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Justice Department's Statement of Interest - Google Books Case

By Mary Rasenberger


A careful reading of the Statement of Interest filed in the Google Books case by the Justice Department last week shows a harsher assessment than was evident in its earlier filing. The government’s brief rejects the amended settlement agreement (“ASA”), finding that the parties’ attempts to cure the issues the government identified in its earlier brief do not go nearly far enough: “Despite this worthy goal [trying to create a mechanism to allow for lawful large-scale book digitization], the United States has reluctantly concluded that the use of the class action mechanism in the manner proposed by the ASA is a bridge too far.”

Given the stakes and pressures that were likely put to bear on the government, it is an incredibly strong document. It will be remarkable if Judge Chin (or his successor in the case, if he is moved up to the Second Circuit soon) approves the ASA as-is, even after the substantial responses filed by the parties.

The government’s main issue with the ASA is that it uses the class action suit to create a far-reaching commercial arrangement that looks far into the future (indeed in perpetuity) and far beyond the claims off the suit. It does this by granting Google legal rights that it never could have obtained through a private arrangement or through a judicial resolution of the suit – and these legal rights fly in the face of “the core principle of the Copyright Act that copyright owners generally control whether and how to exploit their works during the term of copyright.” Secondarily, providing these rights, the government argues, confers significant, possibly anti-competitive advantages to Google.

The government’s September 18th brief focused on the anti-competitive concerns and more technical class action issues, and did so in an equivocal enough way that it left room for the parties to make the minor changes they did in the ASA and be able to wipe their hands with a straight face. The recent brief, in contrast, does not mince words and hits hard on the underlying problem many objectors have with the ASA - it attempts to use the class action process to get around the existing legal system rather than to support it. As Marybeth Peters, the Register of Copyright, has said, and many have repeated: the settlement turns copyright on its head. It creates a whole new legal system of opt-out regime for the benefit of a single entity, which is totally at odds with copyright’s grant of exclusive rights to authors.

To summarize the government’s brief at a very high level, there are three key objections to the ASA:

1. Class action law does not permit settlements to replace commercial transactions that go far beyond the claims at issue in the case or restructure the law;

2. The settlement turns copyright on its head by creating an opt-out regime for the vast majority of works at issue; and

3. Granting an across-the-board license to Google for non-commercial works on an opt-out basis creates potential anti-competitive advantages, as no competitor will be able to obtain those rights, especially in the case of unclaimed works.

At the same time, the government is rightly sympathetic with the parties’ attempt to use the class action process in this way. The current law and practice is arguably defective, and makes mass-digitization, even when it serves a good public purpose, impossible to do legally. Orphan works legislation might help some, as would collective licensing arrangements or perhaps a statutory license for libraries. But you don’t have to be a class action lawyer to know that Rule 23 (the civil procedure rule allowing for class action lawsuits) is not intended to be used to create new law. We have one mechanism for fixing the law in this country – legislation. As judges in countless cases have said: you have a problem with the law, take it to Congress.

Sure, it’s been impossible in recent years to pass copyright legislation, but that doesn’t mean we get to amend the law ourselves in class action lawsuits.

For those interested in more detail, I’ve summarized some of the specific arguments in the government’s February 4th Statement of Interest below. The arguments are made in the context of two separate sets of laws: class action law and antitrust law.

Class Action Law Related Issues

The Government’s brief states: “The Supreme Court has cautioned that 'Rule 23… applied with the interests of absent class members in close view, cannot carry the large load of restructuring legal regimes in the absence of congressional action – however sensible that restructuring might be.'”

The arguments regarding non-compliance with the Rule 23 class action rules are some of the more interesting and compelling ones raised in the case. The Rule 23 law gets at some of the smell test issues in this case, described above – i.e., even though it sounds good, it looks good, it doesn’t smell quite right. It seems at odds with some of our underlying basic legal principles to allow a class action law suit filed by a small group of associations and individuals, who admittedly do not represent all author and publisher class members throughout the world or even the U.S., to take away hundreds of thousands (if not millions) of individuals’ rights without their consent. It’s even odder when you consider that the law suit was brought to enforce those very rights.

It turns out, according to one Justice (and certain other objectors, e.g., Microsoft, Amazon, Scott Gant) that the class action law does have standards, if not crystal clear ones, that don’t necessarily promote this kind of sweeping conversion of rights.

Both the parties’ and the government’s briefs discuss the standards set forth in the Supreme Court’s Firefighters case (Local Number 93, Int’l Assoc. of Firefighters v. City of Cleveland, 478 U.S. 501 (1986)). Under Firefighters and its progeny, the Court may approve a settlement that meets the following three-prong test: (1) the settlement springs from and serves to resolve a dispute with the Court’s subject matter jurisdiction, (2) the settlement comes within the general scope of the case made in the pleadings, and (3) it furthers the objectives of the law on which the complaint was based. The government concludes that:

1. It’s difficult to see how this settlement meets the first prong in that it resolves future claims by absent class members for activities well beyond the facts underlying the complaint;

2. The ASA does not meet the second prong because it creates a business relationship that covers future conduct that goes way beyond the claims in the complaint and provides Google with benefits that it never could have obtained through the litigation itself or even through a privately negotiated deal (i.e., the opt-out for non-commercial works); and

3. The ASA does not further the objectives of copyright law, but is inconsistent with the policy of Copyright Act, which provides for exclusive rights and not opt-outs.

The government concedes that a settlement of a class action may go “somewhat” beyond the conduct complained of in the complaint, but can’t go so far as “to abridge or enlarge substantive rights” and “usurp the legislative function.”

The government further states that the ASA does not remedy the lack of adequate representation of the interests of a large number of members (namely, unclaimed work owners, foreign rightsholders) in the settlement negotiations, and that appointing a fiduciary with limited powers for unclaimed works at the Registry does not solve the problem. It also exhorts the Court to look more closely at the notice provided to potential class members to determine if it was adequate, specifically requesting that the Court “undertake a searching inquiry to ensure both that a sufficient number of class members have been or will be reached and that the notice provided fives a complete picture of the broad scope of the ASA…”

Last, the government raises concerns about Attachment A of the ASA. Attachment A is a sub-agreement that controls potential disputes between authors and publishers, mainly regarding possession of rights and splits, and supersedes all agreements between publishers and authors, even foreign ones. The government notes that there may be a conflict of interest between subclasses of authors and publishers, which raises “serious questions” regarding adequacy of representation under Rule 23.

Antitrust Issues

The antitrust issues discussed in the brief are essentially the same ones addressed in the government’s September 18th brief; and they are the primary issues that the parties attempted to address in the ASA’s amendments. The government states that the parties made “constructive revisions” to address these potential anti-competitive problems, but that the amendments do not go far enough to remedy:

1. The creation of an industry-wide 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 the known publishers and authors with whose books the orphan books likely will compete.

With respect to the first issue, the government notes that the ASA gives Google the right to renegotiate the wholesale revenue split with rights holders, but only for commercially available works. The government believes that the carve-out for non-commercial works may render the amendment somewhat meaningless, given the fact that the vast majority of works at issue are not commercially available under the ASA’s definition and that this will be especially true if the publishers take commercially available books out of the settlement, as many have suggested they will do.

The government also does not believe that the “fixes” regarding the use of pricing algorithms go far enough to prevent a de facto horizontal agreement. It analogizes the publishers’ and authors’ agreement to allow Google to price the works (using its algorithms) to the delegation of pricing to a common agent - a practice found to be unlawful. Far preferable would be actual bilateral negations than the ability to opt-out of the default use of algorithms.

The government’s biggest concern, however, relates to the pricing of orphan works, since the Registry’s board, consisting primarily of commercial publishers and authors, would have the ability and incentive to limit competition from unclaimed works. The parties have responded to this criticism (also in the government’s September brief) by providing in the ASA for an “Unclaimed Works Fiduciary,” but this fiduciary’s powers are limited – for instance, he or she will not have the ability to set prices for works, or renegotiate splits. As such, the government does not believe the appointment of fiduciary cures the underlying problem.
Last and most importantly perhaps, the government finds that the amendments do not address Google’s de facto exclusive rights to use orphan and rights-uncertain works. The government states that no other entity will have the ability to offer these works legally. Although the ASA attempted to address this concern by expressly allowing resellers to provide access to these works, the government does not equate these reseller rights with the right Google has to freely exploit orphan and other unclaimed works. It concludes: “the reseller clause cannot create new competitors to Google.”

So now what?

The government’s brief advises the Court that the public interest would best be served by direction from the Court encouraging the continuation of settlement discussions between the parties. But if we can be realistic for a moment – what are the chances of Google agreeing to all of the concessions that Justice’s analysis would require to make the settlement copasetic? Google has made it clear that, from its perspective, the opt-out for out-of-print works, and especially the orphans, is essential to the deal. If you read the government’s brief carefully, it does not appear that its cumulative objections all could be adequately addressed without getting rid of the opt-out for non-commercial works. The government does state, however, that if the opt-out is retained, Google should be required, among other things, to conduct a search for unclaimed work prior to their use, similar to the reasonable search requirement in the last iterations of the orphan works bill. Google has publicly stated that, although it supports orphan works legislation, that legislation would not provide it with the flexibility it would need to create the inclusive database envisioned.

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This page contains a single entry from the blog posted on February 15, 2010 9:40 AM.

The previous post in this blog was JUDITH PROWDA - INCOMING CHAIR OF THE EASL SECTION.

The next post in this blog is Briefs Filed in Support of the Amended Settlement Agreement in the Google Books Case.

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