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Google book settlement: the future for orphan works?

-- By RyanSong - 16 Feb 2010

The 1976 Copyright Act has lead to a proliferation of copyrighted materials known as the orphan works. As the current copyright law is inadequate of resolving this growing waste of creative materials, some members of the Congress have proposed to ameliorate this problem through legislative acts. However, the pressures from special interest groups nipped the proposed act in the bud. The Congress’s failure has not discouraged the private sector to take action: the Google Book Settlement (“Settlement”), if approved, will create a new market for orphan works on the internet. The Settlement will provide greater public access to the orphan works, but its anti-competition measures will also lead to a Google monopoly over this new-found on-line market of orphan works.

History of The Google Book Settlement

In 2004, Google released the Google Book Library Project. Essentially, Google partnered with libraries and publishers to digitalize books and make the scanned images of book pages searchable online. In 2005, the Authors Guild and the Association of American Publishers brought class action copyright infringement lawsuits against Google for digitalizing copyrighted works without permission. Without resolving whether Google’s practice was defendable on the ground of the fair use doctrine, the parties reached a settlement.

In October 2008, the initial draft of the Settlement required Google to pay $125 million in damages. $34.5 million of the damage would go toward the funding of the Book Rights Registry (“Registry”), a collective copyrights organization that would act as the middleman to collect revenues from Google and distribute them to the copyrights holders. The settlement also included several revenue models: institutional subscription for colleges and universities; the consumer perpetual access to individual books; and various others. The settlement is pending approval by the court.

The Orphan Work Problem

Among the books covered by the Settlement, one particular category of books, known as orphan works, presents a unique legal challenge. The orphan books are essentially “abandoned book” which are still in-copyright, but the copyright holder cannot be reached to secure a license. Large volumes of such books are rotting on the shelves of libraries because people do not want to risk potential copyright infringement litigations. The 1976 Copyright Act has exacerbated the problem of orphan works because it permits automatic attachment of copyright without registration and longer duration for the copyrights once attached.

A workable solution to resolve the orphan work problem should reduce the inefficiency of the public in using the orphan works, and at the same time protect the existing copyright holders from potential exploitation. The two important policies here are the incentives for innovation and the efficiency for maximizing the usefulness of the orphan works. Maximum efficiency of the copyrights is achieved where the copyrights go to the parties who value them the most. What reduces efficiency in the case of orphan works is the transaction cost: the total cost of locating the copyright holders and bargaining for an exchange of the right.

The current copyright law adopts a “property rule”. A user must obtain permission first before using the copyrighted material. An alternative to the property rule is the “liability rule” which allows the public to use the material without fear of infringing anyone’s right; then the copyright holders can be compensated later when they assert their rights. The property rule is inferior to the liability rule because it is prohibitively expensive and difficult, if not impossible, to find the copyright holders of orphan works. For the law to incentivize innovation and creativity, we should allow the public to use the orphan works and encourage the copyright holders to show themselves. Once they can obtain some benefits from their works, they will be encouraged to invest more time and efforts in writing. The liability rule also reduces transaction cost in searching the copyright holders because it encourages the copyright holders to show up and claim their rights. The issue with the liability rule is the potential for exploitation and infringement of copyrighted materials.

Potential solutions of resolving the orphan work problem can come from three parties: the court, the congress, or the private sector. Relying on the court to design a solution will be too slow because it can only deal with the issue on a case-by-case basis. The Congress has already failed due to the pressure of lobbyists. The private sector is the only option left. The author associations and the publishing industry are intimately familiar with the problem and they have the financial incentive to utilize orphan works.

Google Book Settlement and Orphan Works Monopoly

Google book settlement is a major movement by the private sector to take the issue into its own hands. The Registry will be administered by a representation from both of the publishers and the authors. It will actively seek out copyright holders of orphan works and create a database to store their contact information. Google will be the first one to partner with the Registry. Any third party who wishes to work with the Registry must obtain the permission from the copyright holders. The Settlement stipulates that for out-of-print books, Google can adopt an “opt-out” approach, which means it can digitalize orphan works and profit from it unless the copyright holder opts out. This allows Google to avoid the transaction cost of finding and negotiating with individual copyright holder, and use the orphan works with impunity. Although the Registry can reach agreements with other third parties, but the requirement to obtain permission from the copyright holders, which is virtually impossible for orphan works, is simply a pretext for barring competitors from using any orphan work. The revenue model proposed by the Settlement also gives Google tremendous leverage in fixing prices for its institutional and private subscriptions because there are no other competitors.

It should be up to the private sector to resolve the orphan work problem using the liability rules. However, the Settlement authorizes Google unbounded power to create a monopoly of digitalized orphan works. The court should order the parties to amend the Settlement until we have a more competition friendly solution.

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