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Law360, New York (March 24, 2011) -- After derailing Google Inc.'s plans to develop a massive digital library in light of antitrust concerns, a New York federal judge suggested the technology giant revise a class action settlement with authors and publishers, but it may not be so simple for the parties to go back to the drawing board, experts say.
Judge Denny Chin of the U.S. District Court for the Southern District of New York on Tuesday rejected the proposed $125 million deal that would have let Google scan and make available online any book published, agreeing with the U.S. Department of Justice and Google's competitors that it would let the company create a "de facto monopoly over unclaimed works."
He also found that the settlement would allow Google to expropriate copyrights if owners failed to opt out of the deal and recommended that the parties change the agreement from an opt-out settlement to one in which class members would have to opt in if they wanted their works to be included in Google's digital library.
Microsoft Corp., Amazon.com Inc. and the DOJ contended that the deal would give Google exclusive rights to establish a digital registry even though it scanned millions of works without permission, and that other businesses, which would have to get clearance from authors and publishers to compete, would be at a disadvantage, according to David Leichtman, a Robins, Kaplan, Miller & Ciresi L.L.P. partner.
In addition, Google's rivals argued that because the search engine would be the only place to access certain books or snippets, Google could gain even greater control over the Internet search market in general, said Leichtman, who advised certain international collective societies on their objection to the settlement.
"The judge felt that the manner in which Google went about doing this project was unfair to copyright owners and contrary to law," he said. "The judge held that Google should not be rewarded through the vehicle of a settlement."
The American Antitrust Institute hailed the DOJ for convincing the court to stop the proposed deal.
"I applaud Google's creativity and vision manifested in the book deal, while worrying about its potential for revolutionizing the world's cultural resources in short order," AAI President Bert Foer said. "We must remain vigilant that unnecessary harms are not imposed without fair, adequate, and reasonable protections. The DOJ and the court have functioned well in this matter."
However, in light of the court's rejection of the settlement, questions remain over whether Google and the plaintiffs will be motivated to add opt-in language into a revised deal or whether they will seek out other alternatives, including possible legislation.
While the opt-out provision in the rejected settlement would have given Google rights to digitize orphan works, in which their owners are not easily identified, opt-in language places burdens on the company to try to track down owners and gain permission before making their works available online, according to Warren Grimes, a professor at Southwestern Law School.
"Google's position is that an opt-in system wouldn't work because it's not financially feasible," he said. "Its argument is that there are many works where it is not known who holds the rights or there are mixed rights, such as an anthology of poems by a bunch of different poets. It would be very difficult to get permission from all of them and the cost of doing so could be financially prohibitive."
Google is concerned about the difficulty in determining who owns rights to orphan works, and if it digitizes orphan works, it does not want to be sued later by plaintiffs claiming ownership, Grimes said.
Because the judge does not seem like he is going to accept a settlement with an opt-out procedure, a new settlement is going to have to be narrower, which may not be all that appealing to Google, he said.
"The bigger the project and the more books it gets into its library, the more Google becomes the place where everybody turns to, but if there's more competition and Google's library is no larger than Amazon's or someone else's, the costs of digitizing books becomes more significant," Grimes said.
Google could assess that a smaller project is not worth the marketing effort and digitization costs and decide not to move forward with the project, or it may charge much more for making works available online, according to Grimes.
If Google proposes a narrower settlement, it will be dictated by economic realities, he said.
Some of the plaintiffs in the case may also have less incentive to strike a narrower deal, experts said.
Publishers in the case may have entered the initial settlement because they wanted one company to handle the project in an effort to avoid the price erosion that would occur if there were multiple competitors, according to an attorney familiar with the case.
"Major publishers may have had an interest in fewer outlets of distribution so they could better control the exploitation of works and there wouldn't be competition on price," the attorney said.
The plaintiffs could also choose to litigate the case on the merits and challenge Google's fair-use defense, according to Leichtman.
"In my view, Google's fair-use defense should fail because it's using the works for a commercial purpose, and I don't believe its use of full books or snippets falls under fair use," he said. "Even if Google just makes snippets available, it still scanned the entire copies of the books."
Google may try to reintroduce legislation to Congress that would allow a party to use orphan works and prohibit individuals who may later claim ownership from obtaining an injunction, Leichtman said. Instead, the individuals would have to go through a process before a judicial body to seek reasonable compensation for the exploitation of orphan works, he said.
"Google could turn to Congress to find out what rights firms have to digitize older books," Grimes said. "Congress could clarify so a firm is not going to be sued or sued so often."
Similar legislation has been proposed in the past, but has never gotten off the ground.
But such a law, if passed, would not cover any situation where the current owner of a copyright is easily identifiable by the U.S. Copyright Office's records or by the work itself, Leichtman said.
Judge Chin has set a status conference in the case for April 25.
The case is The Authors Guild et al. v. Google Inc., case number 1:05-cv-08136, in the U.S. District Court for the Southern District of New York.