The Final Chapter

April 2, 2012

Christina M. Licursi

(as published in Intellectual Property Magazine)

On March 22, 2011, in a long-awaited decision, the Southern District of New York ruled against Google’s amended settlement agreement with the Author’s Guild and other publishers. This case, which began back in 2004 when Google had partnered with major university libraries in a plan to scan their library collections and make them available on the Internet, has raised a litany of issues relevant to the copyright community and will probably require Congressional action.

Shortly after it was formed in 1998, Google laid the groundwork to scan the world's approximately 150 million books and make them accessible to users of Google's internet-search engine. In its first five years, Google focused its efforts on its search engine and on growing the company. By 2004, however, Google announced that it was collaborating with several libraries, including world-renowned research institutions like those at Michigan, Harvard, and Stanford, to scan and digitize books and other literary works in their collections. Google intended that once scanned, these books and literary works would be indexed electronically in the familiar Google interface, thereby allowing users of Google to easily search by title and other bibliographic information. Users would also be able to preview these works by viewing “snippets,” i.e. several lines of copyrighted text.

By the end of 2004, Google announced that it had completed around 10% of its efforts at digitizing the world’s library. Threatened by these efforts, the publishing industry worked to stymie Google’s progress. With both authors and book publishers growing increasingly concerned by Google’s actions, the Association of American Publishers (“AAP”) and the Author’s Guild combined efforts and mounted a class action lawsuit, suing Google for fairly straightforward copyright infringement in 2005. Specifically, the lawsuit alleged willful copyright infringement in connection with Google’s systematic reproduction, without permission, of millions of copyrighted books.

After years of negotiating, it appeared that the parties had finally reached a compromise in 2008. As required in class action suits, they submitted their proposed agreement to the Southern District of New York (the “Settlement Agreement”). The Settlement Agreement, which was preliminarily approved by Judge Sprizzo on November 17, 2008, called for Google to pay approximately $125 Million to publishing companies and to authors. However, the largest red flag seemed to be the scope of the proposed Settlement Agreement, as it applied to thousands of authors and millions of books and included all literary works published here in the United States and registered with the United States Copyright Office and those published anywhere before January 5, 2009. Notably, to be excluded from the Settlement Agreement, authors and copyright owners had to “opt-out” on a title-by-title basis by May 2009. It quickly became clear that the proposed Settlement Agreement went far beyond the alleged acts of infringement in the initial suit and essentially created a new business model for Google and created a roadmap for Google Books.

After public outcry, the “opt-out” date was reset to September 8, 2009 and the court hearing—i.e. a “fairness hearing,” which is required for a class action settlement—was scheduled for October 7, 2009. On October 7, 2009, Judge Chin, who had become a judge on the Court of Appeals for the Second Circuit and was sitting by designation as a judge in the Southern District of New York, postponed the fairness hearing and set a new date for the submission of a revised settlement agreement. New notices describing the revised agreement were published, and new time frames were announced for opting–out, filing objections, and for the date of the fairness hearing.

The fairness hearing was eventually held on February 18, 2010. By this time it was clear that what was originally lodged as a relatively straightforward copyright claim by authors and publishers against Google, had evolved into a complicated settlement agreement between parties who were once adverse, delineating a “roadmap” for a new digital book business, with Google clearly in the driver’s seat (the “Amended Settlement Agreement”).

Ultimately, the question presented to the Court most recently in the fairness hearing was whether the terms set forth in the Amended Settlement Agreement were “fair, adequate, and reasonable.” More than thirteen months after presiding over the fairness hearing, Judge Chin decided that they were not, rejecting the Amended Settlement Agreement on both copyright and antitrust grounds.

In an almost 50-page opinion, Judge Chin focused primarily on the appropriateness of the scope of the relief to be granted by the terms set forth in the Amended Settlement Agreement. Judge Chin said the lawsuit was about the scanning of books and display of snippets, while the Amended Settlement Agreement would implement “a forward-looking business arrangement that would grant Google significant rights to exploit entire books, without permission of the copyright owners.”

While Judge Chin acknowledged that “the digitization of books and the creation of a universal digital library would benefit many,” he also concluded that “the Amended Settlement Agreement would simply go too far.” He reasoned that “Amended Settlement Agreement would permit this class action — which was brought against Google to challenge its scanning of books and display of “snippets” for on-line searching—to implement a forward-looking business arrangement that would grant Google significant rights to exploit entire books, without permission of the copyright owners. Indeed, Judge Chin intonated that the Amended Settlement Agreement would give Google a significant advantage over competitors, rewarding it for “engaging in wholesale copying of copyrighted works without permission, while releasing claims well beyond those presented in the case.”

The parties to the Amended Settlement Agreement, who have been negotiating for over five years, are clearly disappointed by the outcome, as the ruling essentially calls for both sides to return to the table to negotiate yet another iteration of a settlement agreement. On a more fundamental level, the decision is disappointing to Google and other proponents of the Amended Settlement Agreement who believe that the Agreement had the potential to open access to millions of books that are hard to find or otherwise unavailable.

What seemed to trouble Judge Chin and which seemed to be at the root of the “fairness” prong of his analysis was that there were also a number of interested parties who had a stake in the outcome of the decision but who were not privy to the negotiations. These opponents of the Amended Settlement Agreement —who include authors, publishers, competitors, and various individuals—are pleased by the decision and welcome the chance for more discourse and for the parties to revisit negotiations. Notably, Amazon and Microsoft objected to the Amended Settlement Agreement on the grounds that it would violate copyright law. The Department of Justice also objected to the Amended Settlement Agreement on the grounds that it would go beyond the scope of the current copyright law. Although none of these entities were part of the underlying suit, Judge Chin seemed to heed their objections, as his decision addressed the scope of the agreement, the spirit of copyright law, and the apparent monopoly that the Amended Settlement Agreement would create for Google.

While the Amended Settlement Agreement had an opt-out provision, there were several concerns that seemed to underscore Judge Chin’s decision to overturn the Amended Settlement Agreement. First, he said, “many authors of unclaimed works undoubtedly share similar concerns.” Second, he explained that “it is incongruous with the purpose of the copyright laws to place the onus on copyright owners to come forward to protect their rights when Google copied their works without first seeking their permission.” Finally, he said “there are likely to be many authors—including those whose works will not be scanned by Google until some years in the future—who will simply not know to come forward.” In simplest terms, Judge Chin found the Amended Settlement Agreement unfair.

While noting that “the privacy concerns are real” for those who were parties to the suit and those tangentially affected, Judge Chin decided that privacy concerns alone were not a basis to reject the proposed settlement. Instead, Judge Chin seemed particularly troubled by Google’s methodology and brazenness. By the time of the fairness hearing, it was estimated that Google had scanned more than 12 million books. Judge Chin characterized Google’s practice as “wholesale, blatant copying, without first obtaining copyright permissions,” which he said seemed to undermine “the earnest efforts” of Google’s competitors. In fact, Judge Chin stated that “while its competitors went through the 'painstaking' and 'costly' process of obtaining permissions before scanning copyrighted books, Google by comparison, took a shortcut by copying anything and everything regardless of copyright status," again emphasizing the fairness prong of his inquiry.

Judge Chin’s decision makes it clear that he believes that Google alone should not have control over the book search market. Judge Chin clearly recognized that the proposal he rejected “would further entrench Google’s market power in the online search market.” In fact, Judge Chin ended his opinion urging Google to take a more cautious approach, stating that “certain additional privacy protections could be incorporated, while still accommodating Google's marketing efforts.” Conversely, if Judge Chin would have upheld the Amended Settlement Agreement, the effect would have been akin to rewriting copyright law for Google and Google only.

While everyone seems to agree that a digital library would be a welcome public benefit, the Amended Settlement Agreement was ultimately rejected because Google would end up at the epicenter of this “public benefit” and this seemed unfair, inadequate, and unreasonable to other interested stakeholders by Judge Chin’s account.

The decision, however, may not be as bleak for Google as it seems at first blush. For example, it seems that many of Judge Chin’s objections could be mitigated if the proposed Google Books program was made an "opt-in" program rather than an “opt-out” agreement. But this solution only scratches the surface of what clearly is a much larger policy debate.

Although the decision did not address the more complicated issues at the center of the initial lawsuits, namely, whether Google's digitization of books constitutes copyright infringement, the suit prompts us to think about the complexity of issues facing digitization efforts. The decision—and the underlying debate—underscores the fact that our copyright law is struggling to keep pace with the digital transition and that some legislative change in the copyright arena is necessary.

While the decision on the Amended Settlement Agreement certainly garnered a fair amount of press and has been seen as a call to action for Congress, the decision has had little impact for Google users to date. There are currently over two million books already in the public domain which presently can be viewed free on the Google Books site. Notably, to date at least 15 million books have been scanned by Google. While Google’s search engine is free to users, Google collects substantial revenue from the advertising that appears on its web pages, including those on which images of, and information from, copyrighted books appear. The Google Books site also allows users to shop at the Google eBookstore which features over three million eBooks available for purchase. As a result of existing agreements between Google and various different publishers, users are already able to view extensive previews of these books. If the Amended Settlement Agreement would have been approved, users would have been able to see longer previews and potentially buy those books, but little else would have changed. As for the participating libraries, they continue to work with Google, sending thousands of books a week.

The question now is whether Google will budge? Without some legislative change first, it is unlikely. That’s why, after years of negotiations, in light of the outcome, Google will probably attempt to get Congress involved to modernize some of the copyright laws. The sine qua non is that the decision beckons Congress to intervene and to address the deficiencies in the current copyright law and allow for the mass digitization of copyright works, whether under Orphan Works legislation or otherwise.