Marvin Ammori

On Tuesday, the Southern District of New York rejected the Google Books settlement. The 48-page order is here, and some news stories are here and here. I provide some thoughts <elsewhere>, but here is a summary, for those who’d rather not read all 48 pages.

The court’s rejection is notable for our nation’s information policy; the terms of any settlement would have had an enormous impact on the availability of books online.

Background. Back in 2004, in partnership with several university libraries, Google began copying books for its Google Books project. It has copied 12 million books and has made these books available for search. For copyrighted books, it displays snippets. For books so old that copyright does not apply (e.g., pre-1923), it displays full texts.

But Google did not obtain permission to copy or display the copyrighted books. It relied on a fair use defense. In the words of one objector, its business plan was “So, sue me.” And that’s what many authors and publishers did. Faced with a class action suit, Google and the copyright holders negotiated a settlement back in 2008. Hundreds objected to that settlement, so the parties negotiated the “Amended Settlement Agreement.”

The Amended settlement is a complex 166 page document that enables Google to sell access to the digitized books or to sell advertising against the digital books, and provides copyright holders most of the revenue from those sales–63%. It also seems to give Google an advantage no competitor has: the right to display out-of-print books unless there is an objection. It is often difficult to find the copyright holder for an out-of-print book, and such works are called “orphan works” or “unclaimed works.” Other publishers would generally have to seek permission in advance to display orphan works.

It was this amended settlement that the court rejected. A court must approve a class action settlement because, in such settlements, only some parties negotiate the settlement for a larger “class” of plaintiffs. The negotiating parties my fail adequately to represent the other members of the class.

So a judge must ensure a settlement is “fair, adequate, and reasonable.” And the judge has wide discretion in making this determination. In the Second Circuit, courts apply a nine factor test, and they can determine how to weigh any of the factors based on the particular circumstances. This is essentially pure discretion tucked into a nine factor test. In the Google case, just about all the factors favored the settlement. Only one weighed against settlement in any important way, but it was decisive. That factor was the reaction of the class.

The class objects. As with the first settlement, hundreds of class members objected to the amended settlement, and thousands (6,800) opted out. Some members did write in support, as did some amici. But objections were more numerous and their concerns were, according to the court, “significant.” Objectors included academic authors, whose interests differ from the commercial publishers, and foreign publishers. The Department of Justice also voiced concerns about competition, alongside Microsoft and Amazon. Public interest groups and other amici raised a range of concerns, including privacy.

Indeed, the objections drove the entire opinion. Most of the opinion catalogs seven different objections. I’ll list them here, with the weak ones first, then the significant ones.

The court rejected two objections.

1. Adequacy of notice. The class members must have notice of the case, to have the opportunity to safeguard their interests. The judge pretty much laughed at this objection. If you haven’t heard about the Google Books settlement, he implied, you’ve lived under a rock or are too illiterate to read a newspaper, let alone to have written a book. Objection rejected.
2. Privacy concerns. Several consumer groups objected that Google would collect information on Americans’ reading habits–what we read, for how long, and which pages–without adequate protections. The judge found the objection inadequate on its own, partly because of Google’s unenforceable promises, but suggested that “certain additional privacy protections could be incorporated, while still accommodating Google’s marketing efforts.”

Five objections were more substantial.

Five substantial objections.

1. Adequacy of class representation. While the lawyers were competent to represent the entire class, it appeared that the negotiating parties had some interests opposed to objecting class members, including foreign and academic authors. Objection has merit.
2. Scope of relief. A court can address claims of past misconduct, but generally cannot bless an ongoing, future business arrangement. The settlement was partly forward-looking, going beyond even the litigation’s pleadings. Congress, not a court, should address the issue. And Congress could do so for all competitors–including Microsoft and Amazon–rather than merely for Google. So, while the parties negotiated in good faith, a court simply should not grant this relief.
3. Copyright concerns. The copyright act does not permit “any governmental body or other official or organization” to “seize, expropriate, [or] transfer” a copyright unless the copyright holder does so voluntarily. The court feared that the settlement involuntarily transfered copyrights in orphan works. The court did not decide this issue–the copyright act is not super clear on this point–but felt the class reaction significant enough without deciding the legal issue.
4. Antitrust concerns. The Court states that the proposed settlement “would give Google a de facto monopoly over unclaimed works.” More to the point: “Only Google has engaged in the copying of books en masse without copyright permission.” An objector claimed that Google could “digitize works with impunity, without any risk of statutory liability, for something like 150 years.” Google alone would be able to publish orphan works, as other publishers would need to seek permission first, and Google can publish orphan works unless it receives an objection. So competitors, like perhaps Microsoft or Amazon, would be unable to provide as complete a catalog, and therefore be at a competitive disadvantage.
5. International law concerns. Objectors raised a host of concerns: whether the settlement violated international treaties and foreign copyrights by involuntarily transferring copyrights, whether the settlement even covers particular foreign books, and whether a court has the competence to decide the issue of digitizing out-of-print books, a global policy issue. Without deciding this issue, the court found it significant, and another reason for Congress to be involved.

The opinion seems motivated less by legal issues and more by the class reaction. The court doesn’t bother to decide some legal issues–whether the settlement would in fact violate international law or the copyright act. The legal issues come up largely as areas of disagreement or objection, not legal problems for resolution. It is as though the court is setting out the areas requiring more negotiation for greater consensus going forward.

Going forward. The court suggested two options.

First, the court explicitly states that one change would address most of these concerns: making the settlement opt-in, rather than opt-out. This change would keep the default rule that the copyright holder need not transfer her copyright involuntarily; they opt-in to transfer, rather than the transfer being automatic. This change  would also keep Google from having an advantage over Microsoft and others, which must seek an affirmative license (or “opt in”) from copyright holders.

Second, while not as explicit, the court suggests that the parties should address forward-looking issues through Congress.