The Department of Justice comes down against Google settlement

The Department of Justice (DoJ) has filed a statement in the Google settlement case

It’s important to note that they are not making a decision in the case, merely stating their opinion to the United States District Court, Southern District of New York, as many others have done. The latter court will have a “Fairness Hearing” about the settlement on October 7, 2009.

The thirty-two page document, authored by William F. Cavanaugh (Deputy Assistant Attorney General, Antitrust Division), Preet Bharara (United States Attorney for the Southern District of New York), and John D. Clopper (Assistant United States Attorney), will presumably carry more weight than some of the others.

In fact, my guess is that some commentators will see this as a test of the current administration’s influence.

I won’t say I’ve read a lot of Department of Justice documents ;) , but this struck me as unfailingly polite. It sort of seemed like a police officer coming up to somebody and saying:

“Gee, I hate to mention this, but your car is parked next to a fire hydrant. That appears to me to be a violation of Civic Code THX1138. If you don’t move your vehicle, it may be necessary for me to give you a ticket. I’m looking forward to you taking action to resolve the situation.”

:)

For example, there is this early comment:

“The Proposed Settlement is one of the most far-reaching class action settlements of which the United States is aware; it should not be a surprise that the parties did not anticipate all of the difficult legal issues such an ambitious undertaking might raise.”

In other words, “Even though Google has to pay up to thirty million dollars in legal fees to the other side, all those high-priced lawyers couldn’t figure it out like we can.”

:)

I’m going to give you a rundown of the document: just my own summary, with some brief excerpts as highlights.  You can read it yourself here.

The document starts out by talking about the potential benefits of the settlement.  They say that it has “…the potential to breathe life into millions of works that are now effectively off limits to the public.”  They also talk about the advantages to those with print disabilities, and how clarifying copyright status and ownership works for out-of-print books would be a “welcome development”.

They contrast that with their concerns.  The first is one that I’ve expressed before: this is a matter that should be handled by the Congress, rather than by private parties.  They are also particularly concerned about what is called “Rule 23″ (more on that later…it has to do with class action suits being fair to everybody in the class), copyright law, and antitrust laws.   They say simply:

“As presently drafted, the Proposed Settlement does not meet the legal standards this Court must apply.” 

They are also concerned about the settlement affecting future activity, not just past conduct.  That’s not a deal-killer, but an important point.

They say they are guided by three principles: 

  1. Getting books digitized and out there, especially for people with print disabilities, is a good thing :)
  2. Consumers deserve a competitive marketplace
  3. Rule 23 needs to be used to make sure rightsholders who weren’t part of achieving the settlement are protected

They suggest that the best thing would be for the two parties to keep talking and come up with an improved settlement that satisfied all the concerns. They say

“Because a properly structured settlement agreement in this case offers the potential for important societal benefits, the United States does not want the opportunity or momentum to be lost.”

They then go on to discuss their concerns.

Rule 23

The basic set-up here is that a class action suit has to take care of all the members of the class.   The main concern is that the arrangement between Google and the Registry will allow them to benefit from the works of “absent members”, unless those absent members opt out.   They are also concerned that affected people may not have been properly notified…given the number of people who have written things that still have copyright protection in the world, that’s a lot of people to send letters. 

They discuss a range of possible problems, and aren’t as concerned about some things as others.  However, their biggest concern is this:

“…essentially authorizing, upon agreement of the Registry, open-ended exploitation of the works of all those who do not opt out from such exploitations. See Proposed Settlement Agreement, dated Oct. 28, 2008 (“S.A.”) § 4.7 (allowing the Registry to authorize future business models without any class notification). Such licensing is far afield from the facts alleged in the Complaint. And the rights conferred are so amorphous and malleable that it is difficult to see how any class representative could adequately represent the interests of all owners of out-of-print works (including orphan works).”

They are also worried that rightsholders of in-print and out-of-print works are treated very differently.  Google has to work with rightholders of in-print works, but not of out-of-print works.  They point out that rightsholders for orphan works are a huge and wildly diverse group. 

“Moreover, no amount of notice is likely to protect those orphan rightsholders who are unaware of their rights or unclear how or whether they want to exploit them. Yet, if an out-of-print copyright owner does not come forward within five years, profits from the commercial use of the out-of-print work are distributed to pay the expenses of the Registry and then to the Registry’s registered rightsholders.”

and

“…the Registry and its registered rightsholders will
benefit at the expense of every rightsholder who fails to come forward to claim profits from Google’s commercial use of his or her work.”

So, one of the concerns is that the present rightsholders can say whether or not they want things done, but the absent ones who don’t hear about it or don’t opt out don’t control it.  The present rightsholders benefit from the exploitation of the non-present ones.

They say that the parties to the agreement say essentially that, “Hey, there will be money for people who wouldn’t have it otherwise, so they’ll want to come forward.” But, the DoJ points out that you can’t just hope that will happen. They also say that the fact that the rightsholders might be compensated for “…a fundamental alteration of their rights” doesn’t prove that the folks whose rights are staying the same (or who can easily have them stay the same) are representing the other ones…especially when they can benefit from that alteration of rights.

Secondly, they worry about international rightsholders.  They clearly weren’t represented in the settlement, and other countries have been expressing their concerns about it. 

Third, the class of rightsholders that could be affected is so broad (including foreign rightsholders who may not have even decided to publish in the US yet) that it would be really hard to give sufficient notice.  They are careful to say that they don’t know that sufficient notice wasn’t given, but that the issue should be carefully examined.

They then go on to make some suggestions that could make the settlement compatible with Rule 23.  Changing it to an “opt-in” rather than an “opt-out” would help.   They also seem to use the parties’ own words…the parties have been arguing that most people will want to join in, and won’t be as hard to find as people think.  If that’s the case, why not change to opt-in? 

Other possibilites are to extend the deadline, put other representatives in place, use the money differently, and so on.

They say they are looking forward to more ideas from the parties.

Antitrust

They say that there are still investigations on-going, but that they can make two main points now. 

 1. Book publishers appear to be able to “restrict price competition”.  Wholesalers aren’t allowed to dictate to retailers what their prices can be.  They can set “suggested retail prices”, but can’t fix the sale prices. 

Competitors can’t get together and set prices.  The DoJ says:

“…the parties contend that the Proposed Settlement’s pricing terms should be viewed not as a form of horizontal collective action by publishers and authors actionable under Section 1, but simply as a unilateral offer by Google to each individual rightsholder to contract on specified terms. The Department is not persuaded by this description.  Class representatives – who compete with each other – collectively negotiated these pricing terms on behalf of all rightsholders. That some individual authors or publishers might opt out of those terms does not make them any less the product of collective action by competitors.”

A comparison is then made to the music licensing groups, like BMI and ASCAP.  They explain why it isn’t the same, for a number of reasons.

The DoJ also has concerns about there being a set royalty rate.  They point out that is anti-competitive, and appears to be unnecessary, since millions of e-books are available without a set rate.   You also can’t make the deal based on the fact that it saves transaction costs: those are deemed to be worth it in most cases in retail. 

The agreement also has a price-setting algorithm and a limit on discounts, both of which are not okay. 

There is also this:

“The Registry is effectively controlled by large commercial publishers. Allowing it to set the prices of orphan works effectively allows known rightsholders to choose the price at which their competitors’ books (those of unknown rightsholders) are offered for sale. Citizen Publ’g, 394 U.S. at 134-135 (joint sales of newspaper advertising and subscriptions by competing newspapers held to be “plain beyond peradventure” per se violations of § 1). Known rightsholders would appear to have every incentive to ensure that the orphan works will not offer effective competition.” 

2. They worry that the settlement will restrict competition.

They make a point I’ve made myself.  The settlement does allow the Registry to license the works to competitors of Google.  However, that is limited by the rights granted to them under the law, which may be insufficient.  They put it this way:

“The Proposed Settlement appoints the Registry to negotiate with Google on behalf of the entire class regarding new commercial uses of digital books, and releases Google from any copyright liability arising from those new uses. S.A. §§ 4.7, 10.1(f), 10.2(a). The Proposed Settlement does not forbid the Registry from licensing these works to others. But the Registry can only act “to the extent permitted by law.” S.A. § 6.2(b). And the 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.”

They go on to talk about how it would be prohibitively difficult for a competitor to get the same (or a better) deal.   They bring up the Sherman Act, and talk about how this could lead to “market foreclosure”, effectively preventing other folks from getting into the act. 

“Consumers may benefit from the creation of digital libraries that would not otherwise be feasible, but they should not be required to pay the price of eliminating competition among authors and publishers on the one hand and de facto exclusive control of the library by Google on the other.”

They then bring up two additional considerations.  One is that this would make books more available to the disabled…that’s specifically built into the agreement. The second (and this will please a lot of people) is that the books should be available in “multiple, standard, open” formats.

“Once these books are digitized, the format in which they are made available should not be a bottleneck for innovation.”

I say that means we should have them in a Kindle-compatible format.  ;)  I know we can convert EPUB, but a little unprotected mobi action would be nice…or even text files.

The DoJ Conclusion:

“This Court should reject the Proposed Settlement in its current form and encourage the parties to continue negotiations to modify it so as to comply with Rule 23 and the copyright and antitrust laws.”

My Conclusion

You know, at least to this blog post.  :)  Some people are painting this as Google wanting to make books available for free, and Amazon wanting to stop them because they want to sell the books.   They make it “populist Google” on the one side, and “corporate Amazon” on the other. 

It’s nowhere near as simple as that.  A lot of us onliners like to think of the internet as “power to the people”.  After all, you don’t need a big studio to make a movie, or a record company to make a song…or a publisher to get your book out there.    With the internet, you can reach the market with no one in-between. 

However, while the DoJ clearly agrees that making books available on the internet is a good thing, they don’t think that this agreement (the way it stands) is the way to do it, because it’s got problems. 

If this settlement is not approved, I still think you’re going to get those books out there.   That 1935 self-published book on how to save the Music Hall now that radio is here?  You’ll get it.  Volume 27 of the “Adventures of the Ballyhoo Boys”?  The one that sold ten copies…and all of those to the author’s relatives?  Yep, that’s coming, too.  The 1962 “Road Atlas of Zanzibar”?  Sure, why not?

I think we just have to be careful that we don’t give up too much and create too much of a mess so we can get what we want…and what’s going to come eventually anyway.

I’ve got plenty to read…I can wait a little while for a better solution.

UPDATE: After this statement from from the DoJ, it appears that Google and the Authors Guild want more time to do a rewrite to address the above concerns.  I’m thinking that “opt-in” rather than “opt-out” is a possibility, along with some other tweaks.

UPDATE: The fairness hearing has been delayed.  No new date has been set…it may take awhile to rewrite the agreement.  It wouldn’t surprise me if it takes a year, although it could certainly be faster than that.  Presumably, more money for the lawyers: gee, I wonder if Google will have to pay more for the other side’s legal fees.  :)

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Follow

Get every new post delivered to your Inbox.

Join 1,309 other followers

%d bloggers like this: