Canada: Google Books Settlement Rejection

Last Updated: April 8 2011
Article by Martin P.J. Kratz and Michael R. Whitt

The recent Google litigation has further helped to define the rights of copyright holders and further define the conduct that may be permissible in the digital age.

Google had proposed to digitize vast libraries of print content to be used by Google in providing search results to the public. The search results, absent author/rights-holder permission, were to be title, author, publication information and "snippets" of surrounding text. Google's search services are supported by advertising and so Google would benefit from such searches.

Rights-holders (such as, for example, the Authors Guild, et al) brought an action for copyright infringement, and settlement negotiations ensued. The action was qualified as a "Class Action" lawsuit, and the settlement aimed to settle claims by members of the class of rights-holders whose rights arose from U.S. Copyright in the works.

The Amended Settlement Agreement proposed by Google and others representing certain rights-holders to be approved by the Federal District Court of New York was rejected by that court on March 22, 2011 on several bases, the most important of which was the "opt-out" nature of the license rights Google had sought to obtain.

After months of negotiations, and several iterations of the settlement documents, an Amended Settlement Agreement was reached, which in order to bind all members of the Class in the Class Action, required approval of the Federal Court. Application for approval was made, and notice was published.

Nearly 500 interventions were filed by and on behalf of various rights-holders and groups, and it is reported that 6,800 persons opted out of the Class.

Although Judge Chin found that the Amended Settlement Agreement was probably fair in its terms (giving roughly 70% of revenues from commercial use by Google of the works to rights-holders) and had been negotiated with adequate counsel representing the parties' interests, he could not approve it for a number of reasons.

The reasons the Court cited for declining to uphold the Amended Settlement Agreement were:

(i) the reaction of the Class was largely adverse to the settlement;

(ii) the Defendant was not likely to become impecunious if the settlement was not approved;

(iii) there exist within the Class members whose interests are not substantially aligned (and in fact may be antagonistic);

(iv) the scope of the settlement goes beyond settling past claims, and would transfer future rights to Google in exchange for future ongoing arrangements (including the institution of a registry and trustee for unclaimed books/orphan works) — this scope is well beyond the scope of the initial litigation (even with amended claims);

(v) the modification of basic copyright law to respond to new technologies is historically a matter for Congress and not the Courts — the orphan works regime and the opt-out mechanisms proposed significantly alter the authors' relationship to the work in order to facilitate Google's new technology-enabled business plans;

(vi) the Amended Settlement Agreement raised issues which affect foreign rights-holders and may affect the U.S.' compliance with international treaty obligations;

(vii) the Class did not adequately include the interests of at least certain Class members — in other Class Actions, the settlement releases claims; in this Amended Settlement Agreement, the settlement causes Class members who do not opt-out of the regime to give up property rights in their creative works to Google;

(viii) it is incongruous with the purpose of Copyright to place the onus on the copyright owners to come forward to protect their rights if Google chooses to infringe those rights by making copies without first seeking permission;

(ix) the Amended Settlement Agreement would give Google an effective monopoly over unclaimed works, as it sets up an all-inclusive Class settlement for authors who do not opt-out, granting Google a license to commercially use their works (but without any obligation to share those rights with others in competition); this is also a right to digitize with impunity, not available to its competitors; and this could give Google an effective monopoly over search;

(x) the Amended Settlement Agreement did not protect Google's search users' privacy (over their library/reading/search behaviors) while acknowledged to be the case, the Judge did not think this was a basis in itself to reject the Amended Settlement Agreement.

Judge Chin ended his written Order by stating that "many of the concerns raised in the objections would be ameliorated if the Amended Settlement Agreement were converted from an "opt-out" settlement to an "opt-in" settlement", and then invited the parties to return with a renegotiated agreement of that nature.

The ball is now back in Google's court. The business model around the Google books service was premised around the scope of coverage. It will be important to see how Google seeks to move given the Court's decision. As well, other users of digital copies of traditional works, even in Canada, can learn from the policy and other considerations in the Court's deliberations on these important and fundamental copyright issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Martin P.J. Kratz
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