Judge Denny Chin of the federal district court in New York City has handed down his long-anticipated ruling on the proposed settlement of the Google Books litigation. To state the decision most succinctly, the court has rejected the proposal, leaving open the opportunity for the parties to renegotiate and resubmit. The case is a copyright infringement claim brought by groups of authors and publishers—as copyright owners—against Google, asserting that the scanning of books and the development of a searchable database is an infringement of copyright. The facts and the litigation are naturally much more complex, but alleged infringement is at the core. The settlement had some important support, but it also encountered significant criticism. The court held a “fairness hearing” in February 2010, and more than a year later it has now made its ruling.
The court got to the point in the opening paragraph: “The question presented is whether the ASA [the Amended Settlement Agreement] is fair, adequate, and reasonable. I conclude that it is not.” The court expressed concern that a case could begin as an infringement action and become a settlement plan “to implement a forward-looking business arrangement that would grant Google significant rights to exploit entire books, without permission of the copyright owners. Indeed, the ASA 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 court summarized the proposed settlement as well as comments it received from interested parties. While some comments supported the proposal, the court noted that the “vast majority objected to the ASA.” Among the concerns singled out were critiques that the ruling conflicted with principles of copyright, would give Google an unfair advantage in licensing orphan works, and would raise problems related to user privacy and antitrust regulation.
The first substantive legal test that the court addresses in detail is the standard of review for the court’s approval or rejection of a settlement. After summarizing several factors to evaluate, the court found that the leading issue weighing on the court is the number and significance of the objections from authors and other copyright owners who could be affected by the settlement. According to the court, the number of objections was “great” and the concerns raised were “significant.” The court noted that 6,800 class members have opted out, a number the court called “extremely high.”
In this context, the court examined the somewhat technical question of whether the representative members of the class could adequately represent the many different interests of the multitudes of rightsholders potentially affected by the settlement. Here is where the court came down most bluntly against the settlement. Among the conclusions:
- The class representatives would be authorized to establish a registry and a fiduciary to exploit the use of unclaimed books (i.e., orphan works). The court found that Congress, and not the court, is best able to address the interests of orphan works. Moreover, the matter of orphans should not be decided “through an agreement among private, self-interested parties.”
- The proposed settlement would give the parties authorizations that go far beyond the original claims raised in the case. One telling statement: “There was no allegation that Google was making full books available online, and the case was not about full access to copyrighted works. The case was about the use of an indexing and searching tool, not the sale of complete copyrighted works.”
- The interests of the representatives are sometimes in direct conflict with large numbers of rightsholders. The court mentioned especially that many academic authors do not share the profit motives of the representatives, and the profit motive is at odds with the interests of owners of unclaimed works: “The parties have little incentive to identify and locate the owners of unclaimed works, as fewer opt-outs will mean more unclaimed works for Google to exploit.”
Judge Chin sharply criticized the fundamental structure of the settlement plan from a copyright perspective. The ruling articulates a basic precept of copyright that owners of copyrights have the right to choose to do nothing with their works. Nevertheless: “Under the ASA, however, if copyright owners sit back and do nothing, they lose their rights.” The advantage of that dynamic, particularly with respect to orphan works, also raised antitrust concerns for the court.
Finally, although the settlement proposal was revised in 2009 to limit it largely to works from four countries (United States, United Kingdom, Canada, and Australia), many foreign works are included if the copyrights were registered in the U.S. The court found that foreign rightsholders are at a disadvantage in determining whether they are within the settlement and the process for asserting their rights. The court stated explicitly that it was not holding that the ASA violates standards of international copyright. Yet the court emphasized that the interests of foreign rightsholders is one more reason why the issues raised in the settlement are best left to Congress to resolve.
Despite the many reasons offered by the court for rejecting this settlement, the decision ends on a somewhat constructive note: “As the United States and other objectors have noted, many of the concerns raised in the objections would be ameliorated if the ASA were converted from an ‘opt-out’ settlement to an ‘opt-in’ settlement. . . . I urge the parties to consider revising the ASA accordingly.”
What is next? Everyone is asking that question. The parties may accept the invitation to convert the proposal to “opt in,” but that would undercut the ability to include orphan works in the database. The parties could abandon the settlement and return to litigation, but that choice is fraught with expense, delay, and risks. The parties could appeal to the Second Circuit. With so much invested to date, an appeal poses comparatively modest costs and few downsides. The more difficult prediction, however, is whether Congress will take up the court’s challenge and whether it is capable of crafting legislation on this thorny subject that might actually serve the interests of authors, publishers, online services, libraries, and the public.
Except for that last paragraph, this essay is an attempt to provide an objective summary; stay tuned for more reflections to come. In the meantime, I welcome your thoughts.
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