GBS: Summary of the Federalist Society Event

Andrew Smith, a 2L at New York Law School and a member of the PIBSI team, filed the following report on the Federalist Society event from December 14, which featured Columbia law professor C. Scott Hemphill, University of Chicago law professor Richard Epstein, and Jonathan Jacobson of Wilson Sonsini Goodrich & Rosati. (This report is based on the video of the event, rather than in-person attendance):

Hemphill began with a short history of the Google Books project, including a discussion of its potential benefits and the main objections.

Jacobson spoke next, first laying out the mechanics of the project and noting Google’s belief that its scanning was a fair use. He then went into a few specific provisions in the settlement, describing the institutional subscription as allowing smaller universities to have access to the same library as more renowned institutions. He mentioned revenue sharing, claiming that Google’s model afforded a better percentage of revenue than Amazon’s, the ability for author’s to set their own prices, and what he sees as incentives for rightsholders to come forward.

Jacobson’s next comments drew heavy fire from a member of the crowd. He stated that Amazon and Microsoft have funded most of the objections predicated on antitrust concerns. After loud vocal displeasure from the audience, he clarified that the Department of Justice, although not funded by Amazon or Microsoft, adopted the two companies’ arguments.

As Jacobson sees it, there are two fundamental antitrust questions. One is whether consumers are better off with settlement than without it, and the other is whether the settlement will engender more literary output. According to him, the answer is yes on both accounts, because the settlement actually lowers barriers to entry, and the controversial MFN clause was removed in the revised agreement. He then dismissed concerns about potential entry barriers and orphan works. He noted that unclaimed works, if not digitized, would be lost, so the settlement actually expands the world’s body of knowledge.

After Jacobson abandoned the remainder of his presentation in the interest of time, Hemphill again took the podium to make peace, mentioning that although Microsoft and Amazon have funded objections, a key supporter of the settlement, Einer Elhauge, is funded by Google. Hemphill stated that funding shouldn’t impact the legal question, whether the settlement is better than none at all. He asked Epstein to start off by analyzing this question.

Epstein first mentioned that the settlement should be analyzed in light of alternatives, which then become the baseline by which to measure the agreement. He stated that the big issue is whether, with approval of the settlement, Google would acquire a dominant position, but he also hinted that there should be some sort of “pioneer return” on the company’s investment. He then criticized the agreement as a bad use of a class action, lumping in non-voluntary entrants, but acknowledged that it is difficult to find a better alternative. He noted that the settlement could have simply provided for an injunction and damages, but in its present form the class representatives might no longer be appropriate, and there is a potential need to find better ones.

Epstein then detailed steps by which Google could remedy these concerns. Citing the Internet’s low transaction costs, he stated that an opt-in model would work best. He then remarked that if he were the judge, he’d break the settlement into three parts, one for each type of authorship. In regards to public domain works, there is no problem with acquiring rights. With orphans, Epstein stated that Google should make a list of all unclaimed works online, give the public 6 months to examine the list, then allow for an allocation of funds to a depository. If someone comes forward, they should have rights to the funds and appropriate legal remedies. Epstein then stated that books in print, under copyright, should be included on an opt-in basis, with Google spelling out reasons for opting-in and presenting a standard contract, but at the same time allowing custom claims for the rightsholders who choose that.

Before the speakers took questions, Jacobson was afforded a rebuttal to Epstein’s points. He argued that analysts can’t parse the proposed settlement and look at it piece-by-piece, because there are trade-offs throughout negotiations. He stated that the class action device’s purpose is to aggregate claims, and in his view, everyone affected knows about the deal, and the easy process by which an individual may opt-out.

The panel then took a number of questions from the crowd. The first dealt with notification, and Jacobson stated that Rule 23 requires parties to provide the best notice available, and in this case that was publication. Epstein took minor issue with that characterization. In response to another question, Jacobson stated that the Constitution doesn’t address digital rights, and that Google shouldn’t be required to wait for Congress to address the issue. Epstein replied that an opt-in model wouldn’t require Congressional blessing at all. Jacobson then took issue with Epstein’s response, claiming that Google worked for years trying to get Congress to act on digital rights.

After more vocal disagreement by Lynn Chu, Hemphill urged everyone to step back and relax. He then referenced comparisons made to BMI, and asked the speakers if they saw similarities. Neither Epstein nor Jacobson saw it as a worthwhile comparison, for differing reasons. To Epstein, the Registry is a sufficiently powerful intermediate, and to Jacobson, this situation is not as complex.

One member of the audience questioned Google’s financial logic, noting that at $150,000 per violation, multiplied by millions of violations, the company would face financial ruin in lawsuits brought from those who opt-out. Epstein offered a guarantee that this wouldn’t be the case, without elaborating much, as the discussion was running short on time.

The panel ended with questions on institutional subscriptions and advertising that required only minor explanation by Jacobson.