November 20, 2008 | By Fred von Lohmann

Google is Done Paying Silicon Valley's Legal Bills

[I wrote the following op-ed, which appeared in the Nov. 14 issue of The Recorder. Because that publication's website is not publicly available, I'm posting a copy here, with their permission.]

For most of the decade, Silicon Valley technology startups have assumed that Google would pay their legal bills. Not literally, mind you, but rather by taking on the big, high-profile cases about fair use, interoperability, and other digital intellectual property issues that would set precedents that all disruptive innovators could rely on.

Well, Google just put the Valley on notice that the free ride is over, which means more legal burdens for smaller technology companies that previously depended on Google clearing a path for them.

Late last month, Google announced a settlement in its lawsuit with book publishers and authors over its Google Book Search offering. At the heart of the dispute is the question of whether scanning copyrighted books in order to index them violates copyright law, as the publishers argued, or is permissible as a fair use, as Google argued. If approved by the court, the $125 million settlement would buy Google — and only Google — permission not just to scan books for indexing purposes, but also to expand Book Search to provide more access to the scanned books.

The Book Search case is just one of a series of high-stakes lawsuits that Google has taken up in the name of the disruptive innovation that fuels the Internet economy. Others include the billion-dollar suit brought by Viacom over copyrighted video clips appearing on YouTube, as well as cases brought by trademark owners attacking Google's right to sell trademarks as keyword triggers for those "sponsored links" that appear when you use Google's search engine. Google has also fought copyright owners to defend its search engine, news aggregation, image search and Web caching activities.

Google, assisted by its expensive, top-drawer legal team, has a track record of winning these precedent-setting Internet cases. And by winning, Google sets a precedent that other innovators can rely on, as well. In essence, Google's legal investments have paid dividends for the entire Internet innovation economy.

Until now. By settling rather than taking the case all the way (many copyright experts thought Google had a good chance of winning), Google has solved its own copyright problem — but not anyone else's. Without a legal precedent about the copyright status of book scanning, future innovators are left to defend their own copyright lawsuits. In essence, Google has left its former copyright adversaries to maul any competitors that want to follow its lead.

Google will doubtless be considering the same endgame for the Viacom lawsuit against YouTube. If Google can strike a settlement with a large slice of the aggrieved copyright owners, then it solves the copyright problem for itself, while leaving it as a barrier to entry for YouTube's competitors.

But when innovators like Google cut individual deals, it weakens the Silicon Valley innovation ecology for everyone, because it leaves the smaller companies to carry on the fight against well-endowed opponents. Those kinds of cases threaten to yield bad legal precedents that tilt the rules against disruptive innovation generally.

For better or worse, it looks like tomorrow's cutting-edge Internet law precedents are going to be left to smaller companies to set. That means smaller startups (and their venture capital backers) need to start planning strategically to pick up the slack left by Google's gradual retreat from the field of battle. To put it bluntly, they need to set aside real money for litigation and find ways to cooperatively invest in the legal precedents that all of them collectively need.

Reproduced with permission from the Nov. 14, 2008 edition of The Recorder, copyright 2008 ALM Properties. Further reproduction without permission prohibited without permission of ALM Properties.

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