U.S. District Court rejects Google Books settlement

On 22 March 2011, the U.S. District Court for the Southern District of New York (Judge Chin) rejected a proposed settlement of a class action suit concerning Google’s scanning of books and their uses in its services (The Authors Guild Inc. et al. v. Google Inc). The proposed settlement would have authorized Google, in particular, to continue to digitize books and sell subscriptions, access, and advertising to books on a non-exclusive basis, subject to paying rightsholders a share of the gained revenues (63%, subject to renegotiation by individual rightsholders) through a Book Rights Registry responsible for administering that task. Rightsholders would have been entitled to exclude their books entirely or from some or all uses authorized by the settlement (see Newsletter 1/2010 p.2 and 2009/5 p. 2 for details of the proposed settlement).

The Court considered a number of objections to the proposed settlement it received, including the appropriateness of the settlement under class action principles, conflicts with U.S. and international copyright laws, as well as antitrust concerns raised by the proposed settlement. The Court concluded that in view of several of these objections, the proposed settlement was not fair, adequate, and reasonable as is required for the settlement of class actions under Rule 23(e) of the Federal Rules of Civil Procedure and, accordingly, denied the final approval of the settlement.

A number of antitrust concerns were raised against the proposed settlement by the U.S. Department of Justice, including that the proposed settlement involved risks of horizontal price coordination and conferred on Google de facto exclusivity, thus strengthening Google’s dominance in its search business (see Newsletter 1/2010 p.2 and 2009/5 p. 2). In its opinion, the Court focused on the latter type of concerns, noting that the proposed settlement would give Google a de facto monopoly over unclaimed works by giving it a right to digitize works without any risk of liability, which no other company has. Moreover, the proposed settlement would, according to the Court, arguably also entrench Google’s market power in the online search market by giving Google the ability to deny its competitors’ ability to search orphan books.

The rejection of the settlement is without prejudice to a revised settlement the parties may subsequently negotiate. The Court noted that switching from an opt-out to an opt-in settlement would ameliorate many of the concerns and urged the parties to consider revising the settlement accordingly. [Juha Vesala]