to improve its compatibility with class action rules and copyright law. “An opt-in regime for the forward-looking aspects of the settlement would address many concerns,” and to a lesser extent, a mandatory “waiting period,” say two years, under which Google would list out-of-print works in the registry but not make them available while a “diligent search” for owners continues. Judge Chin could delay or condition the deal until the fiduciary and registry set standards to reduce the unclaimed pool, require a diligent search after the waiting period expires, or limit included foreign works to those published in the U.S. or registered with the Copyright Office.

If an opt-out regime is approved, the court could set a fixed term for Google’s commercial exploitation, say five or 10 years, and then require renegotiation, Justice said. Chin could also require parties to agree to comply with future changes to U.S. copyright law and make explicit that the deal won’t impede changes to areas such as orphan works, and the judge could look for other ways to give rival distributors access to orphan and “rights-uncertain works."

Justice “made it crystal clear that the proposal before the court is overreaching and cannot be approved,” said the Open Book Alliance, which includes Amazon, Microsoft, Yahoo and the Internet Archive among others. It’s especially glad that the government echoed the alliance’s concerns about anticompetitive effects on digital book sales and the search market, and identification of Google’s leading position with its unauthorizing scanning. In a joint statement, Google and the plaintiffs ignored Justice’s critical comments and pointed to the department’s acknowledgment of “the progress made with the revised settlement” and its potential value to the public.