Google Books settlement: reading in the last chance saloon?

Practical Law UK Articles 6-511-4668 (Approx. 6 pages)

Google Books settlement: reading in the last chance saloon?

by Duncan Calow, Andrew L Deutsch, Amy Billing & Tracy Broad DLA Piper

History of the Google Books project

In 2004, Google agreed to digitise the collections of several major US libraries. The libraries gained digital copies for lending and preservation purposes and Google began to create a huge, searchable database of books. The considerable potential commercial benefits notwithstanding, Google failed to obtain prior permission of the individual publishers and authors of those books before embarking on the project. The latter therefore argued that scanning protected library works without permission was an infringement of their copyright and not, as Google asserted, lawful "fair use" of the material (the US concept of "fair use" is wider than English law concept of "fair dealing", see box, US: Fair use exception).

The case began in 2005 when US authors' and publishers' representatives filed separate lawsuits against Google. The American Authors Guild filed a class action suit on behalf of authors on 20 September 2005, shortly followed by the Association of American Publishers and five publishers filing a civil lawsuit on 19 October 2005. The two cases were later joined by the court. The parties began negotiations in 2006 and on 28 October 2008, they filed a proposed settlement to their dispute. However, their proposal triggered hundreds of objections by individual authors as well as libraries, state attorney generals and the Department of Justice, who expressed concerns that the settlement might create a situation where one commercial entity would have the right to digitise and commercially exploit a vast array of works, including works where it may be impossible to trace the author (orphan works). In response to these concerns, the parties filed an Amended Settlement Agreement (ASA) on 19 November 2009, against which further objections were received. On 18 February 2010, the court conducted a fairness hearing, but, as with the original proposed settlement, the judge sitting in the US District Court of the Southern District of New York rejected the ASA on 22 March 2011.

Key provisions of the settlement

The settlement in its original form sought to establish a framework for Google to continue to develop and exploit its database, allow certain library use, and compensate publishers and authors. Key provisions included Google:

Being released from any liability (for past and future infringement) by those members of the author and publisher class who do not opt out of the settlement.
Making a cash payment to participating rights-holders who claim for works scanned without permission before 5 May 2009.
Being allowed to make certain "display" uses of scanned works of participating rights-holders that are not commercially available in the US (essentially, out-of-print books), unless the rights-holders opt out. These display uses include individual sales to consumers, institutional subscriptions and advertising uses.
Not being allowed to make display uses of works that are commercially available in the US (in-print books), unless the rights-holders opt in.
Paying 63% of the revenue it receives from these uses to the participating rights-holders.
Paying for the establishment of a Books Rights Registry (BRR), which would oversee the identification of rights-holders, distribution of revenue and other operational aspects.

The most significant changes in the ASA include:

Elimination of the open-ended provisions that would have enabled Google to exploit the works covered by the ASA through unspecified future use.
Calls for an Unclaimed Works Fiduciary, subject to court approval, to protect owners of unclaimed works.
A reduction of the number of foreign works in the settlement.
Elimination of the most-favoured nation provision that would have guaranteed Google optimal licence terms into the future.

However, despite the progress made by the ASA, it did not go far enough in the opinion of opposition groups and Judge Chin.

Objections against the settlement

A variety of different groups presented their objections to both the original proposed settlement and the ASA. A selection of these groups and their main objections are outlined below.

Authors groups

The National Writers Union, the American Society of Journalists and Authors, and the Science Fiction and Fantasy Writers of America, warned that the ramifications of the ASA for a single author or book were far-reaching and complex. Yet, they argued, due to Google's failure to notify authors and explain those ramifications, authors were at great risk of finding themselves locked into an agreement without even realising they had entered into it. Their concern would fall away if the settlement was converted from an opt-out to an opt-in settlement, something that is a key element of these arrangements for Google. Although Judge Chin found that the author class had received adequate notice, this subversion of the normal rule of copyright requiring owner consent remained a concern.

Academic community

Members of the faculty of the University of California filed a letter to the court, expressing concern that the proposed settlement was not fair, as it did not protect the needs and interests of the academic community. It suggested that the Authors Guild did not represent the interests of academic authors as, in negotiating the settlement, it was mainly concerned with maximising profits rather than maximising public access to knowledge. They argued that the ASA failed to adequately address that point.

Competitors

In 2009, Microsoft, Amazon and Yahoo came together under the Open Book Alliance to file an objection to the proposed settlement, with the focal point being anti-trust concerns. The Open Book Alliance argued that the settlement would, if approved, damage competition in numerous markets, particularly those dependent on web commerce. It argued that the parties' proposal embodied a conspiracy in restraint of trade, thereby violating Section 1 of the Sherman Act, 15 U.S.C. § 1-7, which declares those practices illegal. In addition, many of the provisions under the settlement constituted per se illegal price fixing agreements; one example being that the publishers were to jointly set the future prices for digital books through algorithms written by Google. Despite the pricing mechanisms being much amended in the ASA in response to such concerns, the consensus was that such improvements did not go far enough.

Department of Justice

The Department of Justice filed statements of interest in response to both the original proposed settlement and the ASA. While recognising the benefits of the original proposed settlement (such as the creation of an independent, transparently operated BRR), it expressed overall concerns that the ASA purported to grant legal rights that are difficult to reconcile with the core principle that copyright owners generally control whether and how to exploit their works during the term of copyright. Additionally, Google would gain the exclusive ability to exploit orphan works without any risk of liability.

The Department of Justice's anti-trust concerns can be split into two areas: horizontal agreements among authors and publishers, and Google's de facto exclusivity. Although the Department of Justice recognised that the ASA went some way in addressing price competition issues, other questions remained open. For example, the original settlement raised concerns that the BRR, consisting primarily of commercial publishers and authors, would have the ability and incentive to limit competition from unclaimed works. The ASA attempts to address this point with the introduction of a supposedly independent Unclaimed Works Fiduciary with the power to licence the use of orphan works to third parties. However, concerns remained over the independence and specific powers of the Fiduciary.

The Department of Justice argued that a core issue was Google's ability, compared to the ability of any other commercial entity, to compete in the marketplace that the parties were seeking to create. Google's market share in the online search market could be further entrenched by its exclusive access to content through the ASA. Under the ASA, the BRR is not forbidden from licensing the works to others, but it can only act "to the extent permitted by law". This caveat effectively gives Google de facto exclusivity over orphan works. The BRR lacks the power to licence copyright works without the consent of the copyright owner but, as an orphan work does not have an owner, no consent can be obtained and therefore no licence can be granted. Thus, the BRR inherently lacks the ability to enable others to compete with Google; only Google could have access to the complete repertoire of orphan works.

Factors of the rejection

In formulating his short rejection, Judge Chin discussed seven factors as follows:

Notice. The judge felt that the class had received adequate notice and therefore this was not an issue for the court. More than 1.26 million notices in thirty-six languages were sent out. The plaintiffs had also established a website providing information and the case itself had received enormous publicity.
Representation. The judge found the differences in the interests of the named plaintiffs and the interests of certain members of the class troubling. He felt that three groups may not have been adequately represented: academic authors, foreign rights-holders and orphan copyright owners.
Scope of the relief. The scope of relief available to the court was one of the main concerns on which the judge rejected the settlement.
The settlement itself can be divided into two parts. The first is a settlement of past conduct, which would release Google from liability for past copyright infringement. The second part of the settlement, which proposed transferring to Google certain rights in exchange for future and ongoing arrangements (including the sharing of future proceeds) would release Google (and others) from liability for certain future acts.
The judge felt that the second part of the settlement exceeded the powers of the court and was therefore not something that the court could permit. He was concerned too that the establishment of a mechanism for exploiting orphan works was a matter more suited for Congress and that the ASA would release claims well beyond those contemplated by the case. Especially troubling to the judge was that the ASA would grant to Google the right to sell full access to copyright works that it otherwise would have no right to exploit. With regard to orphan works and their future rights, the judge felt that the "class members would be giving up certain property rights in their creative works, and they would be deemed by their silence to have granted to Google a license to future use of their copyrighted works".
Copyright. Again the judge reiterated that the realm of copyright is in the hands of Congress and he felt that the ASA would essentially re-write copyright law. He held that the opt-out provisions of the ASA would grant Google the ability to expropriate the rights of copyright users who have not agreed to transfer those rights.
This would be a move away from existing law, where copyright owners are generally considered to have the right to do or not do what they wish with respect to their own works. This protection covers third-party use to ensure that other parties seeking to use the work have the responsibility to obtain the rights to it.
Anti-trust (competition). The judge felt the ASA would give Google an exclusive right to exploit orphan works. This followed concerns raised by the Department of Justice, Amazon and Microsoft, among others, as outlined above. The ASA would also greatly enhance Google's search business.
Privacy. Privacy concerns were raised by a number of objectors and the judge was concerned that the ASA would have given Google "the ability to collect nearly unlimited data about the activities of users of its Book Search". That said, the judge felt that although it was a legitimate area of concern, privacy on its own was not adequate to reject the case.
International law. The judge argued that the settlement could potentially violate international law including the Berne Convention and Agreement on Trade-Related Aspects of IP Rights. This was because the ASA had narrowed the definition of the books that were to be included to certain territories only. It would have meant that any non-US work would only be covered "if the copyright was affirmatively registered in Washington, D.C. or if the book was published in Canada, the UK, or Australia, on or before 5 January 2009".

Back to litigation?

Although the judge held the settlement not to be "fair, adequate and reasonable" for the reasons set out above, he felt that many of the concerns would fall away if the settlement was converted from an opt-out settlement into an opt-in settlement and he urged the parties to consider revising the settlement accordingly. In essence, it was not an outright rejection of the settlement, as the judge left the door open for the parties to re-negotiate the settlement in a way to iron out the concerns raised in his judgment and the parties took this opportunity to reach an agreement.

A first status conference was held on 19 July 2011 with a follow-up status conference taking place on 15 September 2011.

At that follow-on conference, the judge adopted a proposed pre-trial schedule that could take the case to trial by July 2012. Notwithstanding this proposed schedule, the parties confirmed that settlement talks were progressing and they plan to continue to negotiate in order to resolve their differences. The judge stated he was still hopeful the parties could reach a settlement before the new deadline.

A last chance for settlement?

In the light of the concerns set out above, it is going to be challenging for the parties to reach a revised settlement that will satisfy the court. Google is unlikely to want to agree an opt-in solution as that would be administratively complex and would not deal with the issue of orphan works. The opt-out arrangement was also vital in terms of commercial success. It is at least debateable whether, under a purely opt-in scheme, Google could build a critical mass of digitised, out-of-print books that would justify the complex rights clearance and payment structures proposed in the ASA. In any case, the court has made it clear that it is uncomfortable with approving a settlement that allows Google to use authors' works without their specific consent.

At the same time, a legislative solution envisaged by the judge is unlikely to happen. In the past, attempts have been made to pass orphan works legislation in the US, which would have allowed commercial use to be made of the works whose copyright owners could not be located and would provide compensation to the authors if they subsequently emerged. Although made with the backing of the US Copyright Office, these Bills failed because of the same type of opposition that thwarted the ASA. Similar debate has arisen over EU and UK initiatives for orphan works legislation, and was one of the issues raised by the Hargreaves Report and included in the subsequent UK government response.

Meanwhile the advice in the US to publishers, libraries and others must be that of caution. Clearance should be sought for using third-party material first published after 1923 and works where the rights-holder cannot be located should not be used without careful assessment of the risks.

US: Fair use exception

In the US, there is a broad exception for "fair use" of copyrighted works under the Copyright Act, 17 U.S.C. § 107. The Act sets out four fair use factors:

The purpose and character of use, including whether such use is of a commercial nature or is for non-profit educational purposes.
The nature of the copyrighted work.
The amount and substantiality of the portion used in relation to the copyright work as a whole.
The effect of the use on the potential market for, or value of, the copyrighted work.

In the UK, by contrast, the exceptions from copyright in the Copyright, Designs and Patents Act 1988 are narrowly drawn and relate to specific activities.

Duncan Calow and Andrew L Deutsch are partners and Amy Billing and Tracy Broad are trainees at DLA Piper.

Google Books settlement: reading in the last chance saloon? | Practical Law