Google settlement

The debate about the Google settlement, like most of any consequence or intellectual interest (what the government should do about health care or energy, for example) actually engages a wider range of knowledge than most of us have. But we feel comfortable having an opinion about what we should do about health care or energy without necessarily knowing much about the logistics, requirements, actual state of affairs, or cost-value relationships of what we favor or oppose.

We each start with a general position. For example, mine on health care is that government intervention is required to make sure everybody has a minimum reasonable standard of care. On energy I believe government policy should encourage energy development and consumption that is efficient and unwasteful while increasingly substituting renewable energy for resource-consuming energy.

My personal political positions are directional, not very specific. Others, perhaps because they’re better informed, have more aggressive and articulated views. I know people who think health care isn’t worth fighting for unless it is single payer; that anything else could make matters worse. I am sure there people that hold similar positions on energy that I would deem “perhaps desirable, but not politically achieveable at this time”. They’re my allies unless their idea of “perfect” blocks my idea of “better”.

And then there are others, of course, who aren’t allies at all: people who believe that market forces can be trusted with social challenges or simply resist the idea of any expansion of government or increase in taxes.

But when it comes to the details of legislation, most of us just plain citizens are pretty helpless even to have an informed opinion, let alone to have any influence. The staffs of our legislators are hearing about the details from the experts representing doctors, hospitals, insurance companies, drug companies, left- and right-wing lobbyists. If Charlie Rangel says that a very modest tax increase on people making over $350,000 or $500,000 a year will bring the costs into line with the parameters President Obama says are economically necessary. Assuming there is no chorus of objections from sources I trust (Krugman), I’ll just accept that as fact. It advances my philosophical position and I tend to trust him. I mean, who really “does the math” for themselves on things like this? Without being a professional, how could you?

The Google settlement might not be as complicated as health care or energy, but the debate about it also revolves around a lot of unknowns. Although the argument between those who say “approve it” and those who say “reject it” or even, “reject it if you can’t change it” is superficially waged on the “merits” and on the words in the settlement, I believe most of us come to this extraordinarily complicated question with a position and then put each new piece of information (or argument) into a “context” that won’t require us to change that position. And since we’re dealing with a lot of unknowns, that’s not really very hard to do.

My dominant prejudice I bring to this conversation is a belief that copyright laws have been extended so that they are abusive to the public interest and result in a lot of intellectual property being walled off from use for no good commercial reason. With that as a background belief, I saw what Google did (scanning all the work) as cutting a Gordian knot. Others come to this discussion with a dominant concern of respect for copyright or a dominant concern of bullying monopolies. Their prejudice might lead them to be against the settlement while mine pushes me to favor it.

Today’s post is not to argue that the settlement should be approved, but to consider what the situation will be if the settlement is rejected. The proponents and opponents of the settlement certainly seem to differ on what the world will look like if the settlement is approved; might there be somewhat greater agreement between the sides about what the world will look like if the settlement is rejected?

To me, it looks a short story.

The consequences of the settlement being rejected seem catastrophic to settlement opponents if it is turned down because the litigants are deemed not to fairly represent the classes (that is: the judge buys into the the idea that foreign authors, contributors, and orphans and perhaps others are “left out”). If the class representation is overturned or curtailed, it would be somewhere between difficult and impossible for these lawsuits to go on (and there are two lawsuits, even though there is one settlement.) If the settlement is rejected for some other reason (perhaps: the judge agrees that it can’t be allowed because it grants Google what would be a monopoly), then presumably the litigation could go on.

If rejection of the settlement is because the AAP and/or AAR don’t represent the class, Google would be in a stronger position than they were before the suit. There would be no database of orphan works to sell litigation-risk free, but the scans for search and returning of snippets would just continue. Authors could individually sue for copyright infringement if they wanted to try. Nobody would be any more tempted to “compete” with Google by scanning in-copyright works than they are now. And Google would have the benefit of having smoked out a lot of potential litigants because the faux settlement got a lot of copyright holders to come forward.

A little-known fact is that most of the value of the database Google was going to sell was in the in-copyright works that would have been ceded to the database. (This came up obliquely because these are the copyright holders who are going to get bonus revenue from the money earned by the page views on orphans, a fact settlement opponents have raised.)

That being the case, somebody will want to distribute that database, even without the orphans. That somebody will have to negotiate with Google to get the digital files and then with each of the publishers for their rights, without a BRR to help them. A pain in the neck, but in a few years it would probably happen.

If the settlement is rejected for some other reason, all of the above (except the part about still selling that database, since the copyright owners would still be in litigation with Google over this scanning and their lawyers would advise them against it; they can’t license a use for the scans they want to say Google shouldn’t have!) remains true and the AAP and the AAR get to decide whether to continue to fund the suit for the next several years while they and Google keep talking, presumably, about something that would satisfy the court (a bit odd, since they already satisfied each other!) If that were to happen, would the opponents of the settlement somehow help them carry on? Or step in to litigate in their stead?

If this analysis is right (and I float it with all humility: IANAL), then the opponents of the settlement walk a fine line. They want it rejected, or remanded to the litigants with some instructions they can actually follow. But they don’t want the plaintiffs discredited as representatives of the class. It would be the height of irony if Google, which probably had foregone challenging the standing of the AAR and AAP at the beginning to avoid antagonizing two organizations they ultimately need to work with, gets a court victory they didn’t seek handed to them by people motivated to make their lives more difficult. This could end up being a textbook demonstration of “unintended consequences.”

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Thanks to Peter Brantley and his work spotting items of interest, I was pointed to a post in Wired which is an FAQ on the Google settlement. It is, as far as I can tell, an accurate summary that leads people through the issues in a way that discourages support for the settlement. But I focused on one particular question and answer:

That’s ridiculous. Isn’t there a better solution to the orphan works problem?

Yes. For one, Congress could step up and pass a law about orphan works. But the last time Congress passed a substantial law about the length of copyrights it extended them for 20 more years — keeping more and more books from reaching the public domain. Don’t expect much help here.

This a neat summary of the problem with the whole Booksearch settlement debate. The ONLY better solution to the orphan works problem is for Congress to do the right thing. The author of THIS piece sure didn’t try to come up with anything else. Since that is so, the debate about the settlement should focus on two questions:

1. If Congress does nothing, are we better off with the settlement or with the status quo ante (no settlement and a continuing lawsuit where the plaintiffs are the parties in the settlement, NOT the public and NOT the libraries and NOT the orphan owners — ha! — and not anybody else?)

2. Are we more likely to generate constructive action from Congress in the environment we’d have after the settlement is rejected (status quo ante) or where we’ll all be if  it is accepted?

The now 7-month long debate about the settlement is highly asymmetric. Those advocating it are forced to defend something specific, as if it were the last word (which it isn’t.) Those opposing it are forced to defend nothing. For those who believe the settlement should be rejected, the questions I believe are relevant:

1. Do you have any suggestion of an alternative solution OTHER than Congress passing sensible new copyright law covering orphans?

2. If not, can you explain why it is any more likely that Congress will do that now, or if the settlement is rejected, than in the half-century just past?

As far as I can tell, and I have been asking, there is no solution to the orphan works problem except by changing the copyright law, if this settlement is rejected. And, of course, the is only the most partial solution. Congress has not only failed to act on this question; to my knowledge  not one Congressman or Senator has even expressed an opinion about the Google settlement or the orphan works question in general.

So, this settlement aside, there is apparently no solution BUT Congress and there is no solution likely to be coming FROM Congress. So the cost of denying Google the notional economic monopoly over some unknown quantity of previously buried intellectual property is to also deny it to everybody else. At least until this lawsuit wends its way through trial and appeals.

There is an irony in the current debate which has gone unremarked upon in any of the material I have seen. No polls have been taken on the subject, but appreciating the irony will depend on agreeing with me that there has been more opposition to the settlement from the library community than from publishers. That’s my very strong impression. 

The entire corpus of scanned orphan works comes from library collections. Now the library community expresses the fear that Google, having obtained a “monopoly” on many of these scanned works through the settlement, will charge extortionate prices to libraries for access to the database beyond the one free terminal per library negotiated in the settlement. But at the time the Google library program was announced, it was publishers who were up in arms about whether the libraries – which were getting copies of the scans that Google was creating of their books with different “rights grants” from Google for what could be done with the scans Google had paid for – were exceeding fair use in their partnership with Google. If there hadn’t been deals between libraries and Google, there would have been no in-copyright material scanned, no lawsuit, and no settlement.

Of the people I have talked to who are opposed to the settlement, all agreed that a better solution could only come through a change in the copyight law. One particularly strong opponent said he believed that would be made more likely by rejection than by acceptance.  I don’t agree with him and he offered no logical support for that opinion.

Another, agreeing that we’d need an Act of Congress and wouldn’t be likely to get one, said that “not all problems have answers” and that orphan works might be one of those. And, anyway, he argues, the aggregate value of all the orphans was hardly worth the time and energy the industry is spending discussing them. He diverges from some fellow opponents who are offended by the dollar windfall presumably coming to Google from the sale of rights to the database of scans. 

This opponent of the settlement is arguing that the value to society of getting the “fair use” questions that arise in this case settled by a court is greater than the value of liberating several million books for consumption. That is a discussion worth having. It is not depending on things that won’t happen to make its case. Most of the arguments against the settlement don’t have that virtue.

And there is one more irony surrounding this debate. While the settlement is waiting for approval or disapproval from the judge, the registering of copyright claimants for the orphans continues. There have been no results announced, but I am led to believe that the number of c/r owners coming out of the woodword, because of the settlement, is much larger than anybody expected. This is, of course, shrinking the potential bonanza to Google and is also accomplishing what years of effort to influence Congress has failed to do: substantially reducing the number of orphan works.

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Michael Cairns and I have both been frustrated with most of the conversation surrounding the Google Book Search settlement. The principal concerns of most of the participants in the dialogue seem to be: 

1. Has Google unfairly captured a monopoly on some content?

2. Has the “class” of “orphan authors” been dealt with fairly, since they aren’t really “represented” in the negotiations?

3. If this case doesn’t adjudicate questions of “fair use”, does that ipso facto mean that a settlement is a bad idea?

4. Can any settlement of broad public-interest questions about copyright and use be legitimately resolved in any way other than through legislation, since, after all, copyright rules are created through legislation?

We believe it is unfortunate that the attention has been focused there because there are some very real commercial questions that we think need answers to fully appreciate the practical implications of the settlement. We’ve been doing our best to build a model of what revenue will be and where it will go. Trying to do that makes it very clear how much important detail has been omitted from the debate we’ve heard so far (and we’ve both heard a lot of it.) Here’s a starter list of questions that need answers to forecast this business which we hope that people more familiar with the terms of the settlement than we are might be able to answer for us.

By far the most significant questions we have concern how the revenues are divided,  and these are significant questions because the preliminary financial projections we have done indicate that this database of content will produce hundreds of millions of dollars for Google and BRR.

1. We understand that revenue flows from the books in the database to Google and then 63% of that to the BRR.  Are there any rules set yet about what BRR can keep of these revenues for its own operations before it passes on the remainder to rightsholders? We might logically assume that BRR would require a diminishing percentage as revenues rise, but we wonder how those controls will be established.

2. We understand that future orphan claims can be compensated going back five years from the time of the claim. That suggests that the BRR has to hold the orphans’ money in escrow going back five years. The key question we have not heard discussed is: what happens with the money older than five years? We’ll expand on that below.

3. How is the allocation of revenue determined for the copyright owners in the database? Are they paid by the amount of content in the database? Or by the number of pages viewed of their work in the databases licensed? Or on some other basis? Or is that something still to be determined by the BRR?

4. We believe that any sales costs Google incurs, such as hiring another organization to help them sell licenses, would come out of Google’s 37%. Is that correct, or can Google deduct sales costs before dividing the money?

And we have a bunch of questions to which the answer might be, Book Rights Registry (BRR: the entity with a Board of eight — four from the AAP and four from the Writers Guild — that can therefore deadlock) just decides. We want to know if there are any barriers or constraints on any of the following within the terms of the settlement.

5. We know that the database will have greater value and greater use if it is curated and merchandised. Is there a plan for this? Is there even a concept for how a third party could be compensated for doing this curation and merchandising? 

6. We see opportunities for services & solutions providers such as SharedBook and to add value by providing the ability for customization, personalization, and annotation of the IP and then perhaps to have the end product  sold both as a book and as an ebook. Is this a deal that BRR would just be free to make on whatever terms they deemed appropriate?

7. Does BRR get to retain a larger percentage of revenues for ‘home-grown’ product initiatives such as the ones we are describing?  This revenue doesn’t come from Google like the institutional licensing and ebook sales money does, so does Google still get its full 37%?

8. To leverage non-database (non-Google) revenue opportunities we see three primary functions that need building: a storefront, an assembly technology (which could be much simpler than SharedBook: what if you wanted to put five Dickens novels together and print them?), and actual printing and delivery. Do we assume that BRR is free to put these capabilities together however it likes? Could it grant this as a sublicensed monopoly to Amazon or Ingram or Barnes & Noble? 

9. We puzzle over the pricing of POD. May we assume that BRR would be free to pursue any model? We can see two immediately: one is that BRR gets a percentage of the book’s retail (or wholesale) price and the other is that BRR charges a flat rate for the book content and the packager-reseller then charges whatever they want for the resulting book. Is BRR free to make these deals as it likes?

At the core of the important discussion about the settlement which has not occurred is  the question “what happens to the money the orphan books earn?” If it is divided among all the opters-in, which seems at least as reasonable as letting BRR just keep it, then there is a huge potential windfall to the copyright holders who stay in this database. That has not been mentioned by anybody (as far as we know). By consensus, 5 million of the 7 million books that are going to earn many tens, if not hundreds, of millions of dollars annually are orphans so, by definition, they have no copyright owner to pay! Either BRR keeps the money or they give it to the contributors to the database.

Not to have discussed this strikes us as a startling omission. Somebody gets a windfall much larger than the one going to Google. Who is it?

This post is an intellectual joint effort with Michael Cairns, who did a very helpful editing job on the first draft as well.

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The Google settlement brings into bold relief what has been a quiet issue for book publishers, particularly the biggest ones.

They are largely in the dark about what rights they own.

It is not really hard to understand why they’re in this position and it isn’t really anybody’s “fault”, but it sure is a mess. The “rights database” or “contracts database” for most publishers consists largely of paper contracts in file drawers. That’s because all the big publishers gain a substantial portion of their income from backlist that was acquired years, decades, or even many decades ago, long before electronic rights databases were even conceived of.

There have been big improvements in the possibilities for storing this data in recent years. We’ve written extensively about StartWithXML processes and the idea that the rights information could “travel along” with the content in an XML document. That’s new stuff. So is the Klopotek system that actually builds the publisher-author contract from a rights database; the workflow had always had this work the other way around.

But these solutions, even for publishers farsighted enough to employ them, don’t solve the problem of thousands of legacy contracts in file cabinets. The Google-related issues primarily revolve around whether the rights to an inactive book (or, in the settlement lingo, what they would call “not commercially available”) have reverted to the author or are still held by the publisher.

Publishers also have problems with books on which they unambiguously have the rights to print and sell copies. What they don’t know, without looking at the original contract, is whether the language in it gives them a shot at an ebook, a print-on-demand edition, or allows them to include some of the material in that book in an electronic database. Even looking at the book contract might not tell them if they have the rights to use artwork that is in the book in any other edition. 

We are working on a future post on “business development”, which we figure is a big opportunity for publishers who have digitized a large amount of legacy content, which many (if not all) of the big publishers have. But any hopes of business development are stopped in their tracks if a publisher doesn’t know what rights are controlled.

The challenge of building a comprehensive rights database for the many tens of thousands of titles the big publishers control is probably cost-prohibitive. And even if money were no object, there would be a lot of empty cells in that database where information should be because contracts would be lost or incomplete. Figuring out how to attack that problem cost-effectively is one of the most important puzzles facing the senior executives of the major houses.

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I have read and listened to a lot of dialogue about the Google settlement. I’m not a lawyer and I’m not a librarian or archivist and I’m not a scholar who would be interested in those “non-consumptive uses” I didn’t know about before this all happened. To the extent that I had a horse in the race, it was about liberating orphan books. I worked with a current executive who was inside a different big company 10 years ago. We were analyzing the whole world of out of print and the opportunities therein. We figured out pretty quickly that a lot of the good stuff we’d find would present devilish problems trying to locate somebody to pay royalties to, and determining definitively that something post-1923 was not under copyright was not an airtight propositon either. 

A few years ago, at the Frankfurt Book Fair before the Google Library project was announced, Michael Holdsworth, then at Cambridge University Press, related an observation from somebody he’d talked to who said “when we come back 30 or 50 years from now, most of the IP from the 20th century will have vanished. We’ll reach a point where if Google doesn’t report it, it doesn’t exist. Everything from before 1923 will have been scanned by somebody and everything post 2000 was born digital. Just about everything in between will be missing.”

That was very fresh in my mind when Google began to scan all those orphan works, breaking a logjam (one way or another; it now appears by this settlement) that the Congress had not resolved. In fact, legislation since the 1970s extending terms of copyright had actually made the problem worse. Under the laws I grew up under, I believe anything older than 56 years would have been in the public domain. That law today would liberate anything born before 1953. I would personally be out of copyright.

As a responsible member of the community, and a consultant who wants to help clients think through the implications of change, of course the Google settlement becomes a tennis tournament where I have to attend every match.

The part that interests me most is the potential revenue beyond the settlement. Where is the revenue for this going to come from? Who will buy what from the material Google has digitized and what will the revenue opportunities really be for those who “opt in”? And what will Google really have to sell?

I went to Michael Cairns, former CEO of Bowker with this question and he and I are starting to think it through.

All the focus on revenues in the conversations I’ve heard, including a very stimulating seminar at Columbia ten days ago, has been about digital revenue. And that’s what Cairns and I were thinking about too. What, besides the pre-1923 PD stuff do they have in the databases they can license to libraries? So how much can they charge? We saw Google’s pricing idea for ebooks. What will copyright owners do about pricing? And will copyright owners give Google books under this program, or under the Google Partnership Program? These are complicated questions.

Distracting, even.

Because that’s not where the money is. (This next part is purely a hunch; we haven’t done any numbers yet.)

Let’s remember that 99% of the consumer book business is still in print.

Think about how many orphan books would be worth a printing of 5000 copies or more. Start with this as a list from which to find probable candidates:

Any book that was made into a significant Hollywood movie.

Any book about FDR, Babe Ruth, Dwight Eisenhower, John Kennedy, Winston Churchill, etc.

Books about movie stars, TV stars, TV shows, pop musicians.

The number 1 fiction or non-fiction bestseller of any year (this could be a set used as birthday presents for special birthdays: 60, 65, 70, etc.)

My hunch is that the biggest revenue generator across the entire load of copyrights that the settlement will liberate for at least the next ten years will be books printed in press-run quantities. Who ever thought that the biggest beneficiaries of the Google settlement in the medium term could be agents and packagers? If somebody has previously mentioned the possibility, I hadn’t noticed. It only occurred to me day before yesterday.

Cairns reminds me that our friend (and fellow Michael) Cader thinks that the chances of any real “gems” being found in this orphan pile are remote. Of course, things that are remote possibilities happen from time to time over enough occurrences, and there will be a lot of books liberated. Surely there are many, in the categories mentioned above and others, that will warrant a first printing of  3,000 or 5,000 or 10,000, or with the right packaging and promotion, even more than that. Even in these troubled times, there might be some additions to staff at packagers or publishers to sift through these opportunities. Assuming these deals are to be made by the Book Rights Registry, let’s hope they have an agent on the staff along with the database sales manager.

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