Business

In Google Book Settlement, Business Trumps Ideals

By settling a lawsuit with book authors and publishers this week, Google is looking out for itself and has avoided fighting for and possibly establishing a positive legal precedent for copyright fair use on the Internet.

Google, which paints itself as a warrior in Internet regulatory and legal challenges, apparently prioritized self-interest by settling copyright infringement lawsuits over its book search engine.

Google's defense against the two book industry lawsuits rested mostly on the fair use exceptions in the U.S. copyright law, which allow for certain limited uses of material without permission from rights holders.

According to some copyright experts, Google stood a good chance to win in court, an outcome that would have contributed greatly to clarifying fair use applications in the age of digital online distribution.

In that way, Google, with its considerable financial and legal resources, could have blazed a trail on behalf of many, less wealthy Internet companies. Instead, the proposed settlement, which requires court approval, sends the message that digitizing and delivering book content online is an expensive, complicated business.

Google will pay US$125 million as part of the settlement, on top of the considerable investments in book search technology and operation it has made since creating that service, launched in 2004.

In exchange, the Authors Guild and the Association of American Publishers will drop their lawsuits, allowing Google to considerably expand the size and appeal of its Book Search service. The lawsuits accused Google of massive copyright violation for not seeking permission from rights owners to scan and index their books as part of Google's program to digitize university book collections.

In its defense, Google said that its actions qualified as fair use exceptions because, for in-copyright books scanned without permission, it only shows snippets of texts that match a search query.

Having a strong component of book content in its search index is a big boon for Google that will allow it to further cement its dominant position as the world's preferred engine.

"As an academic and a fair use advocate, I was somewhat disappointed the case got settled. I had been hoping to see it as a test of the boundaries of fair use, as a chance for the court to describe more specifically the scope of fair use here," said Wendy Seltzer, a fellow at Harvard University's Berkman Center for Internet and Society.

Seltzer, currently a visiting professor at American University's Washington College of Law, believes that most of what Google has been doing in its library scanning program is protected by fair use.

So why settle?

"Google has quite effectively solidified with this settlement its position as a leading search company and effectively excluded lots of others from following in its footsteps. A court judgement in favor of fair use would have let anyone else go in and make similar fair uses," Seltzer said. "This settlement sets a pretty high fee on making those uses."

In other words, Google saw the opportunity to settle in these terms as a key move for its business strategy, one valuable enough to sacrifice a greater good for Internet companies everywhere.

David Sohn, senior policy counsel at the Center for Democracy and Technology, agrees the case could have set important precedents, regardless of the outcome. "It would have tackled some big questions about the scope of fair use. Now with this settlement, it doesn't resolve those issues," Sohn said.

"If there's a downside it's for other entities out there hoping that a precedent might get established here for fair use to help blaze a trail they could follow. The path Google has walked here isn't a path that will be easy for others to follow, he added.

For technology industry analyst Greg Sterling, however, the agreement offers a commendable example of how Internet companies and copyright holders can find a middle ground in light of the reality that digital content can be so easily and broadly distributed online.

"It's a very sensitive and important issue. That's why the settlement is so interesting. Google budged and the copyright owners budged in trying to acknowledge the reality of both their respective situations," Sterling said.

Unlike the music and newspaper industries, the book industry is wise to strike a deal that allows it to benefit from digital distribution without compromising its rights, Sterling said. Meanwhile, Google, while not admitting wrongdoing, implicitly acknowledges that publishers and authors have rights to this material. "It's a compromise on both sides," Sterling said.

Eric Goldman, associate professor at Santa Clara University School of Law and Director of its High Tech Law Institute, points out that Google is paying a high financial price. It's not clear whether or when the Book Search service will be profitable. "It raises the question of whether Google would have chosen to get into this business had it known how much it would cost them to get there," Goldman.

Google's answer to that question is a resounding "yes." The idea of a useful, broad book search engine has been a dream for Sergey Brin and Larry Page even before they founded Google.

"Our goal is to have a comprehensive search experience and books are an integral part of that," said Adam Smith, director of product management at Google.

It's also a good business move, he said. "With respect to the [settlement] payment, we very much view it as enabling a future business relationship, one that we believe will be very beneficial for Google, the authors and the publishers," he said.

Gartner analyst Andrew Frank said that having strong book search is key for Google. "I'm not sure how long it would take Google to get back its investment, but to be the first search engine to make a deal like this that unlocks so much of the world's knowledge assets is a priceless advantage," Frank said.

Of the 7 million books Google has scanned, 1 million are in full preview mode as part of formal publisher agreements. Another 1 million are public domain works. Most of the other 5 million aren't in print or commercially available. Google today can only show snippets of their text. The agreement opens up those books for broader preview and potential paid access via individual purchase or institutional subscriptions.

"Together, we're igniting a new market for these books that have been held in libraries but not available commercially," Google's Smith said.

The agreement is nonexclusive in the sense that rights holders can enter into similar arrangements with Google competitors. Still, Google put in provisions to prevent the likes of Yahoo and Microsoft from leveraging its digitizing efforts by indexing scanned books for their own engines, a Google spokeswoman said via e-mail.

"We've invested a tremendous amount of resources into digitizing millions of books. We provide digitized copies back to the libraries who work with us, and we make searching these books free for our users, but not for other search engines," she said.

Google, the Authors Guild and the Association of American Publishers hope that the court will preliminarily approve the settlement in the coming two weeks, so that they can start the outreach effort to rights holders and set the ground for final approval by mid-2009.

At that point, it's clear that Internet users in the U.S. will end up as big winners, because the agreement calls for the creation of a number of services to make books available for free previewing, viewing and paid access.

"There's certainly some good stuff in here from the public interest point of view," said Sohn of the Center for Democracy and Technology.

"It would be a huge, quantum leap in our ability to find information," Santa Clara University's Goldman said.

Another interesting part is the agreement's creation of an independent, nonprofit Book Rights Registry, which will manage the royalty system for compensating authors and publishers. This organization will also locate and register copyright owners, who can request to be excluded from the project. This task is important in determining what books are "orphan works," those for which no one claims ownership, either because the author has died or the publishing house disappeared.

Goldman views the registry's creation as having historic importance because it will act as other collective rights organizations do, like ASCAP in the music industry. "We haven't had the birth of a major collective rights organization in a decade, so that's a pretty significant development. It also raises a ton of very complex issues here," Goldman said.

For example, a section about how the registry in conjunction with Google would set prices for book access caught Goldman's attention. "That's a red flag for me. It could raise significant antitrust issues because it sounds a lot like vertical price controls. In other words, the manufacturers telling the retailer: 'here's how you can set your prices.' You may not be able to do that under antitrust law," Goldman said.

Representatives from Google, the authors and publishers said they were confident the agreement incurs in no antitrust violations regarding setting prices.

The agreement and the registry's creation might be seen negatively by certain players for competitive reasons, like book distributors such as Amazon, and companies that license book content from authors and aggregate it in databases for libraries. Amazon didn't respond to a request for comment.

"It wouldn't surprise at all if a bunch of people lined up in the courthouse saying: 'This deal is going to hurt me.' And it's natural because it's a game-changer for the industry, so some people are going to win and some will lose," Goldman said.

It now remains to be seen who might object, as lawyers comb through the complicated and lengthy agreement with a fine-toothed comb.

What's clear is that Google positioned itself to win, proving that sometimes victory requires skipping the fight altogether.

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