Einer Elhauge writes (pages 44–45):
Several other factors would also constrain Google from trying to misuse the competitive-pricing algorithm to set supracompetitive prices for unclaimed books. …
Fourth, if supracompetitive pricing does not induce unknown rightsholders to identify themselves, it may well induce some rivals to offer their books without a license. Normally, publishers are reluctant to sell any book without a copyright license, but the fact that these rightsholders have not bothered to register to earn supracompetitive profits suggests that they are unlikely to file copyright infringement cases either, making the odds of copyright penalties low. The supracompetitive pricing would also increase the benefits of publishing without a license. Google would be particularly reluctant to induce this sort of rival competition because the rival could easily undercut Google given that the rival would not be paying any royalties: the rival could charge 37% of the price that Google charges and still earn the same profit per book sale. To be sure, if a rival sold unclaimed books without a license, it might invite a class action lawsuit on behalf of unregistered rightsholders. …
Is he really saying that the settlement is procompetitive because if Google overcharges, we can count on its competitors to commit criminal copyright infringement?
UPDATE Einer Elhauge emailed me to say:
I think your comment below is inapt. I didn’t say that the settlement was procompetitive “because” of illegal copying or even that illegal copying had any procompetitive effect. What makes the settlement procompetitive is it makes available books that otherwise would not be (and other stuff).
What I did say was that the threat of illegal copying of unclaimable books would be one of a myriad of factors that constrains any feared supracompetitive Google pricing of unclaimable books. That doesn’t imply anything about the desirability of this factor; it just means it exists and would constrain suparcompetitive pricing. And to the extent the factor holds, the illegal copying wouldn’t occur because it would induce Google to lower prices enough to prevent it from occurring.
In any event, even if one puts aside this factor out of distaste, all the other factors would still clearly suffice to constrain any supracompetitive pricing. It would also remain the case that the settlement actually does not constrain any form of competition that would exist without the settlement and that it in any event requires competitive pricing within the settlement as well.
I’m reluctant to bring this type of reasoning into the analysis because I think it undercuts expressive public policy values. By extension, we might as well say that Google would be, deterred from supracompetitive pricing because if it does, it will increase the risk that angry book readers will vandalize Google property. Even if true, for a court to endorse this reasoning comes uncomfortably close to an endorsement of vandalism.
Still, Elhauge’s point is a useful clarification of, and response to, my (overly glib) one-liner. I’m grateful to him for his permission to post these aditional thoughts.