Peace Eludes Google Books as Court Sides With Vocal Opponents of Class Action Settlement

 

By Peter Karol, a member of our Litigation Practice Group

 

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n the latest twist to Google’s high-stakes battle to create a universal digitized library, a federal district court in New York has reversed its earlier position and rejected Google’s proffered settlement of a massive copyright class-action lawsuit.

Twice the same court had preliminarily approved a version of the agreement, as we have discussed. Each time, however, the preliminary approval was met with hundreds of objections by vocal dissenters with long lists of grievances.

Thousands of one-time class members, moreover, sent the same message by opting out of the class.  Academic authors, cyber-privacy advocates, Google’s competitors, even the United States and foreign governments also got in on the action, filing friend-of-the-court briefs in opposition to the deal.

This time, what the court called the “vociferous” (and politically powerful) objectors finally proved persuasive.  After reviewing the countless filings and holding “fairness” hearings, the court rejected the deal.  As a whole, the court ruled, it was “not fair, adequate, and reasonable” as required by class action law.

The court provided a range of reasons for rejecting the settlement.  Three stand out.

First, the court was impressed by the arguments that a monumental and baroque arrangement such as this is best left to Congress, rather than the court system. After all, the would-be settlement codifies a comprehensive framework for the future of the electronic publishing industry.  That is the sort of legislative task generally associated with rule-makers, not judges.  Indeed, the opinion - which is filled with extended quotations from letters and briefs submitted by third parties - at times reads more like live testimony from a legislative hearing than a judicial decision.

The court’s desire to avoid intruding on Congress’s turf was particularly palpable in the arena of “orphan works” - works whose rights-holders cannot be readily located.  Approval of the settlement would have effectively bypassed Congress’s longstanding, albeit failed, attempts to legislate a balanced solution to the problem.

A number of foreign governments, moreover, forcefully opined that approval of the settlement would put the United States in violation of its treaty obligations.  A federal district court would want little to do with such a diplomatic quagmire.

Perhaps rightly, the court felt that it was not the best-placed entity in our government to weigh hundreds of different interests and craft a nuanced solution to a large, complex problem.

A second theme running through the opinion is the court’s concern that the agreement itself might actually violate the Copyright Act.  The Act does not give copyright owners only the right to transfer or otherwise exploit their works, but reserves to them the right not to do so.

Under the terms of the settlement agreement, however, Google was arguably given the right to copy and exploit the works of authors who had not given their consent to do so.  As the court put it, under the agreement, “if copyright owners sit back and do nothing, they lose their rights.”  This ran directly counter to the copyright owner’s basic “right to exclude,” which is “fundamental and beyond dispute.”

Finally, antitrust concerns were of clear importance to the court.  It cited fears that the agreement would give Google a practical monopoly across a range of related fields, including: (1) unclaimed (orphan) works; (2) comprehensive digital book library subscriptions; and (3) the search market.  These monopolies would stem from the fact that under the settlement, Google (and no one else in the world) would have the right “to digitize works with impunity, without any risk of statutory liability.”

This result was one that the court was not willing to sanction.  This was especially true considering that any approval would effectively reward Google for its blatant copying at the expense of competitors such as Amazon or Microsoft who sought permission for their own scanning projects.

The court ended its analysis by encouraging the parties to go back to the conference table and try again to craft a settlement.  It went out of its way, in fact, to endorse one particular revision: flip the settlement from an opt-out to an opt-in regime.

In an opt-in scheme, contrary to the usual class action default, only those rights-holders who affirmatively elect to join in the settlement would be covered by it.  Those who do nothing would neither be bound by nor benefit from the agreement.  In effect, such a revision would be akin to having Google seek straightforward copyright permission from everyone in the class (as its competitors Amazon and Microsoft did).

Although this quick fix offers an appealing simplicity, it is unlikely to gain any traction.  As plaintiffs noted in their briefs in the case, in “virtually every class action settlement, a percentage (often a high percentage) of class members does not file claims or otherwise participate.”

Thus it is difficult to imagine that Google (barring some brilliantly innovative recruitment campaign) could possible enlist even a small percentage of the rights-holders to join its cause.  Given that comprehensiveness is everything to Google and the Book Project, and that Google has never shown the least inclination to follow the painstaking path of seeking permissions, it is unlikely to travel along this alternative course.

Should the parties be unable to craft a revised agreement meeting with the court’s approval, one option for Google would be to simply go to trial to test out its original fair use defense.

Judging by some of the rhetoric used and quoted by the court in its opinion (“Google pursued its copyright project in calculated disregard of authors’ rights,” for instance), trial would pose enormous challenges for Google in this case.  Even for a company as bold in its litigation strategy as Google, that might be too much risk to tolerate.