Monday, September 21, 2009

The DOJ Does Not Like the Google Book Settlement Agreement

The United States has weighed in on the Google book settlement. The comments came this past Friday, but not from the Copyright Office. Rather, the Department of Justice and U.S. Attorney for New York filed a statement raising considerable caution to aspects of the proposed settlement. The comments provide substantial grist for the mill in considering the impact of a privately negotiated settlement on the public, on future authors, on unrepresented rights owners, and as a replacement for the deliberative mechanics of Congress.

The U.S. does not like the book settlement for reasons internal to the function of a class action proceeding, and for external reasons relating to the anti-trust and copyright laws. In considering the class action implications, the DOJ observes that this type of settlement is different than the typical class action settlement that seeks to settle historical claims defined in the plaintiff's complaint. By contrast, the primary thrust of the Google settlement relates to future conduct, future claims and future authors. Indeed, the effect of the settlement on future authors and publishers is significant.

The DOJ further notes that none of the class representatives come from key, discrete sub-classes that are impacted by the settlement: authors and owners of orphan works and foreign rights owners. Indeed, the DOJ points out that the settlement creates a conflict in treatment between non-orphan works and orphan works, not only in terms of the obligation to opt out in the future but also in terms of royalty distribution. As to foreign rights owners, not only is this entire subclass not represented in the class plaintiffs, but settlement treatment of foreign works may be in conflict with U.S. treaty obligations and with internal laws of foreign states.

The DOJ's comments relating to the effect on foreign rights owners mirrors much of the criticism filed by foreign governments (primarily France and Germany) and foreign rights owners (several foreign publishers have filed objections). Here, the DOJ points out that the significant impact on foreign rights owners, coupled with the absence of any foreign representation in the representative class, requires a robust notice to foreign rights owners together with a longer opt out period. To underscore this point, some foreign comments criticize the lack of foreign language translation of both the notice and the settlement agreement, implicating the effectiveness of the present notice.

The DOJ observes that the settlement flips traditional copyright concepts into an opt out regime for both present and future rights owners, a concept at odds with traditional exclusive rights principles under copyright law. The Register of Copyright has already observed in a statement to Congress that the "infringe first and ask questions later" structure of the settlement is at odds with 220 years of U.S. copyright legal history.

Finally, the DOJ addresses the antitrust thrust of the settlement. On this score, the DOJ points out that it is still examining the antitrust issues and no final decisions have yet been made. But at present it offers the following observations:

1. The settlement appears to violate the Sherman Act by constituting an agreement between the private parties as to wholesale distribution terms of present and future copyright work.

2. The settlement appears to restrict retail price competition, including the existence of an apparent floor below which retail price competition may not exist.

3. The settlement appears to give publishers the ability to control the future price of orphan works, including the pricing knowledge of a competitive product.

The DOJ points out repeatedly that the parties to the settlement agreement appear willing to re-open negotiations over key terms, and the DOJ expresses its willingness to participate so as to provide a public voice in addressing these numerous troubling issues. In its present form, the DOJ advocates rejection of the settlement agreement, coupled with efforts to recraft a regimen that may become the legal foundation for all digital rights distribution.

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