By: Matthew Hulihan

On March 22, Judge Chin of the U.S. District Court, Southern District of New York, rejected a proposed settlement in the now six year-long Google Books litigation. The settlement agreement between Google, The Author’€™s Guild, and the Association of American Publishers would have permitted Google to scan every book published before January 5, 2009 for search and sale from the Google Books website.

Launched in 2004, the Google Books “€œLibrary Project”€ has partnered with several prominent university (and other) libraries with the goal of digitizing their volumes and making them publicly searchable through the Google Books website. Under this system, relevant books are identified based on keyword searches. Displayed for the user is either the full text of the book, if it is considered public-domain material, or “€œsnippets,” for those books that are protected. By 2005, several authors and publishers had filed suit alleging copyright infringement based on the scanning and public display of these “€œsnippets”€ at the Google Books site. A first proposed settlement agreement was filed and preliminarily approved in 2008, but was amended in November 2009 in an Amended Settlement Agreement (ASA) after an extended opt-out period during which hundreds of objections to the settlement were received. Judge Chin’s recent ruling was a denial of a motion by the parties for approval of the ASA.

The ASA would have applied to all persons who, as of January 5, 2009, own a copyright interest in one or more
“€œbooks” or “€œinserts” as defined in the ASA, with certain limited exclusions. Under the ASA, Google was released from liability for (i) any past copyright violations based on Google’€™s scanning and display of “€œsnippets”€ of copyrighted material, and (ii) any future scanning and sale of the material, as well as the display of “€œsnippets”€ and the sale of advertising on the web pages book results. Google would have paid $125M for the establishment of a Rightsholder registry, and would have shared approximately 2/3 of generated revenue with Rightsholders.

In rejecting the ASA, Judge Chin expressed significant concern over the release of liability for future conduct because it attempted to “€˜settle” something much broader than the scope of the original lawsuit. Plaintiff’s suit was directed to the scanning and offering of snippets; it was never about the sale of the material. Under the ASA, however, Google would have been authorized sell full copies of scanned volumes, something which was never at issue in the case. Indeed, it quite clearly would have constituted copyright infringement.

Another concern noted in the opinion was the impact on absent class members. Whereas both (i) personal release of future conduct and (ii) class-wide release for past conduct are possible in a settlement, a release by the entire class for future conduct was problematic, particularly because of the number of “€˜orphan” copyright holders who, by definition, were absent and unable to opt-out. This concern was compounded because “€œthe objections [were] great in number…[and] an extremely high number of class members – some 6800 -€“ opted out.”

Additionally, the settlement could have given Google a probable monopoly over the digital books. Under the ASA, Google had the ability to deny competitors use of the snippets absent an agreement with Google. This would have given a Google a potential monopoly over the orphan works: Google would be allowed to scan and sell the orphan books without recourse, while competitors like Microsoft or Amazon would not be afforded that same protection. Moreover, there would potentially have been a financial incentive for authors and publishers to refrain from reaching a similar agreement with competitors attempting to enter the market, thereby keeping intact Google’€™s monopoly and stifling competition. Further to the point of the ASA’€™s impact on orphan works, Judge Chin made it clear that “the establishment of a mechanism for exploiting unclaimed books is a matter more suited for Congress than this Court.”€

Ultimately the settlement was rejected as “not fair, adequate and reasonable” and that it exceeded the bounds of what the Court could permit under F.R.C.P. Rule 23. In Judge Chin’€™s view, the ASA was “an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute before the Court in this litigation” (quoting the Department of Justice’€™s Statement of Interest).

The parties have not yet indicated how they will proceed. They could further amend the settlement to make it an “€œopt-in”€ agreement whereby authors and publishers opt into the Library Project. This was suggested by Judge Chin in the opinion and would likely receive approval if submitted, although is probably unattractive to Google since it would not permit Google to capture any orphan works. Alternatively, the parties could appeal the decision, or could continue the original suit to decide whether Google’s scanning and use of snippets is in violation of copyright law. A status conference is planned for later this month.