The Amended Google Book Settlement: Judge Chin’s Decision

June 2011

On March 22, 2011, Judge Denny Chin issued his long-awaited decision on the proposed Google Book Amended Settlement Agreement stemming from a class action lawsuit brought by authors and book publishers in 2005. Ms. Marybeth Peters, former United States Register of Copyrights (1994 to 2010) takes a closer look at the Amended Settlement Agreement and Judge Chin’s decision.

The class action lawsuit brought by authors and book publishers against Google in 2005 alleged willful copyright infringement in connection with Google’s systematic reproduction, without permission, of millions of copyrighted books, in their entirety. Google accomplished this through scanning operations set up in large research libraries, such as those of the universities of Michigan, Stanford and Harvard. Once scanned, the books were indexed electronically, allowing users of Google to search by title and other bibliographic information and to view “snippets” – several lines of copyrighted text. While Google’s search engine is free to users, Google collects substantial revenue from the advertising that appears on its web pages, including those on which images of, and information from, copyrighted books appear. At least 15 million books have been scanned by Google, the vast majority of which are still protected by copyright. Google argued that its actions were covered by fair use.

About class actions
A class action is a form of lawsuit in which a large group of people collectively file a single action. It originated in the United States, where it is widely used. A limited number of European countries allow class actions, typically when a large number of consumers are involved. In the United States, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. To proceed as a class action, the questions of law or fact must be common to all, as must the claims or defenses of the representative parties. A settlement agreement approved by the court will bind everyone, with the exception of those who effectively opt-out. Class actions have been relatively rare in copyright infringement cases.

The US$125 million settlement agreement, announced on October 28, 2008, was preliminarily approved on November 17, 2008, by Judge Sprizzo. A complex document of hundreds of pages, including numerous appendices, it went far beyond the alleged acts of infringement and created extensive new business models for Google. It applied to huge numbers of authors and books. Specifically, for books first or simultaneously published in the United States, it applied only to those that had been registered with the United States Copyright Office. However, for all other books, it applied to all those published anywhere before January 5, 2009. Obviously, an extremely large number of foreign works was included. To be excluded from the agreement, authors and copyright owners had to opt-out of the settlement agreement on a title-by-title basis – a complicated process – by early May 2009. This and other dates were reset after outcries from affected parties. The last day to effectively opt-out of the settlement was fixed for September 8, 2009; the court hearing, or “fairness hearing,” was scheduled for October 7, 2009.

(Photo: iStockphoto Frank Boston)

In a class action settlement agreement, the judge must decide whether the agreement is “fair, adequate and reasonable”. There was much opposition to the Google agreement, including from the governments of the United States, Germany and France and from numerous authors, publishers, literary agents, technology companies and others. Google and the litigating parties became concerned. This led to many meetings with those unhappy with the terms of the settlement, and various compromises requiring changes to the agreement were reached. The last official filing was the Statement of Interest of the United States on September 18, 2009. After a meeting with the parties, the United States brief was adjusted to not only express its legal concerns about the scope of the agreement but, because of the potential benefits included in the settlement, to urge the court to postpone the hearing to give the parties the opportunity to revise the agreement. On October 7, 2010, Judge Chin postponed the fairness hearing and set a new date for the submission of a revised settlement agreement. This was submitted on November 13, and preliminarily agreed on November 27. New notices describing the revised agreement were published, and new time frames were announced for opting–out, filing objections and for the date of the fairness hearing.

The revised settlement addressed a number of concerns. For example, the scope of foreign works it covered was significantly reduced. It included only foreign works registered with the United States Copyright Office as well as those not registered in the United States but published in Australia, Canada and the United Kingdom before January 5, 2009. It called for an “Unclaimed Works Fiduciary,” subject to court approval, to protect owners of unclaimed works. Another provision served to eliminate the most-favored-nation provision which would have given Google optimal license terms in the future.

Most of the original objectors continued to object, but a few withdrew their objections. However, there were many new objectors, including many authors, and some additional grounds for objection. The governments of the United States, Germany and France continued to object. While noting the benefits the settlement would create and applauding some of the changes, the United States voiced strong objections to the amended settlement agreement on both copyright and competition grounds.

The fairness hearing was held on February 18, 2010, in New York City. Judge Chin, who by this date had become a judge on the Court of Appeals for the Second Circuit, was sitting by designation as a judge in the Southern District of New York. Before him were two motions – the first for final approval of the proposed “Amended Settlement Agreement” and the second for attorneys’ fees and costs.

The issue was whether the revised agreement was fair, adequate and reasonable. The parties, the governments of the United States and Germany and many objectors testified. Then the waiting and speculation began. Finally, more than 13 months later, Judge Chin issued his opinion. He denied both motions before him, concluding that the amended settlement agreement, while containing many positive outcomes, was not fair, reasonable and adequate. It simply went too far.

In a 46-page opinion, Judge Chin focused on:

  • whether there was adequate representation of those who would be affected by the decision, and
  • the appropriateness of the scope of the relief to be granted.

With respect to adequate representation, he was troubled by the large number of objections as well as their nature. He referred to the objection and testimony of Professor Samuelson1 and identified academic authors as having different interests from those of the representative plaintiffs. He also referred to letters from individual authors, several literary agents and David Nimmer2, who objected to the idea that the burden was being placed on the authors to object instead of on Google to secure permission.

With respect to the scope of relief to be granted, Judge Chin said the lawsuit was about the scanning of books and display of snippets, while the settlement agreement would implement “a forward-looking business arrangement that would grant Google significant rights to exploit entire books, without permission of the copyright owners.” He added, it “would give Google a significant advantage over competitors, rewarding it for engaging in wholesale copying of copyrighted works without permission, while releasing claims well beyond those present in the case.”

He expressed concern about the fundamental structure of the settlement from a copyright perspective. Copyright owners have a right to decide what to do with their works, including doing nothing. Under the amended settlement, if copyright owners sit back and do nothing, they lose their rights. One way to remedy this would be an opt-in provision.

He said that the treatment of orphan works - works whose copyright owner is unknown or unlocatable - is a copyright policy issue which should be resolved by Congress, not the courts. The settlement agreement would undermine Congress’s authority to legislate by reallocating the burdens on creators and users of creative works under the federal copyright law.

With respect to the international complaints, he noted that, while the number of foreign works was reduced in the amended settlement agreement, many were registered in the United States and would therefore be included. He also observed that foreign right holders were at a disadvantage in determining whether or not their books were included in the settlement. While not saying there were any international copyright violations, he did seem to suggest that foreign right holders’ concerns were one more reason to deny the agreement.

On the anticompetitive aspects of the settlement, he noted the United States government’s concern that Google would have “a de facto monopoly over unclaimed works” and would also have a unique position with respect to online book searches.

So what’s next? Judge Chin has scheduled a conference with the parties for June 1, 2011. He has clearly left the door open for the parties to renegotiate a new agreement and to submit it for consideration under Rule 23. The publishers and the authors have expressed their willingness to do this. Google has not indicated such willingness.

While an opt-in provision would address many of Judge Chin’s concerns, such a change is unlikely. The opt-in solution was mentioned by the Register of Copyrights in her congressional testimony, by the United States government in its Statement of Interest and by many others. Google, however, has repeatedly rejected such an idea, saying it would reduce the class of works too much.

The copyright infringement litigation could go forward. However, this brings with it risks, expenses and delays for all parties.

With Judge Chin’s approval, there could be an appeal to the Court of Appeals for the Second Circuit. Judge Chin would, of course, not participate in such an appeal.

Some of the issues, such as orphan works, could be addressed by the United States Congress. In a previous Congress, the Senate passed such a bill, but the House of Representatives did not. The landscape, however, has changed, in large part because of the Google Book litigation.

Issues about digital libraries and library exemption in the United States Copyright Law have been raised. While the exemption needs to be updated, it seems clear that many future digitization activities will require licenses or permissions. Timely and efficient licensing systems, including collective management, will be critical.

With or without a settlement agreement, there are many issues to be addressed and many opportunities for solutions to emerge. It is to be hoped that developments in the next year or two will provide some answers.

1  Professor Pamela Samuelson is the Richard M. Sherman Distinguished Professor of Law, University of California, Berkeley School of Law.
2  David Nimmer is a renowned United States copyright law expert.

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