Google Books Settlement 2.0: Evaluating Competition
This is the third in a series of posts about the proposed Google Book Search settlement.
Now that we've described the proposed settlement agreement's biggest potential upside for the public—expanded online access to books, particularly out-of-print books—that benefit must be weighed against the potential down-sides. On that score, the settlement's potential impact on competition in the online book market has loomed large. Critics of the settlement have emphasized two principal dangers:
- The potential for a Google monopoly over orphan and unclaimed books.
- The potential for monopolistic pricing of the Institutional Subscription Database, particularly for higher education.
The revised Settlement 2.0 made little or no effort to address these concerns, leaving it to Congress or antitrust authorities to fix later.
A Google Monopoly on Orphan & Unclaimed Books?
At the heart of the proposed settlement is a bargain that lets Google (and only Google) leapfrog the problem of "unclaimed works"—books whose copyright owners cannot be found or whose owners can't be bothered to fill out paperwork for a small payment disbursed by the Registry (consider how many "class action" notices you've tossed in the trash unread). Thanks to the magic of the class action process, the settlement solves this problem by resolving the copyright claims of these otherwise unreachable copyright owners and designating all of their works by default as available for "Display Uses" by Google. In other words, so long as no one steps forward to claim these books, Google (and only Google) has a license to make them available in all the ways the settlement allows.
Many who filed objections to the proposed settlement, including the Department of Justice, Microsoft, Amazon.com, the Internet Archive, and Public Knowledge, among others, argued that this could create a de facto Google monopoly over online use of these unclaimed works. And while the revised Settlement 2.0 creates an "Unclaimed Works Fiduciary" (UWF) to act as a guardian on behalf of owners of unclaimed works, neither the UWF nor the Registry has the power to grant a similar license to any other entity that might want to make the same kinds of uses that Google will be entitled to make under the settlement.
Nobody likes this "only-for-Google" aspect of the settlement—in fact, Google has said that it would support orphan works legislation that would empower the Registry to make the same deal (or even a better deal) with others who want to use these unclaimed works. (Where the claimed books are concerned, in contrast, the Registry will likely ask the rightsholders to appoint it to license companies other than Google. But that still leaves all the unclaimed books out.) The settlement agreement even has a provision that makes it clear that the UWF can license others "to the extent permitted by applicable law"—what amounts to an "insert orphan works legislation here" invitation.
But absent some legislative supplement to the revised Settlement 2.0, it still seems that any other company would have to scan these books, get sued, and hope for a class action settlement. That, of course, is the kind of barrier to entry that any monopolist would envy.
This raises a worthy question: if legislation is necessary to fix the competition problem posed by the settlement, then why do we need a class action settlement in the first place? Why not solve what seems like a quintessentially legislative problem with legislation, instead? (As Amazon points out, that's exactly what was done when music publishers brought a class action against the first digital audio tape (DAT) recorders).
Here's where realpolitik enters the equation. Google correctly points out that Congress has been working on orphan works legislation for years, to no avail. And none of the legislative proposals came close to the comprehensive solution embodied in the proposed settlement. So the question boils down to a political one: do you believe that approval of Settlement 2.0 will make orphan works legislation more likely, or less likely? Without a crystal ball, it's hard to know.
Monopoly Pricing of the Institutional Subscription Database?
One of the commercial services that Google is authorized to provide under the proposed settlement is the "Institutional Subscription Database" (aka "ISD"), which will provide "all-you-can-eat" access to the corpus of scanned books. The chief customers for the ISD are likely to be universities (the same folks who are providing Google with the books to be scanned), for whom instant digital access to every word in every book in Google's collection is likely to be very compelling.
The big question is whether, over time, the ISD will become the one database that no university can do without, and the one database with no market substitute (again, because Google will be the only company who can provide a comprehensive corpus without fear of copyright liability, for the reasons explained above). This, of course, is a recipe for monopolistic price gouging, as a group of academic authors led by Prof. Pam Samuelson have pointed out. Over time, universities could face spiraling prices as Google and the Registry conspire to maximize their revenues on the ISD product.
Google and its supporters respond by pointing out that the settlement requires that pricing for the ISD be set with regard to "two objectives: (1) the realization of revenue at market rates for each Book and license on behalf of Rightsholders and (2) the realization of broad access to the Books by the public, including institutions of higher education." The settlement goes on to promise that Google and the BRR "will use the following parameters to determine the price of Institutional Subscriptions: pricing of similar products and services available from third parties, the scope of Books available, the quality of the scan and the features offered as part of the Institutional Subscription."
But Google's own people have reportedly admitted that there might not be any "similar products and services" to the ISD. And the settlement does not give ISD subscribers the right to go to court to enforce these "objectives" and "parameters." Instead, Google has entered into "side agreements" with some of its major library partners (U. of Michigan, U. of Wisconsin—both of which will be receiving subsidies from Google for their ISD fees) that allow only those institutions to challenge pricing, and only under certain circumstances. So what we are left with is a "trust us" from Google, the Registry, and their biggest library partners.
Of course, the chances of this coming to pass are hard to know in advance. As we have pointed out, if many large publishers pull their books out of the ISD database, then perhaps the ISD service won't become indispensable to universities after all. So, ironically, the more successful the ISD proves to be, the more of a danger its pricing mechanism might prove to be for higher education.
Fixing the Competition Problem
Just because the proposed Book Search settlement isn't good for competition doesn't mean it's illegal. There is a robust debate going on (see, e.g., articles by Picker, Elhauge, Fraser, Lemley, and Picker again) about whether the proposed settlement might violate antitrust laws, and the Antitrust Division of the Department of Justice will doubtless continue its investigation.
But we shouldn't be satisfied with antitrust law here. This is not just a simple market transaction between commercial entities. Google is building an enormously important public resource, a task it can only undertake with the blessing of a federal court. The public deserves a solution that is not "barely legal," but that instead encourages real, robust competition. As written, without some modification or legislative adjunct, Settlement 2.0 does not do that.
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