Friday, March 25, 2011

District Court Rejects Proposed GoogleBooks Settlement

On March 22, 2011, the U.S. District Court for the Southern District of New York issued its long-awaited opinion on whether to approve the settlement tentatively entered into between the Authors' Guild and Google regarding its GoogleBooks program. In short, the Court rejected the settlement.

Reviewing the docket confirms that this case has indeed been relatively quiet since the February 18, 2010 hearing on the proposed settlement. Shortly thereafter, some modifications were made to the cash payment system terms, but otherwise, the Court did not issue any final ruling to approve or reject the proposed settlement.

In its Opinion, the Court announced, "The question presented is whether the ASA [Amended Settlement Agreement] is fair, adequate, and reasonable. I conclude that it is not." Opinion at 1. The Court explained,

"While the digitization of books and the creation of a universal digital library would benefit many, the ASA would simply go too far. It would permit this class action . . . to implement a forward-looking business arrangement that would grant Google significant rights to exploit entire books, without permission of the copyright owners. Indeed, the ASA 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."

Id. at 1-2 (emphasis added).

In its analysis, the Court outlined seven categories of objections to the ASA: 1) adequacy of class notice; 2) adequacy of class representation; 3) scope of relief under Rule 23; 4) copyright concerns; 5) antitrust concerns; 6) privacy concerns; and 7) international law concerns. Id. at 10-13. It handled each category in turn.

Adequacy of Representation
As to adequacy of representation, Judge Chen pointed out repeatedly (Opinion at 10, 19) that over 6800 class members have opted out to date from participation in the proposed settlement, an "extremely high number." He concluded that "there is a substantial question as to the existence of antagonistic interests between named plaintiffs and certain members of the class," a prong in the analysis that must be met in order to comply with Rule 23 of the Federal Rules of Civil Procedure. He agreed that counsel was sufficiently qualified to represent the class, but concluded that the differences between the various competing interests within the class was "troubling." Id. at 21.

ASA Exceeded Scope of Rule 23 Remedy
As to whether the settlement exceeds "the scope of what the Court may permit under Rule 23," Judge Chen concluded that it would. The exact language of the Opinion is worth reciting in explanation here:

"This case was brought to challenge Google's use of 'snippets,' as plaintiffs alleged that Google's scanning of books and display of snippets for online searching constituted copyright infringement. Google defended by arguing that it was permitted by the fair use doctrine to make available small portions of such works in response to search requests. There was no allegation that Google was making full books available online, and the case was not about full access to copyrighted works. The case was about the use of an indexing and searching tool, not the sale of complete copyrighted work."

Id. at 24-25 (emphasis added).

The Opinion explains further, "Google did not scan the books to make them available for purchase, and, indeed, Google would have no colorable defense to a claim of infringement based on the unauthorized copyright and selling or other exploitation of entire copyrighted books." Id. at 26. Thus, the ASA, which created a structure by which revenues from sales of full copies of copyrighted works would be shared with the appropriate rightsholders, goes far beyond what the parties litigated and the scope of relief that the Court has the ability to approve.

The Court did not leave the parties without a remedy. Instead, it merely concluded that a Court-approved settlement between these two parties (to cover this broad set of class members) was not the proper vehicle to address this kind of forward-looking relationship; Congress is. Id. at 22-24. For instance, "[t]he questions of who should be entrusted with guardianship over orphan books, under what terms, and with what safeguards are matters more appropriately decided by Congress than through an agreement among private, self-interested parties." Id. at 23.

The Court criticized Google's method of reaching the costly investment that it has clearly made in this process, and concluding that it need not countenance Google's activities:

"Yet, the ASA would grant Google the right to sell full access to copyrighted works that it otherwise would have no right to exploit. . . . The ASA would grant Google control over the digital commercialization of millions of books, including orphan books and other unclaimed works. . . . And it would do so even though Google engaged in wholesale, blatant copying, without first obtaining copyright permissions. While its competitors went through the 'painstaking' and 'costly' process of obtaining permissions before scanning copyrighted books, Google by comparison took a shortcut by copying anything and everything regardless of copyright status. . . . As one objector put it: 'Google pursued its copyright project in calculated disregard of authors' rights. Its business plan was: "So sue me".' "

Id. at 26-27 (citations omitted to statements made in various submissions filed with the Court) (emphasis added).

Settlement Applies to Future Rights
The Court also concluded that while it is common for certain class members to opt out of participating in a settlement, this case is unique in that not only does the settlement release claims against Google for past behavior, class members here "would be giving up certain property rights in their creative works, and they would be deemed – by their silence – to have granted Google a license to future use of their copyrighted works." Id. at 30. Such a mandated transfer of exclusive copyright rights is unwarranted.

Opt-Out Structure Unsound
In various places in the opinion, the Court pointed out that "opting out" is not the right structure for an agreement with such a broad application. "[I]t is incongruous with the purpose of the copyright laws to place the onus on copyright owners to come forward to protect their rights when Google copied their works without first seeking their permission." Id. at 35 (footnote omitted).

ASA Raises Antitrust Problems
Judge Chen concluded that the ASA would indeed grant Google a monopoly over unclaimed works, and agreed with the argument made by counsel for the Internet Archive: "the ASA would give Google a right, which no one else in the world would have, . . . to digitize works with impunity, without any risk of statutory liability, for something like 150 years." Id. at 36-37. The Opinion gives other examples of potential anti-competitive benefits that Google would obtain if this settlement were to have been approved.

Privacy Concerns
While the Court acknowledged that the privacy concerns outlined by various objectors to the settlement were "real," Judge Chen concluded that they were not a sufficient basis on their own to reject the proposed settlement. Id. at 39. As a result, the objections are not summarized here.

International Objections
The Opinion also discusses the objections raised by various international stakeholders, such as authors, publishers, foreign governments, and other associations, and concludes that these objections highlight precisely why creating such a forward-thinking framework should be left for Congress. Id. at 45. For example, Germany argued, "Courts and class action settlements are not the proper province for creating a cutting edge copyright . . . framework to bind future generations of digital libraries." Id. at 44 (ECF No. 852 at 11).

This blog post only discusses certain highlights from the Court's opinion, but the importance and complexity of this debate cannot be understated. Various competing interests are triggered that belie any "easy" or "all encompassing" solution, such as:
  • The interests of the public in having full access to as much information as possible in our digital world;
  • The interests of academic authors who want to "maximize access to knowledge" (Opinion at 28-29)
  • The interests of authors of older works still protected by copyright law, who may want to see a resurgence of interest in their works, but print copies may be off the market or the publisher can no longer be located to negotiate additional distribution rights;
  • The rights of authors and publishers of newer works to control how their works are distributed; and
  • Google's interest in recovering some part of its massive investment in enabling digital access to contents of the world's libraries.
Also critical to understand is the fact that this ASA, whether it ever obtains approval or not, does not affect the public's access to works that are already in the public domain, such as by Mark Twain or Charles Dickens, or works that are subject to specific agreements between Google and the rightsholders (i.e., when the rightsholders opted in to Google's efforts to scan works).

While ultimately rejecting the ASA as "not fair, adequate and reasonable," Judge Chen suggested that as many "objectors have noted, many of the concerns raised in the objections would be ameliorated if the ASA were converted from an 'opt-out' settlement to an 'opt-in' settlement. . . . I urge the parties to consider revising the ASA accordingly." Id. at 46.

An opt-in structure may have its own problems, however, as highlighted by the initial comments posted only to the March 23 Wall Street Journal article on the rejection of the settlement. Efrati, Amir and Jeffrey A. Trachtenberg, Judge Rejects Google Books Settlement, Wall Street Journal, March 23, 2011 (this may only be available to paid subscribers). Note that the article contains a survey to solicit views of whether an "opt-in" or "opt-out" structure should be used. Once you vote, you can see the results. There's also a video explaining some of the concerns, which suggests that this opinion has dealt a "blow" to Google and that it remains to be seen what a future settlement agreement might look like.

Prior posts about the Google Book Settlement can be found here.

Tuesday, March 22, 2011

House Judiciary Committee Holds Hearing on Online Infringement

The House of Representatives' Subcommittee on Intellectual Property, Competition and the Internet (which is a subcommittee of the Committee on the Judiciary) held a hearing on March 14, 2011 entitled "Promoting Investment and Protecting Commerce Online:  Legitimate Sites v. Parasites, Part I," addressing how to combat online infringement by rogue websites.

While I have not yet watched the webcast available on the Committee's web site, an article by the Bureau of National Affairs suggests that the hearing was devoted to the same kind of inquiry that the Senate Judiciary Committee considered last month, and thus raises questions about what a revised COICA bill could look like. (For a discussion of the Senate's hearing, see my prior blog post.) The BNA article reported that Rep. John Conyers, Jr. "lashed out at the witnesses [toward the end of the hearing] and expressed his profound disappointment at what he perceived is a dearth of suggestions for action that Congress could take to address the problem being addressed."

The witnesses who testified during the hearing and provided written remarks were Maria A. Pallante (Acting Register of Copyrights, U.S. Copyright Office), David Sohn (Senior Policy Counsel, Center for Democracy and Technology (CDT)), Daniel Castro (Senior Analyst, Information Technology and Innovation Foundation (ITIF)) and Frederick Huntsberry (Chief Operating Officer, Paramount Pictures).  Their written remarks are available on the Committee's site.

As of this writing, a date for the second part of this hearing has not yet been posted to the Committee's site.

Thursday, March 17, 2011

White House Releases Recommendations for IP Enforcement

On March 15, 2011, Victoria Espinel, the U.S. Intellectual Property Enforcement Coordinator (IPEC) released the Administration's "White Paper" making recommendations about changes to existing legislation that it believes are required in order to protect intellectual property rightsholders and consumers from counterfeit or illegal products and from economic espionage. The Administration's White Paper can be found here and its blog post summarizing its conclusions can be found here.

The White Paper targeted several areas for modification: 1) increasing statutory maximum penalties for economic espionage (18 U.S.C. § 1831) and for drug offenses under the Federal Food, Drug & Cosmetic Act; 2) increasing U.S. Sentencing Guidelines for intellectual property offenses; 3) enhancing specific enforcement powers of the Department of Homeland Security (DHS) and its "component" U.S. Customs & Border Protection (CBP); 4) permitting DHS to share information with rightsholders about seizures of infringing goods and/or circumvention devices; 5) increasing enforcement tools regarding counterfeit pharmaceuticals and illegal online pharmacies; and 6) increasing certain administrative penalties that the CBP can impose.

Many of the recommendations focused on conforming available penalties for particular crimes involving intellectual property and counterfeit drugs, rather than focusing on enhancing private rightsholders' abilities to address and combat specific infringing acts. As a result, these initiatives seem to have little impact on U.S. companies' efforts to self-police. Perhaps there is more to come on this point.

The White Paper also acknowledged the Senate's efforts to prepare and introduce a new version of COICA (the Combating Online Infringement and Counterfeits Act, previously introduced as S. 3804 in the previous Congress), for which the Senate Judiciary Committee held a hearing on February 16, 2011 (webcast available).  More information about COICA as originally introduced and the recent Senate Hearing is described here.

Specifically, the White Paper acknowledges:

"Piracy and counterfeiting in the online environment are significant concerns for the Administration. They cause economic harm and threaten the health and safety of American consumers. Foreign-based and foreign-controlled websites and web services raise particular concerns for U.S. enforcement efforts. We are aware that members of Congress share our goal of reducing online infringement and are considering measures to increase law enforcement authority to combat websites that are used to distribute or provide access to infringing products. We look forward to working with Congress on those efforts and the recommendations contained in this paper in the coming year."

White Paper at 1.  The blog also highlights a combined effort of several private companies (including Google, GoDaddy, and MasterCard) to create a non-profit organization to fight illegal online pharmacies. A prior blog post (February 7, 2011) identifies additional details about the "Voluntary Private Sector Action", with an additional list of participants (American Express, eNom, GoDaddy, Google, MasterCard, Microsoft, PayPal, Neustar, Visa, and Yahoo!) and notes that "By preventing criminal actors from gaining access to consumers and attaining legitimacy through the use of online payment processors, the purchase of ad space or a registered domain name, these private companies can play a critical role in combating illegal online pharmacies that put American consumers at risk." This effort is laudable in that it seeks to prevent particularly dangerous counterfeits with substantial health risks from entering the U.S. market, but its limitation to such a narrow window of counterfeiting means that companies are still left to their own devices to police markets for counterfeit products and grey goods on their own, and create their own enforcement tools.

Finally, the White Paper suggests changes to Copyright law, to permit illegal streaming to qualify as a felony. Thus, the Administration advocates updating criminal enforcement tools to take into account new technologies as they are developed. Again, this is a laudable effort, but does not provide private rightsholders with any additional mechanism to combat infringement and counterfeiting outside of criminal investigations involving an already overloaded criminal justice system.

Wednesday, March 9, 2011

Senate Judiciary Committee Considering New COICA Bill

On February 16, 2011, the Senate Judiciary Committee held a public hearing entitled "Targeting Websites Dedicated to Stealing American IP." Witnesses testifying before the Committee included Tom Adams (President and CEO, Rosetta Stone), Scott Turow (President, Authors Guild), Christine N. Jones (EVP, General Counsel and Corporate Secretary, The Go Daddy Group, Inc.), Thomas M. Dailey (Vice President and Deputy General Counsel, Verizon), and Denise Yee (Senior Trademark Counsel, Visa, Inc.). Representatives for both Google and Yahoo were invited to attend, but declined to appear. As of this writing, a webcast (lasting the entire 2 hours of the hearing) is still available.

Based on the remarks made during the hearing, it appears that the Committee is considering introducing a modified version of the Combating Online Infringement and Counterfeits Act (COICA) that had been introduced in the last term as S. 3804 (and passed the Committee on a 19-0 vote). The Second Session of the 111th Congress ended before further action was taken on this Bill. (Summary of the status of the bill can be found here, along with a copy of the related Committee Report submitted by Sen. Leahy on December 17, 2010.)

By congressional rules, this Bill must be re-introduced in this Congress (the 112th Congress) before any further action can be taken on it. Given the amount of public comment that the Committee received in connection with the most recent version of the Bill, and given the tenor of the comments during the February 16 hearing, it is likely that the re-introduced Bill will have some important differences from last term's Bill. Some of the issues that may be addressed in this Bill could be a private right of action, removal of a "black list" onto which "bad" websites could be placed and some measure of safe harbor provided for the ISPs and/or other service providers who comply with the regulatory provisions of the new Bill. (For more comments on some of these provisions and their expected impact, see the comments of the Electronic Frontier Foundation (as well as additional links provided on their page) and the Center for Democracy and Technology (again, including some of the cross links within their blog relating to Digital Copyright). Of course, without seeing an actual draft yet, it is difficult to predict which provisions will end up in a new version of the Bill, if introduced this term.

During the hearing, several Senators referred to a second round of questions/comments on this initiative, which suggests that the Committee may hold a follow-up hearing. As of this writing, I could not find a scheduled hearing to re-address a potential COICA draft. At the end of the hearing, Senator Leahy commented that COICA in the last term had bipartisan support and passed in the Committee on a vote of 19-0. He closed with a promise that some version of this Bill will be reintroduced in the current term.

After the hearing concluded, Senator Leahy posted a press release that identified some of the comments that both he and other Committee members have received in support of a bill to stop counterfeiting on the Internet. (Copies of the submissions were also provided in the press release and can be found separately here.) Ranking Member Sen. Grassley's prepared remarks can be found on the hearing summary page, and also in his own list of press releases.