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The eight-and-a-half minute segment features Dan Clancy, Michael Keller, Gary Reback, Pam Samuelson, and bookstore owner Amy Thomas. Video and MP3 versions are available, along with a transcript.

It appears that author Mian Mian, after first threatening to sue over Google’s scanning of her novel Acid Lovers, went ahead and did it. It’s not yet clear how this will interact with the ongoing talks between Google and the China Written Works Copyright Society.

UPDATE: More from the Christian Science Monitor.

Following up his recent article in the New York Review of Books, Robert Darnton has an exchange of letters in the forthcoming January 14 issue with a number of others, including Paul Courant. The most novel element of the conversation is the following proposal by Darnton:

I like Theodore Koditschek’s suggestion that Google be treated as a public utility subject to regulation in the public interest. If that seems unrealistic, one should consider a compromise solution, which would draw a line between the books digitized by Google that are strictly commercial and the books that are no longer in print, although some of them are still covered by copyright. Google would continue with its project to commercialize digital copies of books currently in print, sharing the proceeds with the rights holders. At the same time, it would continue to scan out-of-print books and to include them in a database that would constitute a separate, open-access repository. The rights holders of the in-copyright but out-of-print books in that database would be given the opportunity to choose to keep their books out of the open-access plan and, if they preferred, to include their books in Google’s commercial operation.

This opt-out provision would be adapted from the similar provision of the ASA, which permits rights holders to remove their works from Google Book Search. By doing so, it would take advantage of the class-action character of the original lawsuit in order to promote a nonprofit project dedicated to the public good. The books in the open-access repository would be protected against litigation without recourse to legislation by Congress, and they would be merged with books in the public domain, forming a gigantic database—that is, a national digital library. (Of the ten million books that Google has digitized, roughly two million are in the public domain and six million are out of print but still protected by copyright.)

This proposal would effectively put unclaimed out-of-print books in the public domain, at least as to full-text access, with an opt-out option for copyright owners. It would deal with some of the exclusivity issues raised by the proposed settlement, but would heighten the class-action concerns and could be expected to draw substantial opposition from copyright owners.

Benjamin Burge, a 2L at New York Law School and a member of the PIBSI team, filed the following report on a recent audio seminar held by the Copyright Clearance Center on Thursday, December 10, featuring copyright attorney Lois Wasoff.

In her presentation, Wasoff outlined the differences between the original proposed settlement and the current amended settlement and their implications for individual rightsholders and for the settlement procedure. After reviewing the new deadlines associated with the amended settlement, Wasoff began by noting that the terms overall have not changed tremendously. She compared the settlement process to a tree: pruned, rather than chopped down.

The largest changes were definitional: many terms were either clarified or tightened to reflect complaints filed with the court. The best example is the scope of the works included in the settlement. By redefining the terms “Book” and “Insert,” Google and the plaintiffs excluded works from all nations except the United States, the United Kingdom, Canada and Australia. She posited that this was likely due to the huge and vocal outcry from foreign rightsholders, most notably in Europe, over their inclusion in the original settlement. Another clarified definition was that a work must be a stand-alone work to be included, removing periodicals and bound compilations of periodicals—most notably scientific journals—from the settlement. The definition of “Commercial Availability” was also clarified to better address many of these complaints.

Another area the amended settlement clarifies is the treatment of unclaimed works. Wasoff noted that the creation of the Unclaimed Works Fiduciary was a big step, but lamented that this position does not come with a vote on the board of the Books Rights Registry. In addition, there are changes to the distribution of the funds received for unclaimed works. Wasoff saw this change as an invitation for Congress to step in and potentially direct the Fiduciary. In addition to the fiduciary, Wasoff complimented the negotiators for adding publisher and author representation from nations other than the U.S., but asked why there was still no representation for libraries or educational authors.

Wasoff also addressed the changes made to the economic terms, noting that while there is now independent individual pricing, the overall price scheme remains the same, with only slight alterations to mirror the suggestions made by the Department of Justice. She noted that while the amended settlement specifically requires Google to allow third party resellers, it does not force Google either to share its digital copies or to allow third party institutional subscriptions, two objections often raised in antitrust objections. Furthermore, the amended settlement does remove Google’s most favored nation clause with the Registry.

Finally, Wasoff explained the few changes made to the public policy of the settlement, most notably the allowance of Creative Commons licenses and the right of the Registry to authorize more than one terminal per public library. She did note, though, that while the library additions seem altruistic, the increased terminals will also likely increase printing income for Google, clouding any claim of a generous motive.

Full audio and a transcript of the seminar are available from the CCC website.

I’m also informed that the Federalist Society held an evening conversation about the settlement on December 14, with law professors Richard Epstein and Scott Hemphill and Wilson Sonsini partner Jonathan Jacobson, but so far, there’s no audio or video of the event available online.

A correspondent writes:

I’ve returned to one of my favorite recipes from one of my favorite cookbooks, Chocolate Cracks, from Maida Heatter’s Book of Great Desserts, paperback, 1974 printing. The book is so old that not only has it broken into two parts, but portions of several pages have flaked away, taking with them the part of this recipe that tells me how long the cookies are to be baked. What to do? Google and Google Books to the rescue: 12 to 13 minutes!

The CRS Report on the lawsuit and settlement was updated on November 27, although it retains the increasingly incomplete title, “The Google Library Project: Is Digitization for Purposes of Online Indexing Fair Use Under Copyright Law?” A brief new section describes the amended settlement. (Via ResourceShelf.)

The National Writers Union has posted a FAQ for writers on the amended settlement. It has some of the clearer explanations of the the procedural options open to class members that I’ve seen.

Bernard Lang has translated some key passages from the recent French decision against Google’s book-scanning efforts, along with some analysis. See also the commentary at S.I. Lex (in French, but machine translation is your friend).

I am not going to rehearse any arguments pro and anti the “Google settlement.” You decided to deal with the devil, as it were, and have presented your arguments for doing so. I wish I could accept them. I can’t. There are principles involved, above all the whole concept of copyright; and these you have seen fit to abandon to a corporation, on their terms, without a struggle.

UPDATE: And the Authors Guild’s response:

Litigation, particularly litigation over the bounds of fair use, involves risk. Some critics of the settlement wrongly dismiss that risk, but the fact is that we certainly could have lost the case. Losing would have meant that anyone, not just Google, could have digitized copyright protected books and made them available through search engines. Since creating a search engine is rather simple, anyone with a website — Civil War buffs, science fiction fans, medical information providers — would then have been empowered to start the uncontrolled scanning of books and the display of “snippets.” Authors would have no say in those uses and no control over the security of those scans. The damage to copyright protection would have been incalculable.

Waxy would be right that needing to download everything manually in the next ten days is a horrible shutdown procedure, except that I’m not really sure what use a bunch of Metaplace scripts will be once Metaplace itself is gone.

D is for Digitize speaker Dan Reetz and a buddy are doing some pretty neat things with cameras. Scroll down to watch them focus a camera after the fact — i.e. see through stuff.

The Tribunal de Grande Instance de Paris, a French first-level court, has ruled against Google in case brought by French publishers objecting to its scanning their books. A copy of the decision is available here. Until I have a better idea of the basis for the court’s decision, it’ll be hard for me to offer much analysis of the implications. I’ll link to translations or discussions as I become aware of them.

In comments, Jerry Garchik asks a very good question:

Where is the designated e mail for objections promised to Judge Chin at the last hearing? The boxed section: “Your Rights Under the Amended Settlement Agreement” only tells potential objectors:”…you may file an objection by following the instructions in the original Notice and at hhtp://www.googlebooksettlement.com.” Why doesn’t this Notice give us the e mail for objections that was promised to Judge Chin when he complained about the scanning burden on his staff from the flood of objections filed in September??

The settlement administration site says:

To object to the Amended Settlement, you must, on or before January 28, 2010, file with the Court a statement of your objection to the amended provisions of the settlement and the grounds for your objection, at the following address:

Office of the Clerk, J. Michael McMahon
U.S. District Court for the Southern District of New >York
500 Pearl Street
New York, New York 10007

You must also send a copy of your objection by email or First-Class Mail on Counsel for the Author Sub-Class, Counsel for the Publisher Sub-Class and Counsel for Google.

[addresses omitted]

Here’s the relevant passage from the transcript of the status conference:

THE COURT: … I don’t know, because I wasn’t involved initially, I would hope there would be a way that we could make this smoother. I mean, for example, the objections came in by hard copy to the Court, and it was really a difficult process for us to scan.

Believe it or not we have one small scanner and we were scanning for four days essentially.

I don’t know whether there’s a way — and in this case of all cases there ought to be an electronic way of handling this.

On the other hand, our clerk’s office has concerns about nonlawyers sending things directly, but maybe we could set up an e-mail address on the settlement website or something where objections can be filed electronically, they are available for everyone, there’s no question, and everyone should know that they are public and that would be easier. I think that is something to think about. Yes?

MR. BONI: Your Honor, it is a requirement under the notice for objectors or any party who wishes to comment on the settlement not just to file the comments with the Court but also to serve the parties.

In many cases, we get service by an e-mail address, bookclaims@bonizack.com or debevoise.com. We would be happy to take the onus from the Court to the extent we get paper filings, copies of the paper filings and scan them ourselves and submit them to the Court in electronic form. In most cases the objections are sent to counsel. For some reason that wasn’t done here.

MR. BONI: Yes.

THE COURT: I don’t think anyone envisioned 400-plus objections in any event.

MR. BONI: No.

THE COURT: Particularly given the number, what I am suggesting is that it be done electronically, period, and to the extent that there is an odd paper one that comes in, we can deal with it. But it would I think make life easier for everyone to be more efficient. Think about how you can set that up.

MR. KELLER: Your Honor, when we issue or submit the proposed new notice to you, we will call that out specifically in an effort to reduce the burden on the Court.

THE COURT: Thank you. I appreciate that.

Paragraph 25 of the proposed order for preliminary approval is the one that deals with objections. (It’s attachment H to the amended settlement.) The amendments changed the dates added a clause limiting objections to the amendments, and changed the names and addresses of the relevant lawyers. But they say nothing about sending in objections electronically.

Today I received my hard-copy Supplemental Notice (mailed December 14 from Faribault MN. Have you received yours?

Via ResourceShelf, comes an AP story, French Digital-Books Upstart Challenges Google:

France’s efforts to digitize its culture, from Marcel Proust’s manuscripts to the first films of the legendary Lumiere brothers, long have been bogged down by the country’s reluctance to rely on help from American internet giant Google.

A new startup launched Thursday says it may be the answer.

The consortium of French technology companies and government-backed IT research labs says it can provide the know-how needed by Europe’s libraries, universities, publishers and others to scan, catalog and deliver to end users the contents of their archives — better than Google can.

The eight-member consortium will be named Polinum, “a French acronym that stands for ‘Operating Platform for Digital Books.’” I would have prefered Polonius or Polonium, myself.

Kenny Crews has an interesting post on how the definition of Inserts has changed between the original and amended settlements, and pondering a bit how the registration requirements are meant to apply to them.

ACRL, ALA, and ARL have written a new letter to the Department of Justice reiterating their concerns about pricing of the Institutional Subscription. It describes the database as an “essential facility” (a term of art in antitrust law, although one that may not have much legal significance any longer), and argues:

Given these marketplace realities, the Library Associations believe that the most effective way to prevent the Registry and Google from abusing the control they will have over the essential research facility enabled by the settlement would be for the court to regulate the parties’ conduct under the settlement. Specifically, when requested, the court should review the pricing of the institutional subscription to ensure that it meets the economic objectives set forth in the settlement, i.e., “(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.” Settlement Agreement at 4.1(a)(i).

Rule 23 and the settlement agreement already provide the court with the authority to conduct this oversight. However, the United States should advise the court that it has this authority, and urge the court to use this authority to the extent necessary to prevent abuse by the parties and to maximize the public benefit of the settlement. Additionally, the United States should carefully monitor implementation of the settlement, including the pricing of the institutional subscription. If the United States concludes that Google, the Registry, or rightsholders are acting in a manner inimical to the public interest, the United States should petition the court to address the situation. We believe that supervision of this sort will be far more effective in preventing abuses of market power than attempting to create industry-wide licensing arrangements that will never be used.

The letter also reiterates the libraries’ belief that academic authors need to be represented on the Registry Board.

Jonathan Band has been closely following the Google Books lawsuit and settlement since very early on. He wrote the invaluable Guide for the Perplexed series of papers, drafted filings on behalf of the library associations, gave the opening tutorial at D is for Digitize, and has been a tireless commentator on the settlement at panels and events far and wide. He’s been doing real yeoman’s work in facilitating informed public discussion.

Well, now he’s topped it all, with his remarkable, truly comprehensive The Long and Winding Road to the Google Books Settlement in the John Marshall Review of Intellectual Property Law. The painstaking, meticulous, heavily-footnoted, and unbelievably long law review format is horrible overkill for many kinds of scholarship, but there are some topics for which it’s ideally suited. This is one of them. Band’s 103-page article sports 937 footnotes, making it comparable in length to the settlement itself. But it’s much clearer, and this kind of encyclopedic length lets Band discuss almost every significant issue the settlement has presented. This is the place to start reading for anyone who wants to get deeply into the settlement, and an invaluable reference for anyone who’s already waist-deep into it and trying to keep track of all the details.

The settlement requires that Google’s pricing algorithm be “designed to operate in a manner that simulates how an individual Book would be priced by a Rightsholder of that Book acting in a manner to optimize revenues in respect of such Book in a competitive market” (4.2(c)(ii)(2)) It also requires that the books be priced at one of a number of set price points or “bins,” ranging from $1.99 to $29.99, (4.2(c)(i)), such that the initial distribution of books into bins “will be 5% ($1.99), 10% ($2.99), 13% ($3.99), 13% ($4.99), 10% ($5.99), 8% ($6.99), 6% ($7.99), 5% ($8.99), 11% ($9.99), 8% ($14.99), 6% ($19.99) and 5% ($29.99).” (4.2(c)(ii)(1))

I don’t see how to square these two requirements with each other. If the algorithm is supposed to optimize the revenue for each book, what if the optimal prices don’t match the percentage allocations? It’s true that this is only an “initial” allocation, but still, that does mean there has to be a moment in time at which either the optimal-pricing rule or the distribution-of-prices rule is violated. What am I missing? Has Google already run the algorithm and knows that these are the prices that result? Does some other section in the settlement make one of these rules advisory only? Or what?

Last Friday, Random House circulated a letter describing its digital publish efforts. The most interesting part of the letter was a long paragraph arguing that Random House already holds electronic rights to most of the titles in its backlist:

The vast majority of our backlist contracts grant us the exclusive right to publish books in electronic formats, as well as more traditional physical formats. At the same time, we are aware there have been some misunderstandings concerning ebook rights in older backlist titles. Our older agreements often give the exclusive right to publish “in book form” or “in any and all editions”. Many of those contracts also include enhanced language that references other forms of copying or displaying the text that might be developed in the future or other relevant language that more specifically reflects the already expansive scope of rights. Such grants are usually not limited to any specific format, and indeed the “form” of a book has evolved over the years to include variations of hardcover, paperback and other written word formats, all of which have been understood to be included in the grant of book publishing rights. Indeed, ebook retailers market, merchandise and sell ebooks as an alternate book format, alongside the hardcover, trade paperback, and mass market versions of a given title. Whether physical or digital, the product is used and experienced in the same manner, serves the same function, and satisfies the same fundamental urge to discover stories, ideas and information through the process of reading. Accordingly, Random House considers contracts that grant the exclusive right to publish “in book form” or.”in any and all editions” to include the exclusive right to publish in electronic book publishing formats. Our agreements also contain broad non-competition provisions. so that the author is precluded from granting publishing rights to third parties that would compromise the rights for which Random House has bargained. …

This passage, as lawyerly as it is, is a shot across the bow of authors and their agents. “We own the e-rights,” Random House is saying, “and if you get in our face about it, we will f*%$ you up.” One problem for Random House’s position is that the last time a publisher made this argument, it lost. The court in the Rosetta Books case held that a copyright license silent on new uses didn’t convey the rights to them. The publisher there? Random House. And the language at issue? Very similar to the language it now cites. The Authors Guild has published its own letter in reply, citing Rosetta Books.

The issue mostly arises for older contracts; in 1994, Random House altered its new contracts to include electronic rights. While this isn’t a universal practice, everyone now understands that publishing contracts need to be drafted with electronic publication issues in mind. It’s the older contracts, written for an analog world, that create the ambiguity through their silence. This “new uses” problem is a staple of the copyright classroom. The casebook I use pairs Rosetta Books with Boosey & Hawkes Music Publishers v. Walt Disney Co., in which Disney had licensed Stravinsky’s Rite of Spring for use in Fantasia, and the license stated, “The music of said musical composition may be used in one motion picture.” Held: this language permits distribution of Fantasia on videocassettes and laser discs.

This ongoing struggle between authors and publishers for control of backlist electronic rights is a useful piece of context for understanding the Google Books settlement, in particular the Author-Publisher procedures. Proponents say that the settlement cuts through a Gordian knot of difficult contractual issues to get the books, and money, flowing in a manner that’s fair to authors and publishers. Opponents, particularly among authors (including some frequent commenters here), say that it’s actually a land grab by publishers over rights that were never theirs. The clarity or opacity of the rights involved, and their placement as between authors and publishers, are factors that directly bear on the fairness and significance of the proposed settlement.

I don’t plan to cover this dispute extensively unless it directly impinges on the Google Books lawsuit and settlement, but I thought readers might find it useful to know about the connection.

I’d been meaning to write up a review of Ken Auletta’s Googled: The End of the World As We Know It.
My basic point would have been that this is a book written from the point of view of the media industry. The “We” in his title consists of media barons, and the world as they know it—built around tight control, wasteful image-polishing, corporate empire-building, a studied disinterest in anything that isn’t “content,” and a disdain for real creativity—really is ending. The most charitable interpretation I could come up with for Auletta’s decision to write his book from their perspective is that he wanted to (a) show how wrong many media moguls were and still are about Google and (b) make his message palatable to readership drawn from the media world.

But I see that Aaron Swartz has beaten me to the punch, and written a much punchier review than I ever could have. Where I say “media moguls,” he simply says “sociopaths,” and goes from there:

“What has Google ever done for the world?” ask the sociopaths at various points throughout the book. “All they do is steal other people’s content!” To a normal human the question is ridiculous — it’s almost impossible to imagine life without Googling for something, checking your Gmail, or watching videos on YouTube — but sociopaths aren’t used to doing things that create value for people. They’re just interested in conquering more and taking control. When Disney bought ABC for $19 billion, it didn’t improve most people’s lives in any real way, but it did let Michael Eisner regain control of the company he once ran.

So naturally the sociopaths are outraged that their control is being taken away. Newspapers, book publishers, television companies, ad agencies — their businesses are all failing, while Google’s is on the rise. The sociopaths may be outraged, but this is exactly what’s supposed to happen. Most people don’t have a vested interest in whether ABC does well or even continues to exist. What they want are good television shows at a reasonable price, and if they can get those from Apple and Google instead of their local cable company, then bully for Apple and Google.

…

Hearing things from the sociopaths’ perspective, it’s easy to get fooled. “Yeah!” you think. “Why should these Google guys get to control everything?” But for average people, this shift has been great: much more stuff is available, faster and freer than ever before, and the people making all the money off of it are actually decent human beings who feel some responsibility for the planet they inhabit. Sure, I don’t agree with them on everything and there’s a lot more they can do, but let’s not lose sight of the basic point: at least they’re not sociopaths.

Part of what bothers people about price discrimination is that, in ethical terms, that’s not how the market is supposed to work. Commerce seems to come with a set of implicit moral commitments: everyone’s money is equal, each transaction is characterized by mutual respect, deals can be complete in themselves and don’t create long-term relationships, prices are honest expressions of value. Collectively, they define a way for buyers and sellers to treat each other with respect and dignity even in an impersonal marketplace where everyone is trying to strike the best deal they can for themselves. The depersonalization is actually part of the moral code; it’s a promise not to act on illiberal (and personal) values like racism.

Price discrimination undermines that ethos by putting the personal back into the picture, and not in a nice way. It’s not about the chef sending out an extra little something for a favorite customer, or about having a long conversation with the hotel clerk. No, it’s about a company deliberately treating some of its customers worse than others by identifying and acting on their personal characteristics. It breaks the moral frames of commerce. Say all you want about efficiencies and distributional gains, it just feels wrong to many people, and that intuition will not go away easily.

None of this is original; it’s just that a few different lines of thought finally clicked together for me.

Author (and regular Laboratorium commenter) Gillian Spraggs has posted her analysis of the amended settlement, The Google Book Settlement: A Survival Aid for UK authors. She’s been a strong critic of the settlement before, and little in the amendments has changed her mind.

I’m not aware of any other attempt to spell out the settlement’s consequences for authors in such an accessible and careful way It’s all the more impressive for being wholly volunteered (and even more so, given that Spraggs isn’t a lawyer); I’ve spent long enough with the settlement to know how long it takes to produce such a document. Agree or disagree, this is important reading.

CNet has an article about my colleague Beth Noveck; it’s the best introduction to her many interests that I’ve seen.

I saw Lauren Gelman present an early version of this paper at Privacy Scholars 2007, and I have love love loved it ever since. In my Facebook paper, I deal with emergent privacy issues in closed-world social software systems like Facebook; Gelman shows how the same social dynamics lead to parallel privacy issues in open-to-the-world social software systems like blogs. Talking with her and Bill McGeveran really helped me hone my thinking on law’s role in dealing with privacy issues on social networks. Highly recommended paper.

Download it while it’s hot!

I’m not sure whether what follows is a tentative set of hypotheses, a deliberate provocation, or a game of spot-the-fallacy at my expense. Perhaps it’s all three. In any event, a new way of thinking about nonexclusivity (new to me, at least) struck me over the weekend, and I would particularly value your help in working through the implications.

I’ve been arguing since day one that the exclusivity of the Google Books settlement is problematic. My preferred remedy has been nonexclusivity. As I said in How to Fix the Google Book Search Settlement:

Any other entity willing to assume the same payment and security obligations that Google assumes in the settlement should be allowed to offer the same services that Google will, or any subset of them.

While I continue to think that the settlement’s exclusivity is problematic, I’ve recently come to question my assumption that making it nonexclusive would be straightforward. I now think the pricing issues in a world that features not just Google Books but also Twitter Books and other competitors would be substantially more complicated than I’d previously thought.

Exclusivity

I’ll focus on Consumer Purchase, although interestingly related issues also arise under the Institutional Subscription. Our ideal here is “competitive” pricing, in which each copyright owner faces competition from other copyright owners and must take their prices as given when choosing her own. She is, however, insulated from competition in the sale of her own book; that’s what it means for her to have exclusive rights over it. To measure how far the settlement could diverge from competitive pricing if everything goes wrong, imagine a world in which Google faces absolutely no competition (including from itself).

Some copyright owners who claim their books will set their own prices in the Consumer Purchase program. They, of course, will want to price to maximize their individual revenue with their choices, which is exactly what “competitive” pricing expects. So far, so good.

Other copyright owners will choose algorithmic pricing. When they do, Google’s algorithm is supposed to “simulate[] how an individual Book would be priced by a Rightsholder of that Book acting in a manner to optimize revenues.” (Amended Settlement § 4.2(c)(ii)(2)). That is, if Google does its job well, it will choose the same price a fully-informed copyright owner would choose in a competitive market. For unclaimed books, algorithmic pricing is the only option. Here again, Google must maximize revenues “without regard to changes to the price of any other Book.” (Amended Settlement § 4.2(b)(2)). Although there is no copyright owner in the picture to make decisions, the goal is that Google would act as though there were one and maximize revenues for her.

That’s what Google is instructed to do, at least. But we can ask whether it has the right incentives. What would happen if the algorithm turned out to be Larry and Sergey picking numbers to benefit Google’s bottom line? In one important way, the settlement gets the incentives right. Since Google is a 37% participant in Consumer Purchase revenues, whatever maximizes revenue for copyright owners also maximizes revenue for Google. (We’ll leave Google’s costs asides in this simplified model.) Google is an agent for copyright owners whose interests align with theirs.

Perhaps the alignment is too good. The fear for readers is that copyright owners—like sellers in any competitive market—might be better off conspiring to raise prices. It’s a classic cartel story: higher prices, lower output, higher profits for sellers, lower social welfare. Since Google proportionately shares in copyright owners’ revenue, it also shares in their incentive to cartelize. In a world with no outside competitive constraints and no checks on how the algorithm was actually implemented, Google might well design the algorithm to overprice books.

The takeaway here is not that the settlement authorizes Google to cartelize Consumer Purchase. (As amended, it expressly does not.) Nor is it that Google will cheat on the algorithm. (Einer Elhauge has given reasons to think that it would not.) My point is just that Google faces a temptation to overprice, and will, unless somehow kept in check. The specification of the algorithm in the settlement is designed to keep prices down.

Nonexclusivity

Against that backdrop, nonexclusivity struck me as an effective counter to fears of excessive prices. Introducing competition from Twitter Books et al. would give consumers additional options. If Google’s algorithmic prices were supracompetitive, Twitter Books would step in and price competitively, taking market share—and revenues—away from Google. This is a surer, safer check on overpricing than internal controls in the settlement or external monitoring. It directly hits Google (and Twitter) where it matters: in the incentives.

On further reflection, however, I’m now concerned that nonexclusivity might also work too well. Again, let’s try to derive the worst-case story. For books whose copyright owners specify a price, nothing changes. Copyright owners can choose a price on Twitter Books just as they choose one on Google Books. They have an incentive to maximize their private revenue, of course, but as long as they act individually, that just means they’ll price competitively. (Remember, this is is “competition” between books, not competition to sell the same book.)

But when Google and Twitter are setting the prices, everything changes. Before we introduce the algorithm let’s ask what Google’s and Twitter’s incentives look like. By way of example, let’s suppose the book in question is the latest Dan Brown potboiler, The Watched Pot.

If Google offers The Watched Pot at $10 but Twitter prices it at $9, then Google will pocket 37 cents more per copy. Twitter, however, will capture more market share, since readers would love to save the dollar. And if readers are sufficiently discerning—if they all realize that Twitter has lower prices—Twitter will take the whole market. Google’s additional 37 cents per copy isn’t worth much unless it’s moving copies. Google, of course, won’t take Twitter’s price attack sitting down. It will cut its own prices—The Watched Pot for $8. Twitter will come back with a $7 copy, and whad’ya know, we’re in an all-out price war!

In the offline world, there’s a floor. Dan Brown (and his publisher) are selling The Watched Pot to bookstores at $5 wholesale. Prices will drop to $5, then stop. Under, a nonexclusive version of the settlement, however, both Google and Twitter would be selling on commission. The only hard floor is at $0. The endgame involves both Google and Twitter selling remainder-priced copies of The Watched Pot. As much as this would be a nice deal for readers, Dan Brown will hate it. In their price war with each other, Google and Twitter will have thrown away not just their 37% but also his 63%. He’ll pull The Watched Pot out of algorithmic pricing on both Google and Twitter and move it back up to $10.

We can expect a similar unwinding process for any other book exposed to algorithmic pricing, so copyright owners will withdraw their books from it en masse. There is, however, one class of books that will stay put, no matter how underpriced they are: unclaimed books. Not only is there no one to act to remove them, there’s also nowhere for them to go. The result is rock-bottom prices for unclaimed books.

Of course, the (hypothetical nonexclusive) settlement wouldn’t officially permit Google and Twitter to do this. They’d have to use algorithms that look for competitive prices, rather than pricing in response to each other. But we might ask how effective a constraint this is. There are a lot of subtle choices to be made in designing a book-pricing system. Google and Twitter will draw from different sources of data; there will be a lot of choices to be made. $10 vs. $9 situations will emerge all the time through normal variations; each time they do, the market will slosh over to the lower-priced option. And that’s assuming no one tries to cheat. (Software engineers aren’t stupid; they can often tell that it’s in their employer’s interests for the algorithms to return lowball results.)

The point is that the incentives are now all right from readers’ perspective and all wrong from copyright owners’. Moreover, note what the algorithm now is doing. It’s not holding prices down; it’s holding them up. It protects copyright owners, not readers.

Tweaks

Perhaps some tweaks can get the incentives right for nonexclusive Consumer Purchase? Certainly, if the Registry or others were able to inspect the algorithms more closely, they could detect certain forms of cheating. Still, Twitter Books would have all the wrong incentives, making for a constant struggle. Part of the beauty of the present settlement is that it generally aligns Google’s and copyright owners’ incentives for the revenue-generating uses.

Perhaps we could try to emulate the offline world and replace the percentage formula with set wholesale prices that Google and Twitter would need to pay. But that simply begs the question. Someone still needs to choose the price—it’s just a wholesale price, rather than a retail price. We’re no closer to having an incentive-compatible system for picking it.

Or maybe what the nonexclusive settlement needs is some kind of entity to act as a fiduciary for the owners of unclaimed works. We could call it the Unclaimed Works Fiduciary, and give it the power to set the prices for unclaimed works. That sounds great, until you realize that this change would make the UWF into a cartel: a single entity with the power to set binding prices for an entire group of competitors’ products, and no good market substitutes. Pushing the decision-making upstream gets the incentives right from copyright owners’ perspectives: too right.

A less dramatic alternative might allow the UWF merely to remove books from Consumer Purchase entirely. That “solves” the problem by making some unclaimed works go away. Run the film forward a few frames to see why. Google and Twitter have their price war, and the price drops. The UWF steps in and pulls the books out. Now the unclaimed books are unavailable at any price—so we’re back where we started, before the settlement.

This conclusion doesn’t look good for my original suggestion that the settlement could easily be made nonexclusive. As much as readers might like Twitter’s incentives to lowball its prices, it’s palpably dangerous to copyright owners. Given that the nonexclusive settlement would still need to be justified on the basis of its fairness to copyright owners, these misaligned incentives would pose a Rule 23 obstacle worth worrying about.

Pricing

The underlying problem here is that it’s hard to come up with “competitive” prices for goods in which there is no existing market. Commercially unavailable books are, by definition, not being sold in an ordinary market flowing from copyright owner to reader. Nor, for unclaimed books, is there a copyright owner whom we can ask to set a price.

The settlement’s answer to this puzzle is to have Google create a pricing algorithm. Under most circumstances, saying “The computers will figure out ideal prices” would strike us as a dicey proposition. It’s a skyhook. Now, if anyone can make an algorithmic skyhook work, it’s Google. But even Google’s algorithms won’t get everything right. The algorithm is supposed to observe demand curves for each book, but there may not be very many data points to work with. It’s also suppose to base pricing on sales of comparable books, but every book is a unique good. Twitter will be even more likely to err.

That’s why we care so much about the incentives of the algorithm-maker. If it were a self-published author writing the algorithm for her own use, for example, her incentives would be right. She bears the costs of bad design choices and reaps the benefits of good ones. Google and Twitter don’t have the right incentives in a nonexclusive world, which means they may not invest properly in getting the algorithm right, compounding whatever other mistakes their algorithms make.

The regular old exclusive settlement doesn’t have the same problem. Remember that Google is a proportional participant in Consumer Purchase revenue. Its own revenue is maximized, for a given book, when it finds the revenue-maximizing price for the copyright owner, which fortunately happens to be the “competitive” price. What the exclusive settlement does have is a collusion problem, which is structurally different and potentially easier to prevent, as supracompetitive cartel pricing requires changing the prices of many books together, not just one at a time independently. Mispricing will be harder to detect and fix under a nonexclusive settlement than under an exclusive one.

Reflections

But there is a sting in the tail. If algorithmic pricing as specified in the settlement works better when the settlement is exclusive, that’s because it depends on Google having no close competitors for selling individual copies of unclaimed works. Settlement Controlled Pricing for unclaimed books is monopoly pricing. That’s why it works.

If you prefer, the reason that the settlement is able to induce Google to price with copyright owners’ interests at heart is that Google will become a de facto copyright owner for unclaimed works. The settlement gives Google a default 37% ownership share of all commercially unavailable books. Copyright owners can take it back by claiming their books. But until they do, Google is a co-owner with them.

What’s more, the conclusion that nonexclusivity is dangerous for copyright owners is also problematic for the claim that Google competitors could and should obtain similar class-action settlements. Given that the result could be a destructive price war unless the book-sellers are watched closely—and that orphan owners are unable to watch closely—copyright owners ought to be rationally reluctant to enter into a second class-action settlement on identical terms.

You can accept all of the above and still favor the settlement. Its antitrust defenders are generally open about their belief that the settlement is good for readers even if Google never has any competition for unclaimed books. But these points give me pause, and I hope you’ll ponder them, too.

I got my Supplemental Notice today. Did you?

Nice article on Reetz, he of the do-it-yourself book scanner and undisputed “best in show” at D is for Digitize.

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.

Google’s CEO, Eric Schmidt, recently said, “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.” Does this maxim apply to Google’s super-secret algorithms?

At page 17 of the revised version of his essay, he writes:

For if Amazon, Microsoft, or any Google rival does in the future offer any books for new sale that are not derived from the Google scanning project, then (even if those books are currently out-of-print) those books will become “commercially available,” and then the settlement will by default exclude them from sale via Google. The settlement thus by definition does not give Google any default license or plausible de facto monopoly over any books that any rival would offer in the but-for world.

This is not a conclusive argument. For one thing, the heart of the antitrust issues have always been horizontal agreement among copyright owners and and illegitimately acquired exclusive access to unclaimed works, neither of which is quite at stake in this part of the discussion. But it is still a powerful, subtle point, worth reflecting on.

My students and I are pleased to announce the release of a new white paper, Objections to the Google Books Settlement and Responses in the Amended Settlement: A Report:

This report collects information about the objections raised to the original proposed settlement in the Authors Guild v. Google litigation. We identified 76 distinct issues, which we grouped into 11 categories. This report briefly summarizes each issue, provides an illustrative quotation from a filing with the court, and indicates any related changes in the amended settlement.

Unlike some of my other writings on the settlement, this report doesn’t tell a story or make an argument. Instead, it’s a pure attempt to provide the public with usable information. There are now almost 800 entries on the docket, and very few people have the kind of time required to read them all. Our report is meant as a summary of the issues raised by objectors, so that those interested in the case and trying to understand the impact of the proposed amendments can see where things stand, if not in a glance, than at least in a single read.

We anticipate producing future versions of the report as the case progresses. Please email us with any corrections or suggestions.

Although I wasn’t always enthusiastic about Ed Baker’s work, there was no gainsaying its importance. Media, Markets, and Democracy is a rich book; I went through an entire highlighter marking up my copy. I had the pleasure of seeing him present several times, most memorably on his theory of “complex democracy,” and I learned every time. More than any of the above, perhaps, Baker was a gentle and generous man, who leaves behind many friends and admirers. He will be missed.

Einer Elhauge has posted a revised version of his Why the Google Books Settlement is Procompetitive. It has roughly the same page count as the previous one, but goes from double- to single-spaced, so there’s a lot of new material here. Elhauge’s analysis remains the gold standard for the pro-settlement case on the antitrust issues, and I especially look forward to reading his analysis of the amendments.

Harold Evans, on a book tour to promote his memoir, has been misstating the facts on Google Books:

Google has shown insufficient appreciation of original work. For instance, they thought they could get away with the idea of taking books in copyright and making them available for nothing. It was outrageous, but they didn’t seem to realize how outrageous it was. That’s a lack of sensitivity. You cannot write a deeply researched book and then give it away.

Google has never attempted to make in-copyright books available “for nothing” without the explicit opt-in permission of the copyright owner. If this is the standard of accuracy “one of the most esteemed figures of 20th-century journalism” holds himself to, can someone remind me why we’re in such a panic about the decline of newspapers?

DARPA simultaneously put ten large red balloons out around the U.S. and challenged teams to identify the locations of all ten for a $40,000 prize. The winning team, based out of MIT, located them all in a matter of hours. They did it with an extremely clever combination of social networking and cash incentives: each person who contributed a correct location got $2,000. The person who invited the balloon-finder got $1,000, the person who invited the inviter got $500, and so on. That built a big enough network of motivated searchers to pull it off, and quickly.

Three things about this struck me. First, it was an ethical pyramid scheme. In a pyramidal scam, the early members wind up getting much more money than the later recruits; in the MIT system, it’s the recruits who actually found the balloons who get the larger rewards. Second, this wasn’t an off-the-shelf (e.g. Facebook group) or wholly ad hoc (e.g. “let’s all just use a wiki and invite folks!”) social network. It was a clever structure that was simple but customized to the challenge at hand. And third, this wasn’t a network of volunteers. They used cash incentives in an explicit, targeted way—and it worked. Lior Strahilevitz +1.

Marc Miller, a 3L at New York Law School and a member of the PIBSI team, filed the following report on a recent ABA teleconference:

On Tuesday, December 1, the ABA Section of Intellectual Property sponsored a CLE teleconference on “The Google Book Settlement: Where Are We?” Lisa Dunner of Dunner Law PLLC moderated.

The first speaker was Jonathan Band of Policy Bandwidth, the author of “A Guide for the Perplexed” (Parts I, II and III). He summarized the factual context of the Google Books project and the procedural context of the class-action lawsuit, including the recent amendments to the proposed settlement agreement.

Next, Matthew Schruers from the Computer & Communications Industry Association discussed competition issues. As in the CCIA’s filing, Schruers focused on rebutting antitrust criticisms of the settlement. He described Google’s “so-called monopoly over orphan works” as counterintuitive, saying that Google merely has a license to works that nobody wants and which not constitute a separate market. He also said that the amended settlement agreement alleviates the price-fixing concerns by permitting various types of discounting and simply drops the most-favored-nation clause entirely. In conclusion, he discussed the benefits of the settlement as a rights-clarification device and its potential as an open platform to allow other licensees to participate.

Finally, Ralph Oman, former Register of Copyrights and a lecturer at George Washington University Law School, discussed the Rule 23 issues posed by the settlement. Given the questionable sufficiency of the representativeness of the class, Oman suspects that this issue will eventually find its way up to the Second Circuit—perhaps, by an appeal by a disgruntled copyright owner. He explained that the amended settlement, which drops nearly all foreign authors, mooted many of his planned comments. He concluded with an anecdote about how authors are always chasing down a chance for immortality, a chance once seen in acid-free paper, but now made possible by digital books.

The audience asked two questions. The first concerned the claims made by state attorneys general. Band explained that the amendments direct revenue generated by unclaimed works to the new Unclaimed Works Fiduciary, instead of to known rightsholders. Eventually, after notification to state governments, these funds are directed to charity.

The second question was whether it would be possible for copyright owners to sue any libraries on a theory of secondary liability. Band noted that libraries would have a strong fair use defense, were it to be litigated. Furthermore, there are provisions in the settlement that provide indemnification for the libraries, given that they follow certain procedures. Schruers added that Google was the better strategic choice as a defendant, given their deep pockets and less sympathetic position relative to the libraries. Oman concluded by reminding the audience of the libraries’ right to make archival copies of works held in their collections.

Decent blog post; it’s in French but the online translation tools do fairly well with it.

UPDATE: And more on the situation in Germany.

UPDATE: And a bit on the EU situation.

The recognition is based on his role in crafting the Google Books Settlement. Given when it was first announced, shouldn’t he have been their person of the year for 2008?

In 2006, Orin Kerr argued that blogs weren’t doing much for legal scholarship. He’s since changed his mind, principally because “legal blogs have become an acknowledged and accepted part of the world of legal scholarship.” Why did that happen? As Kerr puts it:

Advances in the technology widely used by legal bloggers have facilitated the changes. My skeptical view from 2005-06 (see excerpt above) was based on the blogging technology generally in use at the time. Back in 2005, comment threads were still pretty new. We didn’t start experimenting with them here until late 2004. At the time, it was also very hard to link posts or hide the bulk of a long comment behind a hyperlink. Also, my recollection is that Google did not index blogs in the early days of legal blogging. Further, it was odd at the time, if not unheard of, to use google or any other search engine to do legal research.

Although Kerr has clarified his post to talk about the technology used specifically by legal bloggers, this history is misleading. These features are all much older. Jason Kottke publicly deployed permalinks in 2000. Comments, individual archive pages, and splitting a post into introduction and extended body are all also roughly turn-of-the-century. Google has always indexed blogs like anything else on the web; by 2002, people were worrying that Google paid too much attention to blogs. And this correspondent, at least, was using Google and Lexis in tandem to do legal research in 2002.

These weren’t niche features, either. If you want to trace themback into community sites, like Slashdot, they’re all attested well back into the 1990s. As for over-the-counter blogging software, Movable Type shipped in 2001 with comments, permalinks, individual archive pages, and extended entries.

Kerr’s thesis might be more accurately restated as, “Between 2006 and 2009, law professors discovered how existing blog features could be used effectively for scholarly purposes.”

In a brief and unsurprising memorandum decision, Judge Chin denied Amazon’s motion to undo preliminary approval of the amended settlement. Referring to the complexity of the settlement, Judge Chin emphasized that a full fairness analysis at the preliminary stage “is neither feasible nor appropriate.” Instead, he’ll consider all the substantive objections after the filings and hearing in January and February.

Procedurally, Amazon asked to let objectors withdraw previous objections and file new ones that address both the original settlement and the amended one together. Judge Chin denied that request, as well. Instead, he ordered that “to the extent that objectors find it necessary to refer to their prior objections now to present ‘cohesive and accurate filings,’ they may do so.”