The amended settlement dropped in the eleventh hour. Here’s a redline version and here’s the related memorandum with the procedural details. The best news coverage is the New York Times story; the best blog coverage is Danny Sullivan’s. I’ve just completed a first pass through the amended settlement, tweeting all the way.
The biggest change is that the class of affected books has been dramatically reduced, although not at all in the way I was expecting. Books registered in the U.S. are still in, as are books published in Canada, the U.K., and Australia. That change should largely take foreign non-Anglophone books out of the settlement entirely. There are a number of other tweaks to the definitions to deal with specific classes of works (e.g. comic books).
On the antitrust front, there are changes to address two of the specific concerns raised by the DOJ. The 63/37 split (and almost everything else) will be negotiable, and Google will have more extensive rights to discount books provided it’s willing to eat the lower margins. These were unnecessary provisions in Settlement 1.0; Google and the parties aren’t giving much up by agreeing to these changes.
A number of other concrete issues have been fixed here and there. Unclaimed funds are no longer diverted to the Registry or other copyright owners. Google won’t share personal information with the Registry except via legal process. Creative Commons licensing options are explicitly provided for. There will be an Unclaimed Works Fiduciary to act on behalf of the unclaimed (including orphan) copyright owners at the Registry. (It’s called a “Fiduciary,” but the scope of its duties isn’t actually specified. I guess we need to see the Registry charter for that.) The secret termination clause is now “Intentionally Omitted.” Many other disputed issues from round 1, such as other privacy risk and less favorable treatment of Inserts, remain unchanged.
The heart of the settlement’s promise, peril, and problems has always been its treatment of unclaimed works—a category that contains the orphan works. Settlement 1.0 allowed Google to use and sell them on an opt-out basis, and Settlement 2.0 does the same. That gave Google exclusive access to a market segment that no one else can enter, and thus raised antitrust concerns; the DOJ hit this barriers-to-entry point hard in its Statement of Interest.
Settlement 2.0 has a very interesting response. The Unclaimed Works Fiduciary (or “UWF”) is given extensive powers to set terms on their behalf. Most of this, while good for protecting the interests of orphan owners, is irrelevant to the antitrust issue. It doesn’t matter whether the UWF can object to the pricing bins if no one besides Google is able to sell these books at any price. But there’s one, very important, very enigmatic exception, spelled out in section 6.2(b)(i):
General. The Registry will be organized on a basis that allows the Registry, among other things, to (i) represent the interests of Rightsholders in connection with this Amended Settlement Agreement, (ii) respond in a timely manner to requests by Google, Fully Participating Libraries and Cooperating Libraries, and (iii) to the extent permitted by law, license Rightsholders’ U.S. copyrights to third parties .
When I worked through Settlement 1.0, I concluded that “to the extent permitted by law” didn’t by its own terms authorize the Registry to license third parties (such as competitors to Google). If such licensing would otherwise be legal, it empowers the Registry to act, as a matter of its charter. But the settlement is quite careful to indicate that all the relevant licenses flow directly to Google, and the Registry holds no rights itself, so it has nothing to license in a way that would be “permitted by law” except where the copyright owners have voluntarily given it such powers, which can’t happen for unclaimed works.
By carrying over the same language for the UWF, Settlement 2.0 confirms that Google will have the only game in town for the unclaimed works. Nothing in the amended version gives the UWF any new powers for such purposes; the other clauses that refer to it give it power to negotiate specific terms with the Registry and Google under the various programs the settlement specifically allows Google to set up. The DOJ all but invited Google and the plaintiffs to empower the Registry to license Google’s competitors; they declined that all-but-invitation. They’re going to try to tough this one out; the DOJ will have to decide whether to back down or to fight, as this amended settlement doesn’t give it one of the central changes it asked for.
Now, it’s true that “to the extent permitted by law” is an obscure phrase in this context. My best working hypothesis is that the parties used to to take account of possible future changes to the law. Thus, the New York Times story says, “The trustee, with Congressional approval, can grant licenses to other companies who also want to sell these books… .” And Danny Sullivan, listening to the conference call, wrote:
Richart [JG: Sarnoff, presumably]: we are certianly hopeing that this settlement is the key that unlocks a positive outcome on the legistlative process on orphanworks as nw there’s a way to actually implement any legistlation that congress decides on orhpahn work
As I understand this, their idea is that the Registry, via the UWF, will be in a position for Congress to rely on in any orphan works legislation. All it would take is a wave of Congress’s magic wand, and the Registry will be handing out licenses to Google competitors. Thus, apparently goes the argument, we’re helping facilitate a Congressional orphan works solution. “To the extent permitted by law” leaves the door open for future action of this sort.
It’s a very clever hack. I have my doubts whether it’s legal.
Suppose that Congress doesn’t act. In that case, Google will be the only distributor able to sell to these orphan works. The settlement gives it preferential access to this market, while leaving an absolute legal barrier to entry in the way of all competitors. The speculative possibility that Congress might someday act to open up the market to others doesn’t create actual competition now. “To the extent permitted by law” changes nothing. So if the settlement would fail on antitrust grounds, this clause can’t save it.
Suppose, on the other hand, that Congress does act, blesses the Registry, and creates a statutory licensing system operated by the UWF. That would be a reasonable outcome. It would create legitimate, competitive, compensated access to orphan books. But if the whole thing depends on Congress, why do we need the class action?
I’m sure there will be much more to say about the amended settlement in the days, weeks, and months to come. My instant reaction is that it makes a number of meaningful, if modest, improvements, but leaves unaddressed the central issue that led me to worry about the settlement in the first place.