Author: Giovanna Occhipinti Trigona
Journal of Intellectual Property Law & Practice (2011), doi: 10.1093/jiplp/jpr069, first published online 12 May 2011
Authors Guild v Google, United States Southern District Court of New York, Opinion 05 Civ. 8136, filed 22 March 2011, Class Action
The US District Court has rejected Google's legal framework for a universal digital library.
Legal context
Since 2004 Google has scanned more than 12 million copyright works without seeking rights owners’ consent. Google has also delivered digital copies to supplier libraries, organized an online database of books, and made snippets available for searching. In 2005 the Authors Guild and other publishers brought a copyright infringement claim before the New York District Court through a Rule 23 class action. Within this framework, in 2006, the parties convened in a settlement agreement, which was submitted to the Court for approval. A favourable preliminary order was issued in 2009 under condition of certain amendments to the original version. However, in consequence of the many objections expressed during the fairness hearing held in 2010, the judge overturned the preliminary approval on the ground that the amended settlement agreement was not ‘fair, adequate and reasonable’, as Rule 23(e)(2) of the USA Federal Rules of Civil Procedure prescribes for settlement to get court approval, and that the content of the amended settlement agreement exceeded the 2005 claim.
Judge Chin's conclusion
Since the preliminary order approved the Amended Settlement Agreement (ASA), Judge Denny Chin was expected to answer the final question whether the settlement was ‘fair, adequate and reasonable’, as prescribed by Rule 23 of the USA Federal Rules of Civil Procedure to any proposal to obtain final judicial approval.
Following the concerns expressed by objectors in the fairness hearing, including the Department of Justice, Judge Chin overturned his earlier order on 22 March 2011 on the ground that the ASA did not fulfil the Rule 23 requirements even though, as he conceded, the ASA was creating a universal digital library to benefit many: the proposal went too far by implementing a ‘forward-looking business arrangement’ (DOJ Statement of Interest 2, 4 February 2010, ECF No 922) and granted Google significant rights to exploit entire books, without permission of copyright owners, plus a significant advantage over competitors. Moreover, the use of the class action would release claims well beyond those presented in the present case.
Facts and analysis
Applicable law: adequacy of class notice and representation
In determining whether the ASA was ‘fair, adequate and reasonable’, Denny Chin decided to take the traditional circuit that courts are to follow in the absence of criteria under Rule 23(e)(2), and applied the Grinnell factors (set forth in
City of Detroit v Grinnell Corp., 495 F. 2d 448, 463 (2d Cir. 1974)). So that, while it was true that, for the Judge's consequent legal reasoning, most of the Grinnell factors favoured the ASA approval, the only one that weighted against his favourable decision was the ‘reaction of the class members’. Not only, he found, were the objections to the settlement great in number, but also an unexpectedly high number of class members had opted out (around 6800). Moreover, even if copyright owners were adequately notified—in 36 languages everywhere in the world—most of the potential class members had considered not to be adequately represented by plaintiffs. As a conclusion, Judge Chin decided that the ASA raised a substantial question on the existence of antagonistic interests and that, also considering the number of objectors, the issue made the settlement inadequate to conclude the trial, so unreasonable to achieve Rule 23(e) objectives.
Scope of relief under Rule 23
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| Judge Chin |
The ASA is a complex document (166 pages, plus 15 attachments) with two different objectives: (i) the final settlement of a 2005 dispute between Google and representatives of rights owners, over the unlawful digitalization and display of snippets of copyright books without authorization; (ii) the introduction of a forward-looking commercial arrangement granting certain rights to Google and releasing its liability for future activities. Judge Chin considered that the second objective went too far, being persuaded, then troubled, by the statement that the parties were using the judicial procedure to create the legal framework of ‘a marketplace for digital books’ (Hr'g Tr. 117–8 (William Cavanaugh)). Indeed, he remarked that the ASA contemplated an arrangement that exceeded what the court would permit under Rule 23.
Matter for Congress
A ground for rejection was offered by
Sony Corp. of Am. v Universal City Studios, Inc., 464 US 417, 429 (1984), where the Supreme Court stated that it was Congress’ responsibility to adapt copyright law in response to changes in technology. For Judge Chin, the departure point was Article I, §8, cl 8 of the US Constitution, which vests in Congress the power to ‘promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries’. Chin felt that the courts should, only with reluctance, encroach on Congress's legislative prerogative to address copyright issues arising from technological developments. Nevertheless, his biggest concern was for orphan works—even if the ASA was to create an independent entity, the Unclaimed Works Fiduciary, to represent the interest of those who did not register but were covered merely because they did not opt out. Likely, he was reluctant to entrust anybody with guardianship over orphan works and thought that the issue could be adequately governed neither by an agreement between self-interested parties nor by the courts, and that it was better to leave the matter for Congress (
Eldred v Ashcroft 537 US 186, 212 (2003)), especially since many international concerns were raised.
Scope of pleading
Judge Chin considered that an approval decision would release claims well beyond those contemplated by the pleading. Indeed the lawsuit was brought to challenge Google's scanning of books and display of snippets for online searching, allegedly copyright infringements. So far, there was no allegation against Google for making full books available online, and the case was not about access and sale of complete copyright works. On the other hand, ‘Google would not have tried to defend digitizing and selling entire books’ as its counsel declared at the fairness hearing (Hr'g Tr. 150 Daralyn J. Durie). While it was true, Chin reasoned, that Google would have no defence against a claim of infringement for unauthorized copying, sale, or other exploitation of entire copyright books as Google scanned them, it was not for making them available. Therefore, what was to be granted on final approval, was control over the digital commercialization of millions of books, including orphan books and other unclaimed works. Judge Chin challenged the fairness and reasonableness of the ASA also on the assumption that final approval would not release claims properly before the court. He clearly saw how Google was trying to take a shortcut by copying books regardless of their copyright status, where competitors would go through the costly process of obtaining rights owners’ permission before scanning (Counsel for Microsoft Thomas Rubin Hr'g Tr. 43). Chin agreed with who had said that Google's real business plan was: ‘sue me’ (Objection of Robert M. Kunstadt to Proposed Settlement 3, ECF No 74), and sought to be released from other IP claims that could not be asserted in this case. Then, following
Firefighters (478 US at 525), Chin concluded that released claims would not come within the general scope of the case made by pleading and, citing
Wal-Mart Stores (396 F ed at 107) held that the ASA would release only those claims whose subject would share ‘identical factual predicate’ with the conduct that was the subject of the settled claims.
Interest of class members
Judge Chin sympathized with the objections of academic authors, who asserted that they did not feel represented before the Court by class members, as for academics value would stand in maximizing access to knowledge, while plaintiffs’ interests were in maximizing profits (Samuelson Letter 3 (ECF No 893)). Moreover, Chin observed that neither foreign nor unclaimed work rights-holders’ interests were represented within the class members and concluded that, although notice of the ASA was massively disseminated, the procedure presented a lack of representation. Nor was Judge Chin convinced by the plaintiffs’ argument that any class action would neglect the hearing of some class members. Indeed, he dealt easily with the point that, in ordinary class actions, members merely release claims for damages, whereas in the ASA class members would be giving up property rights in their creative works, as they would be deemed—by silence—to have granted Google a licence for future use of their copyright works.
Copyright concerns
In addition to the constitutional concerns, he noted that the ASA could raise statutory infractions, and how objections on opt-out denial consent provisions sounded as real. Indeed, the ASA opt-out would grant Google the ability to expropriate the property of owners who did not agree to transfer those rights. Judge Chin read the silence of rights-holders in the light of the Copyright Act, 17 USC §201(e):
When an individual author's ownership of a copyright, or any of the exclusive rights under a copyright, has not previously been transferred voluntarily by that individual author, no action by any governmental body or other official or organization purporting to seize, expropriate, transfer, or exercise rights of ownership with respect to the copyright, or any of the exclusive rights under the copyright, shall be given effect under this title, except as provided under title 11.
In so doing, he perceived as real the possibility that the ASA could expropriate rights of individuals, against their will, even if Google argued that §201(e) did not apply to private parties. The matter of deciding whether the ASA would violate §201(e) became very sensitive, and Judge Chin wanted to avoid a court-approved settlement agreement that would ever release copyright interests of individuals rights owners who did not voluntarily consent to transfer them. Much case law had stated that a ‘copyright owner's right to exclude others from using his property is fundamental and beyond dispute’ (
Fox Film Corp. v Doyal, 286 US 123, 127 (1932)), so it became clear for Chin that he had to look after the interests of the absent class members who, in having failed to opt out, would be deemed to have released their rights. The thought of copyright owners doing nothing and losing all their property rights to Google's benefit troubled him, especially upon hearing the large number of concerns expressed by objectors. Sympathizing with their moral indignation, he eventually realized how Google's way of thinking was inconsistent with the purpose of copyright law and decided that legally it made no sense to impose the burden on copyright owners to come forward to protect their rights, when Google copied their works without first seeking permission, given the likelihood that some authors would not know about the ASA project.
Antitrust concerns
Amazon, Microsoft, and also the United States Department for Justice, among others, raised antitrust concerns. Too many objections were brought to the attention of Chin to be ignored:
‘This de facto exclusivity (at least as to orphan works) appears to create a dangerous probability that only Google would have the ability to market to libraries and other institutions a comprehensive digital-book subscription’ wrote the United States (DOJ Statement of Interest 24, Sept. 18, 2009, ECF No. 720);
Google would be empowered with 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’ said Hadrian Katz, Counsel for the Internet Archive (Hr'g Tr.95);
‘The heart of the [ASA] is that it would give Google a license to sell complete copies of out-of-print books unless their copyright owners object. It is all but certain that many orphan copyright owners will be unable to object. This sweeping default license will operate only in Google's favor, instantly giving it a dominant market position.’ (Letter from Inst. for Info. Law & Policy to Court 5 (Jan. 28, 2010) (ECF No. 856));
‘Google would have the right to make complete copies of orphan works and use them for both display and non-display purposes, with no risk of copyright liability. Competitors that attempted to do the same thing, however, would face exposure to statutory damages’ (Mem. of Internet Archive in Opp'n to ASA 3–4, ECF No. 811).
If even the amicus curiae Public Knowledge, a non-profit public interest organization ‘devoted to preserving the free flow of information in the digital age’, was worried that Google could gain ‘a monopoly in the market for orphan books’, where, on the contrary, ‘public access to orphan books must be open to all comers on a level playing field’ (Br. of Pub. Knowledge in Opp'n to ASA 2, ECF No 895), this meant for Chin that the ASA would give Google a significant advantage over competitors, rewarding it for engaging in wholesale copying of copyright works without permission, while releasing claims well beyond those presented in the case.
Privacy concerns
Although data privacy concerns would not, as such, provide sufficient ground for rejection, it appeared certain to the judge that protection for users of Google Book Search was poor (ASA §6.6(c)(iii), (d); ASA § 6.6(f)) and that the ASA needed to be incorporated with additional provisions to limit disclosure of reader information. Equally inadequate sounded the commitment undertaken by Google's defence to welcome the adoption of some safeguards, and Chin dismissed the proposal on the assumption that it was made on a voluntary basis (Def.'s Br. in Supp. of Approval of ASA 55–6, ECF No 941).
International law concerns
Another sensitive point to deal with was the ASA's geographical scope. The original version of the settlement, which included all books published after 1989 in any country signatory to the Berne Convention, was amended and the definition narrowed in that a non-‘United States work’ would be covered only if the copyright was registered in Washington, D.C. or if the book was published in Canada, the UK, or Australia, on or before 5 January 2009. Nonetheless, foreign rights holders remained concerned. As France and Germany pointed out, many foreign books were registered in the USA to ensure coverage under US law, especially before 1989, when the Berne Convention entered into force (Germany Mem. 2–3, ECF No 852; Suppl. Decl. of French Republic 2, ECF No 853). Authors and publishers from too many countries remained opposed to the ASA even after revisions, thought Judge Chin, and had brought to his attention how difficult it was to determine whether they were covered (Germany Mem. 6–7, ECF No 852; Letter from Centro Español de Derechos Reprográficos to Court 1 (22 January 2010) (ECF No 827); Letter from Irish Copyright Licensing Agency Ltd. to Court 1 (26 January 2010) (ECF No 881); Letter from Assucopie to Court 1 (22 January 2010) (ECF No 882)). But the main concern they all expressed was whether the ASA would violate international law, including the Berne Convention and the Agreement on Trade-related Aspects of Intellectual Property Rights. Again Chin found inadequate Google's counterargument that the ‘case was about United States copyright interests. It's about uses of works in the United States’ (Hr'g Tr. 157–8 (Daralyn J. Durie)), and considered this thesis expressed Google's poor understanding of the ASA's impact on foreign rights-holders, as the quantity of foreign allegations for violations of international principles and treaties would demonstrate. In the end, Judge Chin recognized that whether the ASA would violate international law was not an issue for his decision. Nevertheless, in the light of other nations’ objections, he became fully convinced that he was taking the right decision: the matter was better left to Congress.
Judge Chin eventually denied final approval without prejudice to renewal of the motion, in the event that the parties would negotiate a revised settlement agreement.
Practical significance
The final order is destined to constitute an important precedent for the handling of class action procedures. With regard to copyright, the order presents fewer surprises.
While the case confirms Grinnell factors’ applicability in determining whether a settlement is fair, reasonable, and adequate under Rule 23(e)(2), from now on the ‘reaction of the class circuit’ will be evaluated also on the basis of the amplitude of the action and number of objections expressed before the court. Therefore, the assumption that the broader actions may involve too many heterogenic class members, who may trigger antagonistic interests not represented by the class plaintiffs, will prevail as the settlement will be unable to put an end to the original dispute.
The impact on class action judicial procedure is important since the order may constitute material for future use in copyright infringement claims. Judge Chin identified most of the weakness of a dispute instrument such as this in which its effects may be unpredictably wide and release claims not properly before the court. In this case, the court assessed that the opt-in opt-out access mechanism was ‘unfair, inadequate, and unreasonable’, by reason of the ‘by default’ access it gives to the parties who want to stay on the side lines of the class action, without expressing their rejection. According to the normal system of class actions, any decision or settlement will produce effects even toward these parties, as it bans claims they could plead in the future.
The order may also change the role that the judge plays within class actions, as Judge Chin felt that he had to be looking after absent parties’ rights, as well as looking after the interests of owners of orphan works and rights in unclaimed books.
From now on, within settlement proposals under Rule 23(e), class members will be able to dispose of economic considerations for damage but not of individuals’ property rights. As a consequence, Rule 23(e) will be more appropriate for settling past situations than future undertakings.
