* Judge says settlement "goes too far"
* Justice Department has also criticized the deal
* Google says ruling is disappointing
(Adds authors, publishers, Justice reaction, share prices)
By Diane Bartz
WASHINGTON, March 22 A U.S. judge on Tuesday
rejected a $125 million settlement between Google Inc (GOOG.O)
and authors that would have let the company publish millions of
books online to create the world's largest digital library.
New York Judge Denny Chin said the deal gave Google a
significant competitive advantage and "would simply go too far"
in giving it the power to "exploit" digitized copyrighted works
by selling subscriptions to them online without permission.
Google has scanned roughly 12 million books from some of
the country's finest libraries, in what it has said was an
effort to provide easier access to the world's knowledge.
It was sued in 2005 by the Authors Guild and Association of
American Publishers for violating copyright laws, but reached a
settlement by agreeing to pay $125 million to people whose
copyrighted books have been scanned, and to locate and share
revenue with the authors who have yet to come forward.
Still, some critics contended that the deal gave Google an
unfair competitive advantage and broke antitrust law. Chin -- a
judge on the Second Circuit Court of Appeals who heard the case
while he sat in district court -- agreed on both counts.
"The ASA (amended settlement agreement) would give Google a
significant advantage over competitors, rewarding it for
engaging in wholesale copying of copyrighted works without
permission," Chin wrote in rejecting the deal.
He urged Google and authors and publishers to amend the
settlement to only include books whose copyright owners have
agreed to the arrangement, rather than a blanket deal that
would require authors to "opt out" should they not want their
scanned books to be sold online.
Speaking for the publishers, John Sargent, chief executive
of Macmillan publishing group, said he hoped the deal could be
"The publisher plaintiffs are prepared to enter into a
narrower settlement along those lines to take advantage of its
groundbreaking opportunities. We hope the other parties will do
so as well," said Sargent in an email statement.
Chin rejected the settlement "without prejudice," meaning a
revised pact could be submitted.
The Authors Guild's President Scott Turow also noted Chin's
push for an "opt-in" deal and said it hoped to talk to Google
and the publishers group to "arrive at a settlement within the
court's parameters that makes sense for all parties."
OTHER OPPOSITION ALSO REMAINS
Critics of the proposed settlement also include Amazon.com
Inc (AMZN.O), which sells the Kindle digital reader that would
not be compatible with Google's library, and Microsoft Corp
(MSFT.O). Sony Corp (6758.T), which makes an e-reader
compatible with Google's software, favors the pact.
The Justice Department has looked into the deal, including
at a group of books described as "orphan works" because they
are still in copyright but the rights holder cannot be found.
The settlement gives Google the right to market these works.
The Justice Department was pleased with Chin's decision,
said spokeswoman Gina Talamona, who said the settlement
"created concerns regarding antitrust, class certification and
The French government had opposed the deal but reached an
agreement with Google in early 2010 to allow French works to be
scanned without surrendering control of copyright. The German
government opposes the deal.
The ruling comes as Google Co-founder Larry Page is set to
take the CEO reins in April from Eric Schmidt. Page is an early
champion of digital books and personally scanned many of the
works himself early on in the project.
Analysts said the setback would have little impact on
Google's financials, since any revenue would have paled in
comparison to Google's main Internet search business.
Google shares closed up 0.14 percent at $577.32 on
"This is clearly disappointing, but we'll review the
court's decision and consider our options," Google's managing
counsel, Hillary Ware said in an emailed statement.
Since the settlement, Google launched in December an
electronic bookstore with three million books, with permission
from the relevant publishers.
Under the agreement, authors and publishers would register
works and be paid for books and other publications the search
giant puts online. The settlement covered books that were out
of print but still under copyright.
The case is The Authors Guild et al v. Google, Inc, U.S.
District Court, Southern District of New York, No. 05-08136.
(Reporting by Grant McCool and Diane Bartz; editing by
Richard Chang, Andre Grenon and Carol Bishopric)