Google Book Search - A Horizontal Price Monopoly in the Fine Print
The Google Book Search is coming under increasing fire. Later in the month I will be giving a talk about Google at the Midwest IP Institute, but the summary paper I've written includes a bit on the settlement. Given the timeliness of that debate, I'm posting that section (footnotes and all) for more general access. The paper is available at SSRN. The excerpt follows:
Proponents of the Google Book Search settlement point to the societal benefits. Mark Lemley, a highly regarded intellectual property professor at Stanford, is also a lawyer for Google and explains the benefits as follows:
The settlement will permit Google to digitize most books published in the U.S. Members of the public will have access to electronic copies of previously unavailable works: It will be possible to search the content of the books for free, and to preview full pages from out-of-print books for free, allowing members of the public to find the books and the information they need. People who decide they want a book for themselves will be able to buy a digital version that they can read online. Libraries will be given licenses to provide free, complete access to out-of-print books at terminals in their buildings. And institutions will be able to buy subscriptions to vast catalogs of works. The public gets access to works that have, as a practical matter, been unavailable for years or decades and have never been searchable; authors and publishers get revenue from works that had long since stopped generating any. The result is clearly beneficial to all concerned.[1]
Lemley’s analysis, however, does not address the antitrust issues involved with Google’s position in this system. Nor does it address the costs associated with these benefits.
One cost associated with the benefit is borne by the rights holders to so-called orphan works, those copyrighted books for which the rights holder cannot be identified. In some cases, the orphan works are created when publishers go out of business without assigning their copyrights; in other cases orphan works arise from poorly managed estates, or in other situations where the rights transfers are forgotten, lost or mishandled. In these cases, no party has the legal right to enforce the copyright.[2] Parties who respect copyright law cannot find a legitimate copyright holder from whom to license the rights; infringers can act with impunity if they dare.
Despite suggestions to the contrary,[3] the practice experience for many entertainment attorneys may bear out the proposition that orphan works do not actually dominate the out-of-print market. In many situations, the copyright has descended to multiple family members by will or intestacy transfer. These family members have limited interest in policing the copyrights of out-of-print works unless the book suddenly becomes the focus of a possible film deal or other high-value transaction. In most cases, the rights holders for out-of-print books are known; they just are not interested.
From an antitrust perspective, the settlement provides Google a unique market position to be free of the risk of litigation for all orphan works.[4] Google will be the only company that can lawfully sell the orphan works or monetize advertising related to them. Every other company that elects to do so risks the orphan finding a parent. The Google Book Search highlights the orphan works problem and should encourage rights owners to seek their rights with the lure of obtaining lost revenue. Part of the settlement requires Google to support a non-profit, collective rights organization called the Book Rights Registry (“BRR”), to collect and distribute the revenue. The BRR is required to provide provenance information about the works claimed, further reducing the scope of the orphan works problem.[5] If the revenue is significant, the number of phantom works will shrink. If the revenue is not significant, there is no market to monopolize.
A legislative or court modification could further improve the situation. A second class action lawsuit or act of Congress should provide a safe harbor for any publisher that wishes to publish a work from the BBR which has not had its right owners identified following the five years that royalties have been collected on behalf of the work. The safe harbor would protect such publishers until the rights holders come forward, if ever. Such a solution would negate the cultural, rather than legal, monopoly that Google’s presence in the Book Search provides.[6]
While there is no doubt that Google will receive some network effect benefits from the orphan works, the scope of these rights is trivial to the overall publishing market. This should not be the source of antitrust concerns. The real value in improving the search algorithms and other products flows from the scope of the database, which is largely built by publishers that have acceded to the class action settlement as well as physical access to the public domain works in the collection.[7]
A different aspect of the case, however, does raise more serious antitrust considerations. The proposed settlement affords Google, the Authors Guild and the Association of American Publishers to agree on a pricing mechanism for digital works. For example, the settlement allows Google to set an institutional fee for access to the collected database on a full-time-equivalency or FTE basis.[8]
The economic terms for Institutional Subscriptions of Books will be governed by 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. Plaintiffs and Google view these two objectives as compatible, and agree that these objectives will help assure both long-term revenue to the Rightsholders and accessibility of the Books to the public.[9]
To the extent that the Authors Guild and the Association of American Publishers agrees with Google that broad access and maximizing revenue are compatible, they are engaging in behavior that should be questioned under the Sherman Act.[10] The goal of authors and publishers is to maximize revenue. The goal may be achieved by raising prices or by lowering prices to encourage greater adoption, but in either case the activity of combining the class action of publisher and authors with Google is a massive agreement to set prices.
Similarly, digital copies of books may be sold at a price “to be determined by an algorithm (the “Pricing Algorithm”) that Google will design to find the optimal such price for each Book and, accordingly, to maximize revenue for each Rightsholder.”[11] This optimization and maximization allows Google to quantify the market for books based on sales data and other information that private publishers could never share with one another. Such optimization is unlikely to be in furtherance of price competition or the best interests of the consumer public.
Contrast the proposed Google settlement with the settlements involving ASCAP and BMI. In the case of the consent action involving the performing rights societies, the court administrating the consent decree retains jurisdiction over the competitiveness of the licenses.[12] Unlike the Google settlement, ASCAP and BMI are not left to set the market prices without supervision. “Although, under the terms of the BMI Consent Decree, BMI bears the burden of establishing the reasonableness of its rates, the setting of appropriate rates remains the responsibility of the District Court.”[13]
Absent this continuing supervision, the ability of the parties collectively – or Google on the parties’ behalf – to set the prices for digital content certainly appears to reach the same anticompetitive heights as ASCAP and BMI meet with regard to public performances. The court’s failure to recognize this in its preliminary approval is more likely to be the source of Justice Department interest than concern for orphan works. While the consent decree involving ASCAP and BMI suffers from excessive judicial entanglement, it has created a mechanism for fair licensing and public accountability for collectively managed private intellectual property resources. This is the accountability missing from the current proposed settlement. Worse, the internal dispute process is subject to a blanket of confidentiality, further hiding the mechanisms of the content pricing.[14]
As with other concerns, Google faces scrutiny over the Google Book Search in many countries. The outcomes and solutions are likely to vary considerably from country to country. In most countries, the performing rights societies are government agencies, so the ASCAP/BMI consent decree is unique in the world. As such, this proposed resolution is unlikely to be adopted by other nations. The Internet may be global, but nations remain territorial and apply their laws accordingly. Hopefully the Justice Department will insist that the court exercise far greater control over the pricing and other collusive aspects of the proposed settlement, inserting its own authority for that of the American Arbitration Association.
[1] Mark A. Lemley, An Antitrust Assessment of the Google Book Search Settlement, available at: http://ssrn.com/abstract=1431555 (last visited August 17, 2009).
[2] See Pamela Samuelson, The Dead Souls of the Google Book Search Settlement, 52 Comm. ACM (July 2009) available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1387782 (last visited August 17, 2009).
[3] Professor Samuelson suggests that orphan works are “most” of the seventy percent of the books in the Book Search repository. But that appears to conflate books for which the transaction costs of enforcing the copyright outweighs the value of the copyright of those works which have no one able to enforce their rights. See id. at 1.
[4]
[5] Settlement Agreement, supra note __ at § 6.6(d).
[6] To comply with Berne, it may be necessary to make such a safe harbor apply only to
Under the settlement Google will be able to open up access to truly orphaned books, but we still think more needs to be done to allow anyone and everyone to use these works. Any company or organization that wants to open up access to this untapped resource should be able to do so. The settlement is not a panacea, since it only covers a subset of orphaned works, provides only certain uses, and is not able to extend these uses to other providers. The need for comprehensive orphan works legislation is not diminished.
Derek Slater, Google Book Search settlement and Access to Out of Print Books, June 2, 2009, http://googlepublicpolicy.blogspot.com/2009/06/google-book-search-settlement-and.html (last visited August 16, 2009).
[7] Undoubtedly, the opt out designation for the class has helped Google win over these publishers. See generally, Richard Thaler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (2009).
[8] See Settlement Agreement, supra note __, at § 4.1(a)(iii).
[9]
[10] 15 U.S.C. § 1, § 2 (2009).
[11] Settlement Agreement, supra note __, at § 4.2 (b)(i)(2).
[12]
[13]
[14] See Settlement Agreement, supra note __ at §§ 9.1, 9.8.
