Department Of Justice Files Objections To Google Book Search Settlement

As expected, the US Department Of Justice today has filed a list of objections and modifications it would like seen made in the proposed settlement to the Google Book Search lawsuit. It’s not saying that the settlement should go back to square one. In fact, it suggests that “momentum” potentially could be lost to improve access to books if that happened. But it does want the settlement modified, in particular to protect absent rights holders of “orphan works” and to solve anti-trust concerns.

You’ll find a copy here (PDF) at the Public Index. The New York Times has a summary up here. Gary Price has a press round-up here. A Google statement is at the end of this article, along with one from the Open Content Alliance, which opposes the settlement.

As for the article itself, I’m reading through the entire filing from top to bottom, pulling out parts that seem worth highlighting and providing my own commentary along the way. I’m not a lawyer, keep in mind. James Grimmelman IS a lawyer, has been following this case closely, and provides his own commentary here.

From the opening:

The United States has been informed by the parties that they are continuing to consider possible modifications of the Proposed Settlement to address the many concerns raised by various commenters and by the United States in its discussions with the parties.  The Proposed Settlement is one of the most far-reaching class action settlements of which the United States is aware; it should not be a surprise that the parties did not anticipate all of the difficult legal issues such an ambitious undertaking might raise.  Further, the parties have represented to the United States that they put this Court on notice of their ongoing discussions and that they may present a modified version of the Proposed Settlement in the future.  The United States is committed to working with the parties constructively with respect to alterations the parties may propose.

That’s from page 1. In short, all parties in the case are telling the Department Of Justice they plan to modify the agreement to address some of the concerns; the DOJ is saying it will work with the parties on this “constructively” rather than declaring that the settlement should be completely killed. That’s important, so I’ve bolded it.

Continuing, the filing lists that there are lots of positive aims to the settlement including the ability to “breathe life” into books “effectively off limits to the public.” However on page 2:

Nonetheless, the breadth of the Proposed Settlement – especially the forward-looking business arrangements it seeks to create – raises significant legal concerns.  As a threshold matter, the central difficulty that the Proposed Settlement seeks to overcome – the inaccessibility of many works due to the lack of clarity about copyright ownership and copyright status – is a matter of public, not merely private, concern.

I bolded that last part, as it’s important. This is a lawsuit between private parties, but because it potentially impacts public copyright law so much, many (including now the Department Of Justice) have expressed concerns. The filing continues:

A global disposition of the rights to millions of copyrighted works is typically the kind of policy change implemented through legislation, not through a private judicial settlement.  If such a significant (and potentially beneficial) policy change is to be made through the mechanism of a class action settlement (as opposed to legislation), the United States respectfully submits that this Court should undertake a particularly searching analysis to ensure that the requirements of Federal Rule of Civil Procedure 23 (“Rule 23″) are met and that the settlement is consistent with copyright law and antitrust law.  As presently drafted, the Proposed Settlement does not meet the legal standards this Court must apply.

An ouch paragraph. Again, the suggestion that copyright matters this extensive should be handled by the legislative branch of the US government (you know, Congress — you remember Congress) and not through the courts. I don’t know much about Rule 23 — as I read more, this might become clear. But expect to hear that rule get quoted a lot in the coming days. But most important — the settlement as is doesn’t meet the legal standards in the view of the Department Of Justice (keep in mind, the Department Of Justice isn’t the boss of the judicial branch of the US government. But still, you’d expect the court to weigh heavily what that DOJ thinks).

Continuing:

Commenters’ objections to the Proposed Settlement fall into three basic categories: (1) claims that the Proposed Settlement fails to satisfy Rule 23; (2) claims that the Proposed Settlement would violate copyright law; and (3) claims that the Proposed Settlement would violate antitrust law.

I just like having those three main points highlighted. Soon after that (page 3 now), this is another key part:

At the same time, the Proposed Settlement would establish a marketplace in which only one competitor would have authority to use a vast array of works – especially so-called “orphan” works – that may provide significant value both to Google and to the Registry, a collective which would control exploitation of those works.

Orphan works sound like they should be adopted by Madonna or Angelina Jolie. OK, a little humor in all this dry legal stuff, forgive me. Orphan books that are in copyright but where the copyright owners can’t be found. In the settlement, Google would get a license to display these partially or sell full online reading, with any earnings kept in trust for the copyright owners (to my understanding). Anyone else wanting to use them would have to try and track down the authors (again, to my understanding), which might be done through the new book registry that’s also proposed to be created (or not, because maybe the copyright owners can’t be found. So in short, Google gets access to a huge number of books that others don’t. (How many is debatable. It’s no more than six million in copyright books that Google scanned without consent; as few as 500,000 of these might be orphans, from one estimate I’ve seen reported).

From page 3 :

The United States’ views on the Proposed Settlement are informed by three basic principles.
First, one goal of the settlement – making large numbers of copyrighted works available to the public in electronic form while providing compensation to authors and publishers – is a public benefit that, to date, has not come to pass due to certain realities of the copyright system, including, for example, the fact that copyright owners are not required to formally register or otherwise assert their ownership …. The United States believes that, through the actions of private entities and Congress (if necessary), steps should be taken to advance these objectives.

One goal Google has with the settlement is to see copyright law be improved, and Google CEO Eric Schmidt said recently that Congress didn’t seem to have the will to make this happen. The DOJ seems to think Congress should be involved. Continuing:

Second, the end result should be a marketplace in which consumers can be assured that they are paying competitive prices for the benefit they receive – in a marketplace in which they have multiple outlets from which to obtain access to works.  The benefits of this settlement should not be achieved through unjustified restrictions on competition.

Third, the structural safeguards of Rule 23 must be satisfied to ensure that the rights of absent class members are fully protected. This Court should engage in a careful and searching examination of the Proposed Settlement and any revised version that may be submitted.

Here, the Justice Department wants to ensure there’s no price fixing going on, so to speak, and that those this entire case is about — the copyright owners — have their rights protected even if they can’t be found.

Continuing on, from page 4:

The United States recognizes that the only question before the Court is whether to approve or disapprove the Proposed Settlement. Given the parties’ express commitment to ongoing discussions to address concerns already raised and the possibility that such discussions could lead to a settlement agreement that could legally be approved by the Court, the public interest would best be served by direction from the Court encouraging the continuation of those discussions between the parties and, if the Court so chooses, by some direction as to those aspects of the Proposed Settlement that need to be improved. Because a properly structured settlement agreement in this case offers the potential for important societal benefits, the United States does not want the opportunity or momentum to be lost.

A whoa paragraph. Remember, while plenty of people have suggested a “back to square one” approach, this is a settlement to a lawsuit between parties. That lawsuit has to be dealt with. The court isn’t trying to change copyright law. It’s trying to decide if the lawsuit settlement is fair to the parties represented. The DOJ acknowledges this but also the reality that copyright law could change and potentially improve through this settlement, if certain changes are made. Moreover, and perhaps most important, it wants the suit to go ahead and keep working at changes lest the “momentum” as it puts it to solve some long-standing copyright issues is lost.

Next, that mysterious Rule 23:

Rule 23 is designed to ensure that the settlement of a class action resolves disputes on behalf of plaintiffs who have aligned interests and protects the legal rights of absent class members whose interests may diverge from those of the named class representatives. To  prevent abuses and to provide structural guarantees of fundamental fairness, Rule 23 requires that the class be defined in terms of commonality, typicality, and adequacy of representation, and that class settlements be fair, reasonable, and adequate. The United States submits that, as currently drafted, the Proposed Settlement does not satisfy these requirements….

The parties have indicated that they are renegotiating a number of aspects of the Proposed Settlement.  Until the parties agree on new provisions, however, it is impossible to determine whether a modified settlement will satisfy Rule 23’s strictures.  Accordingly, the United States respectfully submits that, as identified below, there are various ways to address the foregoing concerns that the parties should consider in their future discussions.

OK, there have been complaints that the two main parties that sued Google, the Authors Guild and the AAP don’t actually represent fully the interests of all the authors and publishers who would be impacted by this ruling. The DOJ seems to agree and that the ruling might not be fair to all as currently written.

Various commenters have suggested that the Proposed Settlement must be limited to compensation for past conduct and should provide for little in the way of forward-looking relief….

The United States does not advocate such a categorical view here ….

That said …. the courts have cast doubt on the circumstances in which class representatives could adequately represent absent class members with respect to as-yet uncertain injuries or rights that were far removed from the facts underlying the complaint.

This lawsuit was about Google scanning books that were in copyright, in order to make a searchable database. Only a few sentences of in copyright books were ever shown (despite what you may have heard), unless the copyright owner gave express permission through a separate “Partners” program. Google felt scanning and very short displays like this were fair use; the parties that sued them disagreed.

The settlement actually doesn’t resolve that question but sidesteps around it by granting Google a lot of other rights (see Google’s Schmidt To Book Settlement Critics: What’s Your Solution? for more on this). Some object to this as too expansive – hence the issue that the settlement should be “limited” to “past conduct.”

The DOJ says the agreement can indeed be expansive, but it is concerned that not all parties that are supposed to be represented really are (such as those orphan copyright holders).

In particular, it says the parties in the suit can resolve the scanning and display question:

At one end of the spectrum are the provisions that settle the specific allegations of infringement in the Complaint – Google’s scanning of millions of copyrighted works and making available small portions of such works in response to search requests.  As to those claims, there are strong arguments that an appropriate set of publisher and author class representatives can adequately represent all members of the class with respect to reaching a settlement for payments to be made to publishers and authors for the use of their works.

But on the expanded set of rights, the DOJ sees the class as too narrow:

At the other extreme are the provisions of the Proposed Settlement that authorize the Registry to license Google to exploit the copyrighted works of absent class members for unspecified future uses (potentially derivative works or other uses) – essentially authorizing, upon agreement of the Registry, open-ended exploitation of the works of all those who do not opt out from such exploitations….

Such licensing is far afield from the facts alleged in the Complaint.  And the rights conferred are so amorphous and malleable that it is difficult to see how any class representative could adequately represent the interests of all owners of out-of-print works (including orphan works).

But the DOJ is positive on the idea this can be fixed:

The parties appear willing to address this problem by limiting the future rights that may be controlled by the Registry and Google.  The United States looks forward to working with the parties to address these concerns across the entire spectrum of provisions in the Proposed Settlement.

Next, the filing highlights that Google gains many rights to use out-of-print works without the copyright owners having to affirmly give it permission (IE, they have to opt-out of some uses, rather than opt-in).

Because the owners of orphan works are an incredibly diverse group that includes not only living authors or active publishers, but heirs, assignees, creditors, and others …. these rightsholders are difficult or impossible to locate, and thus difficult to notify.  Moreover, no amount of notice is likely to protect those orphan rightsholders who are unaware of their rights or unclear how or whether they want to exploit themYet, if an out-of-print copyright owner does not come forward within five years, profits from the commercial use of the out-of-print work are distributed to pay the expenses of the Registry and then to the Registry’s registered rightsholders.

Yes, this just feels like common sense. Shouldn’t rights be opt-in, not opt-out, especially when you can’t locate some of the rights holders. Of course, there’s also the view that copyrights expire specifically so society can benefit from wider use of works — and if rightsholders can’t even be found, perhaps they should be effectively passed into the public domain.

But the DOJ is focused on more specific matters — that the orphan holders benefit the known holders, and that the known rights holders effectively speak on the orphan’s behalf:

The broad scope of the Proposed Settlement’s licensing provisions exacerbate this conflict. The greater the economic exploitation of the works of unknown rightsholders by Google and the Registry, the stronger the incentive for known rightsholders to retain the unclaimed revenues for themselves…

While these rightsholders are willing to authorize Google to develop future uses of copyrighted works, their own works are fully protected from unanticipated future uses:  these owners can deny Google permission to use their works in ways they deem objectionable. Out-of-print rightsholders, however, will not enjoy such protections unless they learn of the Proposed Settlement and its terms (and in some cases their own ownership rights) before Google begins a new use of their works.

It is noteworthy that the parties have indicated their belief that the largest publisher plaintiffs are likely to choose to negotiate their own separate agreements with Google….

There are serious reasons to doubt that class representatives who are fully protected from future uncertainties created by a settlement agreement and who will benefit in the future from the works of others can adequately represent the interests of those who are not fully protected, and whose rights may be compromised as a result.

Solution?

The United States looks forward to reviewing modifications to the Proposed Settlement that will provide structural assurances to minimize this conflict.

Um, solution? No solution that I see — just that the DOJ wants one. The easy solution, of course, is to exclude some rights of orphan works unless rights owners are found.

Next, the DOJ worries about the impact of this settlement outside the United States:

The Proposed Settlement operates to sweep in untold numbers of foreign works, whose authors, under current law, are not required to register in the same manner as U.S. rightsholders.  Many of those authors have never published works in the United States and are not members of the Authors Guild or the Association of American Publishers, which exclude many foreign copyright owners from membership by virtue of their membership criteria….

As the filings of France and Germany make clear, some of the United States’ trading partners have serious concerns about application of the Proposed Settlement to foreign authors and, in any event, the parties have not demonstrated that the class included representation sufficient to protect the interests of these foreign rightsholders.

Solution?

The parties should continue to work on modifications to the Proposed Settlement to address these concerns.

Yep, none other than fix it, somehow (and don’t get me wrong. I’m not saying the DOJ should be putting forward solutions. I’m simply pointing out that it’s not requiring any specific ones).

Next, a discussion on whether enough notice of the settlement was given to the parties involved — not just those that brought the suit but all ultimately involved. The Department Of Justice seems to feel more should be given, somehow, someway, though it does NOT say notice has been inadaquate:

Although the United States is not in a position to opine on whether the notice provided by Google has met the strictures of Rule 23, it believes the Court should undertake a searching inquiry to ensure both that a sufficient number of class members will be reached and that the notice provided gives a complete picture of the broad scope of the Proposed Settlement.  The Court should not hesitate to require the parties to undertake further efforts to notify the class.

Ah, solutions. Remember, there weren’t any suggested? And I was guessing opt-in might be a solution. Yeah, that’s put out there:

Nevertheless, in an effort to assist the parties in their future discussions and to apprise the Court of the United States’ views, the United States identifies below provisions that the parties could consider modifying to address concerns with the Proposed Settlement as currently drafted.

As a threshold matter, changing the forward-looking provisions of the current Proposed Settlement applicable to out-of-print rightsholders from an opt-out to an opt-in would address the bulk of the Rule 23 issues raised by the United States.

This would put the out-of-print rightsholders and in-print rightsholders in the same situation and respond to a significant concern expressed by foreign rightsholders.  Such a revision would, of course, not give Google immediate authorization to use all out-of-print works beyond the digitization and scanning which is the foundation of the plaintiffs’ Complaint in this matter.

Going on, the DOJ uses Google’s and the Authors Guild’s own testimony against them that most out-of-print rights holder will want to opt-in (says Google, arguing thus that opt-out should be allowed) and that finding orphan rights holders isn’t “as daunting” as some believe. In short, if you think they all want to opt-in, then let them opt-in. And if you think you can find most of the orphan people, then go find them and ask.

The DOJ also discusses putting revenues into “escrow” to find orphan rights holders rather than benefiting the registry as a whole, along with other suggestions. It also stresses that it’s not pushing any one particular solution. Just putting ideas in general out there including one that the settlement be limited to the core issue:

A settlement that simply authorized Google to engage in scanning and snippet displays in the future would limit the profits that others could potentially derive from out-of-print works whose owners fail to learn of their right to claim those profits.

Next up, the filing looks at whether the settlement might violate antitrust laws. It notes that an investigation into this is still ongoing but has views “sufficiently well developed” on “core issues” that can be voiced now.

In the view of the Department, the Proposed Settlement raises two serious issues.

First, through collective action, the Proposed Settlement appears to give book publishers the power to restrict price competition.

Second, as a result of the Proposed Settlement, other digital distributors may be effectively precluded from competing with Google in the sale of digital library products and other derivative products to come.

These problems are evident on the face of the Proposed Settlement and the concerns they raise have not to this point been convincingly addressed by the parties.  The parties have indicated, however, a willingness to consider modifications that would address at least some of the concerns set forth below.

Continuing on the price restriction issue:

In at least three respects, the collectively negotiated provisions of the Proposed Settlement appear to restrict price competition among authors and publishers:

(1) the creation of an industry-wide revenue-sharing formula at the wholesale level applicable to all works;

(2) the setting of default prices and the effective prohibition on discounting by Google at the retail level; and

(3) the control of prices for orphan books by known publishers and authors with whose books the orphan books likely compete.

Despite assurances these won’t be anti-competitive, the DOJ isn’t happy that competitors still seem to be colluding:

Class representatives – who compete with each other – collectively negotiated these pricing terms on behalf of all rightsholders.  That some individual authors or publishers might opt out of those terms does not make them any less the product of collective action by competitors.

Well, the parties argue, the settlement and registry established end up more like existing and allowed music clearance houses like BMI and ASCAP. Not so, says the DOJ in a variety of ways. I’m not going to quote them; they get a bit esoteric, but the point is, it doesn’t agree. Like really doesn’t agree:

As will be shown, absent modification by the parties, there is a significant possibility that the Department will conclude that those terms violate the federal antitrust laws.

The filing then goes on to find in general problems with

  • “collective agreement on wholesale terms”
  • the proposal of a “pricing algorithm” as being an illegal (“This feature of the Proposed Settlement warrants particularly close scrutiny”)
  • control of pricing of orphan works by known rights holders, which are dominated by large publishers (“Known rightsholders would appear to have every incentive to ensure that the orphan works will not offer effective competition.”)

If you don’t get the point that it really, really doesn’t like parts of the agreement on anti-trust grounds, the DOJ concludes:

In each of the respects described above, the Proposed Settlement’s pricing terms appear to constrain competition among authors and publishers.  Moreover, none seems reasonably necessary to achieve the stated benefit of the Proposed Settlement – breathing new commercial life into millions of long-forgotten, commercially unavailable works. Accordingly, absent modification of those terms, there is a significant potential that the Department will conclude that they violate the Sherman Act.

So much for price fixing. How about blocking future competitors?

The Proposed Settlement does not forbid the Registry from licensing these works to others.  But the Registry can only act “to the extent permitted by law.”  S.A. § 6.2(b).  And the parties have represented to the United States that they believe the Registry would lack the power and ability to license copyrighted books without the consent of the copyright owner – which consent cannot be obtained from the owners of orphan works.  If the parties are correct, the Registry will lack the ability to provide competitors with licenses that will allow them to offer to the public anything like the full set of books Google can offer if the Settlement Proposal is approved.

See, Google’s scanned a lot of orphan books without permission. As a result of the settlement, it gets the rights to use them. But others (say if Microsoft decided to jump back into book search after getting out in 2008), they don’t get those rights. And they can’t get permission of those orphan rights holders easily. So Google gets something in this settlement that potential competitors don’t.

Of course, Google might not have violated the law by showing snippets as it was doing. Microsoft or others would be free to scan books and show snippets as Google did and see if they got sued or not (the orphan holders, if they really are orphans, probably won’t know or care). But either way, Microsoft or a competitor couldn’t show more than a few sentences without clearly violating accepted fair use.

As the filing says:

Google’s competitors are unlikely to be able to obtain comparable rights independently. They would face the same problems – identifying and negotiating with millions of unknown individual rightsholders – that Google is seeking to surmount through the Settlement Proposal. Nor is it reasonable to think that a competitor could enter the market by copying books en masse without permission in the hope of prompting a class action suit that could then be settled on terms comparable to the Proposed Settlement.  Even if there were reason to think history could repeat itself in this unlikely fashion, it would scarcely be sound policy to encourage deliberate copyright violations and additional litigation as a means of obtaining approval for licensing provisions that could not otherwise be negotiated lawfully.

Continuing on:

This de facto exclusivity (at least as to orphan works) appears to create a dangerous probability that only Google would have the ability to market to libraries and other institutions a comprehensive digital-book subscription.  The seller of an incomplete database – i.e., one that does not include the millions of orphan works – cannot compete effectively with the seller of a comprehensive product.  Foreclosure of newcomers is precisely the kind of competitive effect the Sherman Act is designed to address.

Solution? Find a way to give anyone the same rights to orphan works:

This risk of market foreclosure would be substantially ameliorated if the Proposed Settlement could be amended to provide some mechanism by which Google’s competitors’ could gain comparable access to orphan works (whatever such access turns out to be assuming the parties negotiate modifications to the settlement)

Finally, the Department Of Justice had two additional thoughts on the settlement. First, that there be full access to those visually impaired:

In the Proposed Settlement, Google has committed to providing accessible formats and comparable user experience to individuals with print disabilities – and if these goals are not realized within five years of the agreement, Google will be required to locate an alternative provider who can accomplish these accommodations. Along with many in the disability community, the United States strongly supports such provisions.

Second, that the data be “open” for use in a variety of ways:

Second, given the nature of the digital library the Proposed Settlement seeks to create, the United States believes that, if the settlement is ultimately approved, data provided should be available in multiple, standard, open formats supported by a wide variety of different applications, devices, and screens.  Once these books are digitized, the format in which they are made available should not be a bottleneck for innovation.

And the conclusion:

This Court should reject the Proposed Settlement in its current form and encourage the parties to continue negotiations to modify it so as to comply with Rule 23 and the copyright and antitrust laws.

Google’s released a statement, along with the Authors Guild and the Association Of American Publishers:

The Department of Justice’s filing recognizes the value the settlement can provide by unlocking access to millions of books in the U.S.  We are considering the points raised by the Department and look forward to addressing them as the court proceedings continue.

The Open Content Alliance has also released a statement:

The Open Book Alliance is pleased with the action taken today by the Department of Justice, which we believe will help to protect the public interest and preserve competition and innovation. Despite Google’s vigorous efforts to convince them otherwise, the Department of Justice recognizes that there are significant problems with terms of the proposed settlement, which is consistent with the concerns voiced with the Court by hundreds and hundreds of other parties.

The members of the Open Book Alliance recognize the tremendous value that the mass digitization of books can bring to consumers, libraries, scholars and students. Making books searchable, readable and downloadable promises to unlock huge amounts of our collective cultural knowledge for a broader audience than was ever possible. But, as we’ve noted, this settlement is the wrong way to go about making this promise a reality. The current settlement proposal would stifle innovation and competition in favor of a monopoly over the access, distribution, and pricing of the largest collection of digital books in the world, and would reinforce an already dominant position in search and search advertising.

While we will continue to study the details of the filing, the Open Book Alliance looks forward to the opportunity to inform the ongoing discussions about how to make the promise of the mass digitization of books a reality.

See Google’s Schmidt To Book Settlement Critics: What’s Your Solution? from earlier this week for a brief overview of the case, the settlement and further resources.

For more reaction and analysis on the DOJ filing, see Techmeme.

Related Topics: Channel: Consumer | Features: General | Google: Book Search | Top News

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About The Author: is a Founding Editor of Search Engine Land. He’s a widely cited authority on search engines and search marketing issues who has covered the space since 1996. Danny also serves as Chief Content Officer for Third Door Media, which publishes Search Engine Land and produces the SMX: Search Marketing Expo conference series. He has a personal blog called Daggle (and keeps his disclosures page there). He can be found on Facebook, Google + and microblogs on Twitter as @dannysullivan.

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