Fundamental Flaws of the Google Book Settlement: How Will Google Address These?

As the massive volume of opposition demonstrated, there are numerous fundamental flaws with the proposed Google Book Settlement. As acknowledged by Google and its partners, the original settlement is now dead; their request to postpone the October 7th fairness hearing was granted by the SDNY.

However, the 7th remains an important date in the ongoing saga. The Court has demanded a status hearing on that day, and the settlement parties have been asked to provide an update on their discussions. The Open Book Alliance is publicly calling on Google and its partners to address how they expect to remedy the myriad flaws in the original settlement, and specifically, how they plan on ensuring an open and transparent process for gathering concerns and recommendations from affected parties.

Below are just three of the fundamental flaws found by the Department of Justice in the original settlement, with citations from its brief:

1.The original settlement proposal creates de facto exclusivity of a comprehensive digital book solution for Google in the digital books market. It is not realistic for potential competitors to rely on new iterations of class action litigation to level the playing field. In other words, the belief that “anyone can do this” is just not true.

“[T]he 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.” (p. 23)

“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.” (p. 24)

“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).” (p.25)

“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.” (p. 23-24)

2. The original settlement would create horizontal price agreements by publishers and authors that closely resemble those forbidden by the Sherman Act.

“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 industrywide 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. Although they arise in a unique context, these features of the Proposed Settlement bear an uncomfortably close resemblance to the kinds of horizontal agreements found to be quintessential per se violations of the Sherman Act.” (p. 17)

3. The class notification process for the original settlement may not have been broad enough given the scope of the agreement.  It is almost certain to have to be re-executed in a more expansive manner as a new settlement is crafted from scratch.

“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.” (p.13)

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What Experts Are Saying About the Settlement…

Important Dates

December 14, 2009
Notice begins

January 28, 2010
Deadline for authors to opt out of the settlement

January 28, 2010
Deadline to file objections and/or amicus briefs

February 4, 2010
Deadline to file notice of intent to appear at Fairness Hearing

February 4, 2010
DOJ response

February 11, 2010
Plaintiffs move for final approval

February 18, 2010
Final Fairness Hearing

March 31, 2011
Deadline to claim Books and Inserts