Google’s $125 Million Digital Library Settlement Rejected by U.S. Judge

A U.S. judge rejected Google Inc. (GOOG)’s $125 million settlement with publishers and authors, saying the deal to create the world’s biggest digital book library would be unfair to authors.

The expansive nature of the settlement, calling for copyright owners to opt out or be automatically included, “would simply go too far,” said U.S. Circuit Judge Denny Chin in Manhattan, who was a district-court judge when the case first came before him. He suggested the settlement would have a better chance at approval were it revised to cover only those who opt into the agreement.

As written now, the settlement “would grant Google significant rights to exploit entire books, without permission of copyright owners,” Chin wrote yesterday. 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 presented in the case.”

Google, based in Mountain View, California, was sued in 2005 by authors and publishers who said the company was infringing their copyrights on a massive scale by digitizing books. The agreement includes a Book Rights Registry to compensate copyright holders.

Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT) and Yahoo! Inc., along with the German and French governments, said the agreement would give Google unfair control over digitized works and expand its power in the search engine market. Some author groups who weren’t part of the settlement said they would lose control of their copyrights.

Copyright Protection

The agreement focuses on out-of-print books still protected by U.S. copyright law. Google struck agreements with publishers to allow limited access to books that are still commercially available, and the site has links to let consumers buy the books from various sources, including Amazon.com and Barnes & Noble.

Google said it was considering its options and was disappointed by the decision.

“Like many others, we believe this agreement has the potential to open up access to millions of books that are currently hard to find in the U.S. today,” Hilary Ware, Google’s managing counsel, said in an e-mailed statement. “Regardless of the outcome, we’ll continue to work to make more of the world’s books discoverable online through Google Books and Google eBooks.”

Narrower Settlement

The settlement was reached with the groups including Author’s Guild, Pearson Plc (PSON)’s Penguin and Education units, McGraw-Hill Cos., John Wiley & Sons Inc. and CBS Corp. (CBS)’s Simon & Schuster subsidiary. The head of Macmillan Publishers, a unit of closely held Verlagsgruppe Georg von Holtzbrinck GmbH, said the publishers are willing to enter into a more narrow settlement using Chin’s ruling as guidance and “we hope the other parties will do so as well.”

“For more than a decade, publishers have been making substantial investments to enable and enhance online access to content in accordance with copyright laws and we will continue to do so regardless of the outcome of the litigation,” John Sargent, Macmillan’s chief executive officer, said in an e- mailed statement. “We believe that the provisions of the settlement would give these efforts a tremendous boost and would open a world of opportunities for readers, researchers, authors, libraries and publishers for decades to come.”

The settlement gave Google’s book project immunity from copyright laws, allowing the company to distribute millions of books on the Internet in exchange for sharing revenue.

Digital Future

The settlement became part of a larger fight over the future of digital books. Sales of electronic titles almost tripled last year to $441.3 million, according to estimates by the Association of American Publishers in New York.

Google and the publishers amended the settlement to address earlier complaints, altering the handling of so-called orphan works whose owners aren’t immediately known. They also scaled back the international reach of the agreement to the U.S., U.K., Australia and Canada.

Chin held a daylong hearing in February 2010 to determine whether the revised agreement would be fair, since it would cover a class of anyone with a copyright interest in one or more of the books covered by the settlement.

Objectors claimed Google was using the settlement as a vehicle to profit from the orphan works and boost the capabilities of its search engine. They contended Congress, not the courts, should address digital copyright issues.

Privacy concerns were raised by objectors who said it would give Google information about what people read and how they read it, data the company could use to improve search results and sell advertising. They also said the deal runs afoul of international trade treaties protecting copyrighted works.

Under Siege

“He shoots down the settlement on three important grounds, which are the same three grounds that Google is under siege from around the world,” said Gary Reback, co-founder of the Open Book Alliance, the group formed with Amazon.com, Microsoft, and authors groups to oppose the deal. “It would give Google dominance in the search area. There are intrusions into the privacy of people. And Google is taking the copyrighted work of other people without permission.”

About 6,800 people opted out of the settlement, and about 500 objections were filed with the court. Google estimated the agreement would affect fewer than 10 million works, about half of which aren’t commercially available in the U.S.

‘Usurp’ Right

The ruling addresses “the important concerns raised by foreign rights holders that their interests were not adequately protected,” said Cynthia Arato, a lawyer representing foreign publishing societies and publishers that objected to the settlement. “It would be wrong for a U.S. court to allow one company to usurp their fundamental right to control their copyrighted work.”

Google argued that the agreement would breathe new life into works that gather dust on library shelves because they aren’t on the best-seller lists. Google reached agreements with top universities to scan their books and said the database would provide public access to the world’s greatest university libraries, including those at Harvard and Oxford.

Sony Corp. (6758), which makes an e-book reader competing with Amazon.com’s Kindle and is a Google partner, said the agreement would promote competition in the electronic book market. Google promised to make the books usable with any device.

The case is Authors Guild v. Google Inc., 05-cv-08136, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net; Allan Holmes at aholmes25@bloomberg.net

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