DOJ PRESENTS CONCERNS TO COURT REGARDING GOOGLE’S BOOK SETTLEMENT

On September 18, the DOJ presented its a statement of its views regarding the proposed class action settlement between the American Association of Publishers and Google. As the parties continue to modify the settlement agreement, the DOJ issued a statement of interest to the court to provide the court with the Antitrust Division’s concerns relating to a potential settlement.
The DOJ makes clear in its statement that its investigaiton of the competitive impact of the settlement is incomplete. However, the DOJ provided its views on certain core issues about the settlement that raise antitrust concerns.

First, through collective action, the proposed settlement appears to give book publishers the power to restrict price competition. Second, the proposed settlement may effectively preclude other digital distributors from competing with Google in the sale of difital library products and other derivative products.

The DOJ is concerned that the settlement may restrict price competition among authors and publishers through the creation of an industry wide revenue sharing formula at the wholesale level applicable to all works; the setting of default prices and the effective prohibition on discounting by Google at the retail level; and the control of prices for orphan books by known publisher and authors with whose books the orphan books likely compete. Basically, the DOJ is concerned that the settlement agreement is a form of horizontal collective action by class representatives who are competitors to each other–that is prohibited by the antitrust laws under Section 1 of the Sherman Act. The parties to the settlement claim that it is not collusion rather a unilateral offer by Google to each individual rights holder to contract on specified terms. The DOJ strongly suggests that if the settlement agreement is not modified that the Antitrust Division would conclude that the agreement violates the antitrust laws. The DOJ says that the settlement agreement as drafted restricts wholesale and retail price competition among publishers authors

The other concern presented by the DOJ is that the settlement agreement could foreclose competition in the digital distribution of online books. It appears that through the proposed settlement, competing authors and publishers will be granting Google de facto exclusive rights for the digital distribution of orphan works (works of milions of unknown individual rights owners). No one entity has the legal right to do this for any other digial distributor so this, the DOJ suggests, means that Google would obtain a monopoly over orphan works through the proposed settlement.

The DOJ will complete its investigation after Google and the Association modify the settlement agreement.