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Judge Chin’s order rejecting the proposed settlement has some other consequences, as well. To see why, it helps to look at his order from a year and a half ago preliminarily approving it. That order has consequences I’d forgotten about until reminded this week by people who know more civil procedure than I do.

Paragraph 28 provides that if the court doesn’t grant final approval, “any class certification herein and any actions taken or to be taken in connection therewith (including this Order and any judgment entered herein) shall be terminated and shall become void and have no further force and effect …” In other words, Judge Chin’s order rejecting the settlement also inherently unwinds the preliminary approval. This includes paragraph 27, which provided that “all members of the Amended Settlement Class … are barred and enjoined from … asserting any claims … against Google that were brought or could have been brought in the Third Amended Class Action Complaint, and that relate to or arise out of the claims as described in that complaint.”

In simpler English, this means two things. First, the injunction against overlapping suits is now gone. If any authors or publishers don’t like the plaintiffs’ conduct of the suit and would prefer to go after Google directly, they’re now free to again. It’s quite possible that any such suits would rather quickly be transferred back to the Southern District of New York for combined processing, a bit like how the photographers’ case was also assigned to Judge Chin. It’s possible that some from the sow-Google-with-salt camp might choose this route, particularly if it seems that another settlement is in the offing.

Second, Paragraph 28 from the old order requires me to walk back my earlier assertions on Twitter that Judge Chin’s order rejecting the settlement is not automatically appealable. His new order is also effectively a denial of class certification, which is immediately appealable. I’m not certain about this conclusion, in part because it comes after being certain about my earlier and opposite conclusion, and in part because the new order does not itself say that it denies class certification. But it does lead me to believe, in an “I would rather do something else on a sunny Saturday than research this further” kind of way, that if Google and the plaintiffs want to take an appeal, nothing stands in their way.

Two more thoughts about the paucity of holdings in Judge Chin’s opinion:

First, the structure of the opinion makes appeal more unpleasant. Chin didn’t put all his cards on the table. If the parties appeal his denial and win, one plausible outcome is that the case gets remanded back to him to try again — but he’s signaled that he’s likely to deny it again. That’s a long and protected litigation process, which can’t be encouraging to parties considering going the appeal route.

Second, by refusing to make new law on any issue except for Rule 23, he limited the uses to which his decision can be put as precedent. The antitrust section will be a gift to Google’s enemies in the court of public opinion, but probably not in a court of law. He thus avoids creating an immediate basis for me-too antitrust lawsuits. Similarly, the international-law section takes foreign concerns very seriously, but imagine a world in which Judge Chin is reversed on appeal, or some other court approves a similar settlement. Anything Judge Chin says could be cited against the U.S. in a WTO arbitration or some other international forum. By limit what he says, he also limits the potential headaches for U.S. diplomats and government lawyers.

I have now had the chance to go through Judge Chin’s opinion rejecting the proposed Google Books settlement for the third time. I am struck by how much — and how little — it says. Its holding is clear and direct: the settlement “would release Google (and others for certain future acts … an arrangement that exceeds what the court may permit under Rule 23.” (21) The legal analysis supporting this conclusion takes perhaps five pages out of forty-eight. The rest of the opinion is … well, it’s complicated.

The opinion discusses seven kinds of objections to the settlement:

1. Notice
2. Representation
3. Future releases
4. Copyright
5. Antitrust
6. Privacy
7. International

According to my reading, “Future releases” is the only one of the seven that Chin holds to be a sufficient ground for rejecting the settlement on its own. He dismisses notice and privacy relatively quickly, writing, “I am satisfied that the class received adequate notice” (19), and while the “privacy concerns are real,” they are not “a basis in themselves to reject the proposed settlement.” (39) The other four all receive various expressions of concern, but even as Chin repeatedly pronounces himself “troubled,” he avoids making direct statements that they require rejection. Instead, there is only a “substantial question” about the adequacy of representation (20), he “need not decide” the most specific copyright question (32), he “need not decide whether the ASA would violate international law,” (43) and I can’t find anything in the antitrust section that constitutes a conclusion of law. (The only cited case is a “Cf”!)

What is going on here? The future releases issues are sufficient by themselves to reject the settlement; indeed, having concluded that the settlement “exceeds what the court may permit under Rule 23” (21, emphasis added), Judge Chin left himself no choice but to reject it. The rest of the opinion provides reasons to support that result — but the opinion is cagey as to which of these are additional legal rationales, and which are just policy arguments.

I can imagine two reasons for this caginess. The first is that Judge Chin deliberately wrote a minimalist opinion. If hard cases make bad law, then perhaps big cases make strange law. It may be Judge Chin resolved this one on a relatively narrow basis so he could avoid the need to make detailed rulings on dozens of different issues at once in the context of a highly unusual case. The other possibility is that the ultimate legal question Judge Chin faces — is the settlement “fair, adequate, and reasonable?” (14) — is a flexible all-things-considered standard. His point, then, is not that there are a dozen reasons why the settlement must be rejected, but rather that there are a dozen important considerations all tipping against the settlement, which, taken together add up to an easy call: reject.

The other thing that struck me immediately about the opinion was the remarkable diversity of objectors whose views it cites. It quotes from dozens of different filings, including one notable passage on pages 33 and 34 that pull together concerns from four authors and a pair of literary agents about the settlement’s opt-out structure. This is a quietly effective piece of judicial rhetoric: it emphasizes the range of objectors as well as the range of objections. This goes along with its emphasis on the “great in number” objections and the “extremely high number of” opt-outs: persuading the reader that class members disapprove of the settlement.

While I’m talking about citations, let me also congratulate Emily Anne Proskine and Andrea Glorioso, both of whose student notes were cited in the opinion. Even on such a big and complicated case, good student work can make a valuable contribution, and theirs did. Three of the pieces in our D is for Digitize symposium issue were cited, as was — permit me a moment’s pride — our supplemental letter the court.

That’s the high-level view. Let’s look into the details.

Future Releases

I’ve long believed that the Rule 23 aspects of the settlement are absolutely central to what make it both powerful and dangerous. Judge Chin agrees. He starts by making a crucial distinction:

The ASA can be divided into two distinct parts. The first is a settlement of past conduct and would release Google from liability for past copyright infringement. The second would transfer to Google certain rights in exchange for future and ongoing arrangements, including the sharing of future proceeds, and it would release Google (and others) from liability for certain future acts. (21)

The emphasis is Judge Chin’s. This passage is the key to the settlement, and the key to the opinion:

I conclude that this second part of the ASA contemplates an arrangement that exceeds what the Court may permit under Rule 23. (21)

By way of contrast, he cites — seemingly with approval — the United States’s position that the past-conduct half of the settlement could appropriately be settled. Throughout the opinion, almost every time Judge Chin raises an objection, that objection has bite only as applied to the future-conduct portions of the settlement. Thus, the question this part of the opinion resolves is how far a court can go in approving a settlement in which a class gives up claims against a defendant for things it hasn’t done yet.

The legal analysis here turns on the relationship of those future-conduct claims to the underlying lawsuit. Here, the parties had been arguing that the scope of the underlying lawsuit should be determined by looking at their complaints against Google, which they construed broadly to involve Google’s “digital copies.” (25) But Judge Chin rejects that move, writing instead:

This case was brought to challenge Google’s use of “snippets,” as plaintiffs alleged that Google’s scanning of books and display of snippets for online searching constituted copyright infringement. … There was no allegation that Google was making full books available online, and the case was not about full access to copyrighted works. The case was about the use of an indexing and searching tool, not the sale of complete copyrighted works. (24-25)

A page later, he adds:

Google did not scan the books to make them available for purchase, and, indeed, Google would have no colorable defense to a claim of infringement based on the unauthorized copying and selling or other exploitation of entire copyrighted books. Yet, the ASA would grant Google the right to sell full access to copyrighted works that it otherwise would have no right to exploit. (26)

This move is what sinks the settlement. Chin has set up a dichotomy: Google’s past conduct in scanning and searching was the subject of the lawsuit, but it is Google’s future conduct in selling whole books that would authorized by the settlement. The case “was not about” the same things the settlement is. Thus, under the two governing precedents — the “identical factual predicate” test of Wal-Mart Stores and the “general scope of the case made by the pleadings” test of Firefighters — the settlement goes beyond the underlying lawsuit, and is therefore impermissible.

This strikes me as broadly correct, but the legal analysis is surprisingly thin. If it had been me, I might have said that Firefighters is simply not on point because it concerned promises by the defendant, not releases by the class. I would have added that the reason the Wal-Mart “identical factual predicate” test makes sense here is that it is grounded in preclusion law: win or lose, a lawsuit resolves all of the plaintiffs’ claims against the defendant that are based in the same facts.

The “same facts” line helpful distinguishes Google’s actual past scanning from its hypothetical future book sales. Since Google hasn’t sold complete books — and wouldn’t without the settlement — the class members couldn’t sue Google on claims connected with whole-book sales. And thus, since those claims couldn’t properly be before the court in litigation, they’re not properly before it in settlement. Q.E.D.

(I’ve been working out this theory for a while now. It also makes sense of ripeness, personal jurisdiction, defendant class actions. If this is how the Google Books settlement ends — not with a bookstore, but a whimper — the theory may need to end up back on the shelf.)

Also in the “future releases” section of the opinion, Judge Chin discusses Congress’s institutional role and representation of class members. (This last one is puzzling, as there is also a separate “adequate representation” section. I’ll discuss it there.) He emphasizes, in several places throughout the settlement, that this is a job for Congress. Interestingly he does so not on Rule 23 civil-procedure institutional-choice arguments, but rather on substantive copyright grounds:

The questions of who should be entrusted with guardianship over orphan books, under what terms, and with what safeguards are matters more appropriately decided by Congress than through an agreement among private, self-interested parties. Indeed, the Supreme Court has held that “it is generally for Congress, not the courts, to decide how best to pursue the Copyright Clause’s objectives.” Eldred v. Ashcroft, 537 U.S. 186, 212 (2003); accord Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984) (“[I]t is Congress that has been assigned the task of defining the scope of the limited monopoly that should be granted to authors or to inventors in order to give the public appropriate access to their work product.”). (23)

This stops short of being a straight legal conclusion that the court cannot pass on such matters. It reads more like a prudential argument: the court shouldn’t.

Notice

Now that we’ve seen the five pages of future-conduct arguments that doomed the settlement, let’s turn back to the other forty-plus pages. I’ll take up the issues in the order Judge Chin does. He is strikingly unconcerned with notice — indeed, this is the one part of the opinion that I count as a clear win for Google and the plaintiffs:

The objections to the adequacy of the class notice are rejected. I am satisfied that the class received adequate notice. More than 1.26 million individual notices in thirty-six languages were sent directly to copyright owners, potential class members, and publisher and author associations worldwide. Plaintiffs also established a website to provide information about the case, the original proposed settlement, and the ASA. Of course, the case has received enormous publicity, and it is hard to imagine that many class members were unaware of the lawsuit. (19)

This last phrase reads as though it were directed to Scott Gant, who pushed the notice issue vigorously at the fairness hearing, only to be asked, “You’re here, though?

Representation

Judge Chin has some nice words for class counsel, whom he calls “qualified, experienced, and able to conduct the litigation.” (20) That’s just the setup, though, because he then states that there is a “substantial question” (20) as to whether the named plaintiffs adequately represented their peers, and that the differences of opinion among class members are “troubling.” (21) (Note that the “substantial question” is asked but not answered.) He identifies three groups who may not have been adequately represented:

First, academic authors care about access to knowledge; commercial authors and publishers (like the named plaintiffs) care about revenue. This point is a coup for Pam Samuelson’s academic-author coalition, for whom it was a central argument.

Second, foreign rightsholders have interests “that may be at odds” (29) with the class representatives for reasons that are alluded to but never quite made explicit. I’ll discuss this below, but while the opinion tallies their objections to the settlement, it never quite identifies how their interests qua interests diverge.

Third, “rightsholders who do not come forward to register” (29) (e.g., orphan copyright owners) don’t have interests that align with the parties to the lawsuit. Instead, the “parties have little incentive to identify and locate the owners of unclaimed works, as fewer opt-outs will mean more unclaimed works for Google to exploit.” (29) Although the direct financial incentives that encouraged claiming rightsholders not to look for unclaiming ones are gone, I think this point is correct. A rightsholder who doesn’t step forward can’t opt out, which means more power for the Registry, more revenue for Google, and a venture more likely to achieve critical mass for the other rightsholders.

On this last point, the parties had argued that orphan owners here shouldn’t be thought of any differently than any members of any other class who don’t step forward — every class action, almost by definition, will have absent class members. I’ve been arguing against this view for two years now. I think that the fact that we know with substantial confidence that many copyright owners cannot and will not be found makes this class action particularly troubling, and that the fact that their future claims are being compromised compounds the trouble. In a subtle and important passage, Judge Chin comes down on the “orphans are special” side of the debate:

While it is true that in virtually every class action many class members are never heard from, the difference is that in other class actions class members are merely releasing “claims” for damages for purported past aggrievements. In contrast, here class members would be giving up certain property rights in their creative works, and they would be deemed — by their silence — to have granted to Google a license to future use of their copyrighted works. (30)

If you ask me for proof that Judge Chin gets it, I’ll cite this passage. Future-conduct releases by individuals are okay, because well-informed individuals can make choices for themselves about the future. Past-conduct releases by a class are okay, because the most they have to lose is possible compensation for harms that have already happened to them. But the combination of future-conduct releases and a class with known absent members is explosively dangerous, because so much more is on the table for them: they could lose important property rights, or have fresh harms inflicted on them.

Copyright

This section is an interesting mix of policy and statutory arguments. It starts with a reprise of the “copyright is a job for Congress” song from Act I. Then it develops an argument that the settlement is an “expropriation” of class members’ copyrights in violation of Section 201(e) of the Copyright Act. I tend towards the parties’ position here: the settlement is a license, not a transfer of ownership, so this section doesn’t apply at all. Judge Chin, though, finds it “at a minimum a fair question” (31), although he ultimately concludes that he “need not decide the precise question.” (32)

I found this passage notable also because it illustrates David Nimmer’s advocacy at work; you can see why Amazon is paying him what I assume are the big bucks. I scoffed at the § 201(e) argument when he made it in his briefing for Amazon, but here it is in the opinion. What authority does the opinion cite to bolster its analysis? “3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright, § 10.04 (Rev. Ed. 2010).” (32) Self-link FTW!

This leads into perhaps the most impassioned part of what is generally a fairly staid and restrained opinion: a discussion of whether a settlement could ever impose an opt-out system of assumed consent on copyright owners. It quotes liberally from Nimmer’s oral argument from individual authors who opposed the settlement, and from an “eloquent[]” (35) letter from two literary agents. All of them object to the idea that the burden is on them to step forward if they wish to object, instead of the burden being on Google to secure their permission. Judge Chin’s summary paragraph is worth reading closely:

While the named plaintiffs and Google would argue that these authors can simply opt out, the comments underscore certain points. First, many authors of unclaimed works undoubtedly share similar concerns. Second, it is incongruous with the purpose of the copyright laws to place the onus on copyright owners to come forward to protect their rights when Google copied their works without first seeking their permission. Third, there are likely to be many authors — including those whose works will not be scanned by Google until some years in the future — who will simply not know to come forward. (35-36)

There’s a lot going on in here. In particular, the point about “authors of unclaimed works” is so subtle I almost missed it. It’s not just a statement that the silent majority of authors who haven’t yet claimed their works would object to the opt-out system, although it is that. It’s also a point that those authors who haven’t claimed their works are not as effectively served by the opt-out option as those who have written to the court to object. Orphans by their nature can’t opt out. That said, I do wonder whether there is a bit of tension between the claim, above, that the notice program was effective and the claim that many authors won’t know to opt out.

Antitrust

This section is thin and a bit odd. It contains only a single citation to caselaw, and that one’s only a “Cf.” The rest is factual analysis and discussion of objections to the settlement. My take, therefore, is that this is an outline of reasons to be concerned about the settlement’s competitive effects, but not a holding that it actually violates any of the antitrust laws. What are those effects? Google would obtain “a de facto monopoly over unclaimed works” (36), the settlement “would arguably give Google control over the search market” (37), and “Google’s ability to deny competitors the ability to search orphan books would further entrench Google’s market power in the online search market.” (37)

Privacy

Tim Lee tweeted something interesting about this section this afternoon. He said, “I was really confused by the privacy section. Objections were about user privacy, response about rightholder privacy.” Perhaps that lack of clarity explains this section’s waffling tone:

The privacy concerns are real. Yet, I do not believe that they are a basis in themselves to reject the proposed settlement. … I would think that certain additional privacy protections could be incorporated, while still accommodating Google’s marketing efforts. (40)

This is vague and unhelpful. I’m sure the parties would like to know what “certain additional privacy protections” Judge Chin would like to see. The CDT and EFF proposals seem like they’d be a good starting point for discussion, but there’s not even a gesture in the direction of the specific suggestions in their filings.

International

This section starts by explaining how the settlement is no longer as worldwide as it previously was, but is still broad enough to encompass many foreign rightsholders. It gives a list of countries with objecting copyright owners. The most specific point about how their interests differ from those of domestic copyright owners is a point made by various international publishers, that they will face a more difficult problem searching United States copyright records, due to historical twists in our law on when registration was required.

There then follows a survey of arguments that the settlement violates international treaties … but no legal analysis of whether it does or doesn’t violate them. Instead:

In any event, I need not decide whether the ASA would violate international law. In light of all the circumstances, it is significant that foreign authors, publishers, and, indeed, nations would raise the issue.

I’m not quite sure how to read this. Is it a statement that the fact that foreign rightsholders objected, just by itself, cuts against the settlement? Is it a special sense of deference to foreign nations? Perhaps the best reading is that this is another argument for deferring to Congress:

The fact that other nations object to the ASA, contending that it would violate international principles and treaties, is yet another reason why the matter is best left to Congress.

What Now?

The opinion concludes with a passage recommending that the settlement drop back from an opt-out system to an opt-in system:

In the end, I conclude that the ASA is not fair, adequate, and reasonable. As the United States and other objectors have noted, many of the concerns raised in the objections would be ameliorated if the ASA were converted from an “opt-out” settlement to an “opt-in” settlement. I urge the parties to consider revising the ASA accordingly.

The next judicial step will be a status conference on April 25 at 4:30 PM. That leaves a month for all concerned to figure out their plans for what happens as the case goes forward. I can see three possible scenarios:

• The parties could try to appeal Judge Chin’s ruling. (This one has procedural complications, which I thought I understood, but now am less sure about.)
• They could redraft a new settlement and offer it for approval.
• They could give up on settlement and go back to litigation.

Google is giving noncommittal answers; the authors and publishers are sounding more like they’re inclining towards revise-and-resubmit. Hilary Ware of Google stated via press release:

This is clearly disappointing, but we’ll review the court’s decision and consider our options.

Scott Turow of the Authors Guild stated via press release:

[W]e’ll be studying Judge Chin’s decision and plan on talking to the publishers and Google with the hope that we can arrive at a settlement within the court’s parameters that makes sense for all parties.

And John Sargent of Macmillan stated via press release:

For that reason, publishers are prepared to modify the Settlement Agreement to gain approval. We plan to work together with Google, the Authors Guild and others to overcome the objections raised by the Court and promote the fundamental principle behind our lawsuit, that copyrighted content cannot be used without the permission of the owner, or outside the law.

If I had to bet, I would guess that we’ll end up with a revised settlement drafted to meet Judge Chin’s specification, which will be approved relatively quickly (at least compared to this last go-round). His opinion is short on specific guidance, but it’s relatively easy to extract the essentials. Here’s what I predict:

• Google is allowed to continue scanning and searching in exchange for cash payments on the order of (but perhaps not exactly) the $60 in the present settlement, and it’s required to provide an opt-out. Very few people have argued that this form of settlement would be beyond the court’s power. The precise explanation of how this would be distinguishable from the present settlement, although quite feasible, will require some nuance and subtlety.
• The Display Uses — Consumer Purchase, Institutional Subscription, etc. — are either gone entirely ore are offered on an opt-in basis. The difference between these two possibilities is not large, since, in effect, Google already offers an opt-in through the Partner Program.
• The libraries receiving digital copies are released from liability but are even more tightly restricted in the uses they can make than under the present settlement.
• The fates of other facets of the settlement such as the Research Corpus, will be hammered out in the negotiations.

My read is that the parties are not enthusiastic about litigation. This has been a long road, they are tired, and the publishing world has moved very quickly from underneath the settlement. They will be happy to have a settlement that lets everyone claim a kind of minor victory, and to be done with the ordeal. A few of the author objectors, who would like to see Google razed to the ground and Mountain View sowed with salt, will continue to object, but most of the others will quietly shuffle away.

And then, the action will shift to Congress. Will Google start putting together a coalition to push for a legislative solution? Who will sign up? What will the proposed compromises look like? Who will oppose it, and with what arguments? And is this the route by which we will get a national digital library?

The Google Books settlement is dead. Long live the digitized book.

Judge Chin just issued a 48-page opinion rejecting the settlement. Insta-reactions on Twitter from @grimmelm; more detailed analysis here soon.

Google sent me a set of bookmarks, perhaps as a thank-you for buying an ebook from them. The bookmarks, one each in the four standard Google colors, say:

• My other book is a smartphone.
• Take your library anywhere.
• My other book is a tablet.
• My other book is a laptop.

According to Google, my library consists of one printed book, and one device that is a combination smartphone, tablet, and laptop.

Zediva is a new streaming-video startup with a copyright-dodging angle. Users pay $2 for a two-week digital streaming rental of new-to-DVD movies. The movies, like The Fighter and Megamind, are the ones that the studios are deliberately holding back from other streaming services, like Netflix, in order to preserve the shrinking DVD window. Zediva, though, has figured out a legal hack. As explained by Wired:

Quite simply — the company literally rents you a DVD and a DVD player, with your computer, tablet or Google TV as the remote control. Unlike the other streaming movie services, Zediva doesn’t turn a movie into a file on its servers that it can serve to as many users as care to see it at once.

Instead, Zediva’s servers have DVD drives and actual DVDs. So when you rent a movie, that disc goes out of circulation until you release it back to the company, just like in one of those increasingly rare real-world video stores.

And like those video stores, Zediva doesn’t need to get permission from the studios to rent out discs, since once they buy the DVD they are free to rent it out or re-sell it, thanks to the first-sale doctrine in U.S. copyright law.

Clever twists on the law ordinarily make me happy. But it makes me sad when entrepreneurs sink their time and money into a business that basic due diligence should have told them is all but doomed from the start. Zediva’s supposed “loophole” in copyright law doesn’t exist. Zediva is about to get pounded by the movie studios, and hard.

Zediva’s theory is that the “rental” of the DVD and player mean that the customer is streaming her video to herself. Under what I assume is Zediva’s interpretation of copyright law, that fact makes it a private performance of the movie. The Copyright Act, however, only gives copyright owners the right to control “public” performances. Q.E.D., right?

Not so fast. There’s offline caselaw almost directly on point. It’s not so good for Zediva. In Columbia Pictures Industries v. Redd Horne, for example, the defendant was a video store named Maxwell’s. It rented videotapes to customers, along with private 4’x6’ exhibition booths in the rear of the store. You’d rent a tape and reserve a room, buy some popcorn, and go take a seat in the booth. ($5.00, plus $1.00 for each additional person.) Then, a Maxwell’s employee would put the tape in a VCR connected to your booth, hit play, and the movie would show up on the TV in your booth.

The court in Redd Horne had no difficulty finding that this was a public performance that the movie-studio copyright owners had every right to prohibit:

On the composition of the audience, the district court noted that “the showcasing operation is not distinguishable in any significant manner from the exhibition of films at a conventional movie theater.” Any member of the public can view a motion picture by paying the appropriate fee. The services provided by Maxwell’s are essentially the same as a movie theatre, with the additional feature of privacy. The relevant “place” within the meaning of section 101 is each of Maxwell’s two stores, not each individual booth within each store. Simply because the cassettes can be viewed in private does not mitigate the essential fact that Maxwell’s is unquestionably open to the public.

Or, as the court explained later on:

Professor Nimmer’s examination of this definition is particularly pertinent: “if the same copy … of a given work is repeatedly played (i.e., ‘performed’) by different members of the public, albeit at different times, this constitutes a `public’ performance.” Indeed, Professor Nimmer would seem to have envisaged Maxwell’s when he wrote:

one may anticipate the possibility of theaters in which patrons occupy separate screening rooms, for greater privacy, and in order not to have to await a given hour for commencement of a given film. These too should obviously be regarded as public performances within the underlying rationale of the Copyright Act.

Although Maxwell’s has only one copy of each film, it shows each copy repeatedly to different members of the public. This constitutes a public performance.

What about Zediva’s first sale argument? Well, for one thing, first sale is a defense only to the distribution and display rights, so it’s entirely irrelevant in a lawsuit based on the performance right. And, for another, Redd Horne directly considered a similar argument, and rejected it:

In essence, the defendants’ “first sale” argument is merely another aspect of their argument that their activities are not public performances. For the defendants’ argument to succeed, we would have to adopt their characterization of the “showcasing” transaction or activity as an “in-store rental.” The facts do not permit such a finding or conclusion. The record clearly demonstrates that showcasing a video cassette at Maxwell’s is a significantly different transaction than leasing a tape for home use. Maxwell’s never disposed of the tapes in its showcasing operations, nor did the tapes ever leave the store. At all times, Maxwell’s maintained physical dominion and control over the tapes. Its employees actually played the cassettes on its machines. The charges or fees received for viewing the cassettes at Maxwell’s facilities are analytically indistinguishable from admission fees paid by patrons to gain admission to any public theater. Plainly, in their showcasing operation, the appellants do not sell, rent, or otherwise dispose of the video cassette. On the facts presented, Maxwell’s “showcasing” operation is a public performance, which, as a matter of law, constitutes a copyright infringement.

Let’s see. Zediva never “disposes of” its DVDs, and the DVDs “never leave” Zediva’s facilities. It has “physical dominion and control” and while its employees don’t “actually play” the DVDs, they do load them into the machines. Indeed, the court’s explanation that the “charges or fees received for viewing the cassettes at Maxwell’s facilities are analytically indistinguishable from admission fees paid by patrons to gain admission to any public theater” applies almost as well to Zediva.

A more recent case, Cartoon Network LP, LLLP v. CSC Holdings, Inc seems to offer more hope for Zediva, but I think it will ultimately prove fleeting. There, Cablevision offered its customers DVRs “in the cloud” — they could record TV shows, and then have the recordings beamed to their TVs later on. The court there held that these transmissions of earlier-recorded shows weren’t “public” performances because “the universe of people capable of receiving an RS-DVR transmission is the single subscriber whose self-made copy is used to create that transmission.” Thus, Cablevision’s service wasn’t infringing.

That sounds promising, but Cartoon Network is loaded with other language that suggests Zediva is still in trouble. In particular, the Cartoon Network court emphasized that each customer’s copy of a given program was distinct. If you and I both pushed ‘record’ on American Idol and later watched it, you’d see a version beamed from your copy, and I’d see a version beamed from my copy:

It seems quite consistent with the Act to treat a transmission made using Copy A as distinct from one made using Copy B, just as we would treat a transmission made by Cablevision as distinct from an otherwise identical transmission made by Comcast. Both factors—the identity of the transmitter and the source material of the transmission—limit the potential audience of a transmission in this case and are therefore germane in determining whether that transmission is made “to the public.”

With Zediva, both the transmitter (Zediva) and the copy (the DVD) are the same. Cartoon Network then goes on to discuss Redd Horne — and guess what factor it relies on to explain why the two cases are distinguishable? That’s right — distinct copies:

Unfortunately, neither the Redd Horne court nor Prof. Nimmer explicitly explains why the use of a distinct copy affects the transmit clause inquiry. But our independent analysis confirms the soundness of their intuition: the use of a unique copy may limit the potential audience of a transmission and is therefore relevant to whether that transmission is made “to the public.” Plaintiffs’ unsupported arguments to the contrary are unavailing.

Given that each RS-DVR transmission is made to a given subscriber using a copy made by that subscriber, we conclude that such a transmission is not “to the public,” without analyzing the contours of that phrase in great detail.

Even if you think the legal analysis is genuinely open (I hope we can agree that the caselaw does not clearly require a Zediva verdict), the fact that its operations can be described as a “Copyright Loophole” by Wired should tell you all you need to know about what the courts will do when asked how to resolve it. Cablevision won because of the close analogy to a set-top box, and because the plaintiffs there stipulated some of their best arguments out of the case. Here, the closest analogy is Netflix streaming, which requires licenses from copyright owners, and obtains them. I could see some of the other innovative but edgy business models in the copyright space succeeding with the courts, but not this one.

UPDATE

Here, by the way, are the tl;dr versions of the other major cases that bear on this issue.

On Command Video Corp. v. Columbia Pictures Industries, 777 F. Supp. 787 (N.D. Cal. 1991): Same model as Maxwell’s, except at a hotel, with transmissions from a system behind the front desk to individual rooms. Held: infringing public performance.

Columbia Pictures Industries, Inc. v. Aveco, Inc., 800 F.2d 59 (3rd Cir. 1986): Same model as Maxwell’s, except that the VCRs are inside the individual rooms, and customers carry the tapes into the rooms. Held: infringing public performance.

Columbia Pictures Industries, Inc. v. Professional Real Estate Investors, Inc., 866 F.2d 278 (9th Cir. 1989): Combines the two twists in On Command and Aveco, i.e., same model as Maxwell’s, except at a hotel and the VCRs are inside the individual rooms. Held: not an infringing public performance, because hotel rooms are “places where individuals enjoy a substantial degree of privacy, not unlike their own homes.”

Video Views, Inc. v. Studio 21, Ltd., 925 F.2d 1010 (7th Cir. 1991): Same model as Maxwell’s, for adult movies viewed in increments of five minutes. Held: infringing public performance.

U.S. v. ASCAP, 485 F. Supp. 2d 438 (S.D.N.Y. 2007): Music downloads (as opposed to streams) are not public performances. The permission of the copyright owner is required, in the form of the reproduction right, not the public performance right. In re Cellco Partnership, 663 F. Supp. 2d 363 (S.D.N.Y. 2009), another case involving ASCAP, is to the same effect: ringtone downloads are not public performances.

I don’t think Zediva can take comfort from this caselaw. It’s true that Professional Real Estate Investors found noninfringement, and homes are even more private spaces than hotel rooms are. If Zediva were pulling a Netflix — physically transferring possession of the DVDs to customers — PREI would be on point. But it isn’t. Zediva is transmitting the video to its customers, which means that On Command and Redd Horne and Cartoon Network are closer analogies. Similarly, the two ASCAP cases both hinged on the distinction between streaming and downloading for later viewing. Only if Zediva were downloading video to customers’ computers, rather than letting them watch live, would these cases help its public-performance-right argument. What’s more, if Zediva downloaded rather than streamed, it would have an even more glaring reproduction-right problem.

And as for fair use? See UMG Recordings, Inc. MP3.com, Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2000), and wince.

UPDATE 2: I am reliably informed that Zediva has top-notch copyright counsel. This fact doesn’t by itself change my reading of the cases. I remain open, however, to being persuaded to revise my opinion by anyone who can offer a more compelling reading of them.

You may have noticed that Google Books blogging here has been light. There’s a reason for that, and it’s not that I’ve been neglecting Google Books. Instead, I’ve been reporting on Google Books news in a different forum.

Yes, I’m proud to announce the new Public Index Blog. From here on, all Google Books news will be posted there. I’ll link to new filings, news articles, and academic discussions, and provide commentary on their significance. I’ll still post my own occasional analysis here, but the routine updates will all be over at the Public Index blog, along with some interesting new projects that are still in the works …

My colleague Beth Noveck has teamed up with the Personal Democracy Forum to put on a star-studded panel on WikiLeaks and the Law. I mean, just look at this list of participants:

Moderated by:

• Amy Goodman, co-founder and host of Democracy Now!

Panelists:

• Yochai Benkler, Berkman Professor of Entrepreneurial Legal Studies at Harvard and faculty co-director of the Berkman Center for Internet and Society
• James Goodale, Former General Counsel of the New York Times during the Pentagon Papers case
• Gabriel Schoenfeld, Author of “Necessary Secrets: National Security, the Media, and the Rule of Law” & Senior Fellow at the Hudson Institute
• Geoffrey R. Stone, Edward H. Levi Distinguished Service Professor at University of Chicago Law School

The panel is Monday, March 21 at 6:00 PM at New York Law School. Tickets are $10; get yours soon!

1. It has published quite a number of important Internet and IP articles in the last few years, including Mark McKenna’s Trademark Use and the Problem of Source, William McGeveran’s Disclosure, Endorsement, and Identity in Social Marketing, and Paul Ohm’s The Rise and Fall of Invasive ISP Surveillance.

2. It is relatively unusual among law reviews in that it numbers its volumes by the year, rather than sequentially from 1. That makes its citations shorter: Lawrence Claus’s The Empty Idea of Authority is at “2009 U. Ill. L. Rev. 1301” rather than something like “61 U. Ill. L. Rev. 1301 (2009)”.

3. Sealand, HavenCo, and the Rule of Law will appear in its 2012 volume.

Snyder v. Phelps,562 U.S. _, slip. op. at 14-15 (2011):

Westboro believes that America is morally flawed; many Americans might feel the same about Westboro. Westboro’s funeral picketing is certainly hurtful and its contribution to public discourse may be negligible. But Westboro addressed matters of public import on public property, in a peaceful manner, in full compliance with the guidance of local officials. The speech was indeed planned to coincide with Matthew Snyder’s funeral, but did not itself disrupt that funeral, and Westboro’s choice to conduct its picketing at that time and place did not alter the nature of its speech.

Speech is powerful. It can stir people to action, move them to tears of both joy and sorrow, and—as it did here—inflict great pain. On the facts before us, we cannot react to that pain by punishing the speaker. As a Nation we have chosen a different course—to protect even hurtful speech on public issues to ensure that we do not stifle public debate. That choice requires that we shield Westboro from tort liability for its picketing in this case.

The judgment of the United States Court of Appeals for the Fourth Circuit is affirmed.

It is so ordered.