The Long Arm of the Law: Of Books and Competition by William Hannay, Schiff Hardin LLP

Of Books andOf Books and Competition Competition

Charleston Conference 2010Charleston Conference 2010Bill HannayBill Hannay

Schiff Hardin LLP, ChicagoSchiff Hardin LLP, Chicagowhannay@schiffhardin.comwhannay@schiffhardin.com

Two Hot CasesTwo Hot Cases

Author’s Guild v. GoogleAuthor’s Guild v. Google The case of the century?The case of the century? Raises lots of questions about the Raises lots of questions about the

nature of competition in the book nature of competition in the book worldworld

SkyRiver v. OCLCSkyRiver v. OCLC Whose catalog is it, anyway?Whose catalog is it, anyway?

But first, a bit of history ...But first, a bit of history ...

Alexandria HeraldPtolemy II Announces Plan for Universal Library

Open Scrolls Alliance Decries Monopoly

ALEXANDRIA, Feb. 8, 286 B.C.E. (via Rome) – Pharaoh Ptolemy II today announced the founding of a universal library in Alexandra “to make available every scroll in the world.” Critics outside Egypt immediately condemned the proposal as a ploy to build up Alexandria’s tourist industry by forcing scholars to come to the city.

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Tewkesbury TimesManuscript Mania!

Gutenberg Inks Deal with Cloister Consortium

TEWKSBURY, Feb. 8, 1438 – Bible Baron Johannes Gutenberg today announced an agreement with a consortium of major cloisters to “print” their entire collection of illuminated manuscripts, using his radical new invention Movable Type. Prices for gold leaf and parchment plunged in late trading as speculators dumped their stocks.

Excerpt from

So, is there anything So, is there anything new under ye olde new under ye olde helioshelios??

Flash forward to 2004 ...

The Book Project/The LawsuitThe Book Project/The Lawsuit

2004 – Google Print Project initiated2004 – Google Print Project initiated 2005 – Lawsuit by Author’s Guild et al.2005 – Lawsuit by Author’s Guild et al. 10/28/08 – Settlement announced10/28/08 – Settlement announced 09/18/09 – DOJ files 109/18/09 – DOJ files 1stst statement statement 11/13/09 – Amended Settlement 11/13/09 – Amended Settlement

Agreement (“ASA”) filedAgreement (“ASA”) filed 11/19/09 – Court preliminarily 11/19/09 – Court preliminarily

approvesapproves 02/04/10 – DOJ files 202/04/10 – DOJ files 2ndnd statement statement 02/18/10 – Fairness Hearing held02/18/10 – Fairness Hearing held

The Issues in DisputeThe Issues in Dispute

The principal battle in the suit was about The principal battle in the suit was about the nature and scope of the nature and scope of copyrightcopyright laws laws including ownership and fair use issues.including ownership and fair use issues.

But the 2008 settlement led to a firestorm But the 2008 settlement led to a firestorm over the scope of federal over the scope of federal class actionclass action law. law.

The Department of Justice entered the The Department of Justice entered the fray at that point and launched an fray at that point and launched an antitrustantitrust investigation into the investigation into the settlement’s impact on “competition.” (It settlement’s impact on “competition.” (It continues.)continues.)

Statement of Interest of the United States of America Regarding Proposed Class Settlement, Doc. Item 720, filed 9/18/09, available at http://www.justice.gov/atr/cases/f250100/250180.htmStatement of Interest of the United States of America Regarding Proposed Class Settlement, Doc. Item 922, filed 2/4/10, available at http://www.justice.gov/atr/cases/f255000/255012.htm

Cites to the DOJ’s 2 StatementsCites to the DOJ’s 2 Statements

DOJ Views: On the one hand ...DOJ Views: On the one hand ...

““Breathing life into millions of works Breathing life into millions of works that are now effectively dormant, that are now effectively dormant, allowing users to search the text of allowing users to search the text of millions of books at no cost, creating millions of books at no cost, creating a rights registry, and enhancing the a rights registry, and enhancing the accessibility of such works for the accessibility of such works for the disabled and others are all worthy disabled and others are all worthy objectives.”objectives.”

DOJ View: On the other ...DOJ View: On the other ... ““The rights granted to Google under the ASA The rights granted to Google under the ASA

confer significant and possibly anti-confer significant and possibly anti-competitive advantages on a single entity...”competitive advantages on a single entity...”

““... Google would remain the only ... Google would remain the only competitor in the digital marketplace with competitor in the digital marketplace with the rights to ... exploit a vast array of works the rights to ... exploit a vast array of works in multiple formats. Google also would have in multiple formats. Google also would have the exclusive ability to exploit unclaimed the exclusive ability to exploit unclaimed works (including so-called “orphan works”) works (including so-called “orphan works”) without risk of liability. The ASA’s pricing without risk of liability. The ASA’s pricing mechanisms ... also continue to raise mechanisms ... also continue to raise antitrust concerns.”antitrust concerns.”

What’s the antitrust problem?What’s the antitrust problem?

Publishers & other search engines may Publishers & other search engines may not be able to compete in the future not be able to compete in the future due to Google’s enormous lead, its due to Google’s enormous lead, its market share, and the very copyright market share, and the very copyright barriers to entry that led to the barriers to entry that led to the litigation.litigation.

Private parties are jointly restructuring Private parties are jointly restructuring the publishing industry, with settlement the publishing industry, with settlement terms replacing copyright laws and terms replacing copyright laws and without any legislative authorization.without any legislative authorization.

What’s the DOJ’s bottom lineWhat’s the DOJ’s bottom line

The DOJ “has reluctantly concluded The DOJ “has reluctantly concluded that use of the class action that use of the class action mechanism in the manner proposed mechanism in the manner proposed by the ASA is a bridge too far.”by the ASA is a bridge too far.”

““... the ASA’s collectively agreed-... the ASA’s collectively agreed-upon constraints on the rightsholders’ upon constraints on the rightsholders’ relationships with Google continue to relationships with Google continue to raise concerns. In addition, Google’s raise concerns. In addition, Google’s de facto exclusive access to orphan de facto exclusive access to orphan and rights-uncertain works remains and rights-uncertain works remains unaddressed....”unaddressed....”

What does the DOJ suggest?What does the DOJ suggest?

““... the public interest would best be ... the public interest would best be served by direction from the Court served by direction from the Court encouraging the continuation of encouraging the continuation of settlement discussions between the settlement discussions between the parties.”parties.”

What do others say?What do others say?

Library Associations Expressed Library Associations Expressed Concerns Similar to DOJ’sConcerns Similar to DOJ’s

The cost of creating ... a repository The cost of creating ... a repository and Google’s significant lead time and Google’s significant lead time advantage suggest that no other advantage suggest that no other entity will create a competing digital entity will create a competing digital repository for the foreseeable future. repository for the foreseeable future. In the absence of competition ..., the In the absence of competition ..., the settlement could compromise settlement could compromise fundamental library values....fundamental library values....

[T]he absence of competition for the [T]he absence of competition for the institutional subscription service ... institutional subscription service ... makes libraries particularly vulnerable makes libraries particularly vulnerable to profit maximizing pricing.to profit maximizing pricing.

Eric M. Fraser writing in Eric M. Fraser writing in the Stan. Tech. L. Rev. says:the Stan. Tech. L. Rev. says:

““The settlement effectively gives The settlement effectively gives Google simultaneous agreements with Google simultaneous agreements with virtually all the rightsholders to in-virtually all the rightsholders to in-copyright American books. ... The copyright American books. ... The simultaneity concentrates pricing simultaneity concentrates pricing power, leading to cartel pricing (a power, leading to cartel pricing (a problem under § 1 of the Sherman Act) problem under § 1 of the Sherman Act) and monopolization (a § 2 problem).”and monopolization (a § 2 problem).”

Others Find Others Find NoNo Antitrust Harm Antitrust Harm

Mark A. Lemley, an attorney Mark A. Lemley, an attorney representing Google in the litigation, representing Google in the litigation, has written “An Antitrust Assessment of has written “An Antitrust Assessment of the Google Book Search Settlement” the Google Book Search Settlement” and finds criticisms by the DOJ and and finds criticisms by the DOJ and others to be “unpersuasive.”others to be “unpersuasive.”

Einer Elhauge, a Harvard Law Professor Einer Elhauge, a Harvard Law Professor who received research support from who received research support from Google, has written “Why the Google Google, has written “Why the Google Books Settlement is Procompetitive.”Books Settlement is Procompetitive.”

What is the current status?What is the current status?

Still no word, and it’s been 8 months.Still no word, and it’s been 8 months. All are eagerly waiting to hear how Judge All are eagerly waiting to hear how Judge

Chin will rule on the “fairness” issue.Chin will rule on the “fairness” issue. He can accept it as is or reject it.He can accept it as is or reject it. He might rewrite the settlement and say He might rewrite the settlement and say

he’ll approve it he’ll approve it ifif parties make changes. parties make changes. He has been promoted to the US Ct of He has been promoted to the US Ct of

Appeals in NYC but is still on the case (?).Appeals in NYC but is still on the case (?).

What do I think?What do I think?

I think that one way or the other we I think that one way or the other we will be dancing to that well-known will be dancing to that well-known 1940s swing melody:1940s swing melody:

It’s the Boogie-Woogie Google It’s the Boogie-Woogie Google Boy Boy

of Company G!of Company G!

SkyRiver v. OCLCSkyRiver v. OCLCComplaint filed July 29, 2010Complaint filed July 29, 2010

Now let’s turn to ...Now let’s turn to ...

Dramatis PersonaeDramatis Personae

PlaintiffsPlaintiffs SkyRiver Technology SolutionsSkyRiver Technology Solutions Innovative Interfaces, Inc.Innovative Interfaces, Inc.

DefendantDefendant OCLC Online Computer Library OCLC Online Computer Library

Center, Inc.Center, Inc.

SkyRiver Technology Solutions – founded SkyRiver Technology Solutions – founded in October 2009 – CEO Leslie Strausin October 2009 – CEO Leslie Straus

SkyRiver’s website describes it as “a new SkyRiver’s website describes it as “a new bibliographic utility that offers a low cost bibliographic utility that offers a low cost alternative for cooperative cataloging.”alternative for cooperative cataloging.”

SkyRiver claims “savings of up to 40%” SkyRiver claims “savings of up to 40%” over OCLCover OCLC

It boasts contracts with MCLS, LYRASIS, It boasts contracts with MCLS, LYRASIS, and (last week) Oberlin Group members and (last week) Oberlin Group members

Innovative Interfaces, Inc. – founded Innovative Interfaces, Inc. – founded in 1978 – “born in the spare bedroom in 1978 – “born in the spare bedroom of CEO Jerry Kline's El Cerrito home”of CEO Jerry Kline's El Cerrito home”

It provides integrated library systems It provides integrated library systems (“ILS”) through 3 principal products: (“ILS”) through 3 principal products: Millennium, Encore and INN-Reach.Millennium, Encore and INN-Reach.

Innovative boasts 1200 Millennium Innovative boasts 1200 Millennium systems installed.systems installed.

OCLC – founded in 1967 by a group of OCLC – founded in 1967 by a group of Ohio libraries – CEO Jay JordanOhio libraries – CEO Jay Jordan

Merged with RLG in 2006. OCLC is now Merged with RLG in 2006. OCLC is now “a worldwide organization in which “a worldwide organization in which almost 27,000 libraries, archives and almost 27,000 libraries, archives and museums in 171 countries are museums in 171 countries are members.”members.”

Membership is “open to libraries and Membership is “open to libraries and other memory organizations of all types other memory organizations of all types and sizes.”and sizes.”

The lawsuit against OCLC is The lawsuit against OCLC is actuallyactually two two lawsuits combined into lawsuits combined into

one complaint: one by SkyRiver one complaint: one by SkyRiver and one by Innovativeand one by Innovative

SkyRiver’s SuitSkyRiver’s Suit

SkyRiver alleges OCLC has monopolized SkyRiver alleges OCLC has monopolized three distinct service markets: three distinct service markets: The market for bibliographic data about The market for bibliographic data about

the holdings of college, university and the holdings of college, university and research librariesresearch libraries

The cataloging of bibliographic records The cataloging of bibliographic records of the holdings of academic librariesof the holdings of academic libraries

The market for interlibrary lending The market for interlibrary lending between and among academic libraries.between and among academic libraries.

Innovative’s SuitInnovative’s Suit

Innovative claims that OCLC is Innovative claims that OCLC is attempting to monopolize the market attempting to monopolize the market for integrated library systems (ILS).for integrated library systems (ILS).

OCLC is alleged to be using its OCLC is alleged to be using its monopoly power over its WorldCat monopoly power over its WorldCat database, cataloging service, and ILL database, cataloging service, and ILL service in an attempt to monopolize service in an attempt to monopolize the market for integrated library the market for integrated library systems.systems.

How does the law work?How does the law work?

The Sherman Act prohibits The Sherman Act prohibits “monopolizing” or “attempting to “monopolizing” or “attempting to monopolize” a market.monopolize” a market.

SkyRiver must prove that OCLC has a SkyRiver must prove that OCLC has a monopoly monopoly andand maintains or got it through maintains or got it through unfair, predatory or exclusionary means.unfair, predatory or exclusionary means.

Innovative must prove that OCLC has a Innovative must prove that OCLC has a dangerous probability of achieving dangerous probability of achieving monopoly by using improper means with monopoly by using improper means with the specific intent to monopolize.the specific intent to monopolize.

What is SkyRiver’s claim?What is SkyRiver’s claim?

(1)(1) The complaint alleges OCLC used tax-The complaint alleges OCLC used tax-exempt status to gobble up competitors exempt status to gobble up competitors or would-be competitors. “Since 1982 or would-be competitors. “Since 1982 OCLC has used its tax-free profits to OCLC has used its tax-free profits to acquire 14 for-profit companies.”acquire 14 for-profit companies.”

(2)(2) It is alleged that, when libraries tried It is alleged that, when libraries tried switching to SkyRiver, OCLC retaliated switching to SkyRiver, OCLC retaliated by imposing price increases of >1100% by imposing price increases of >1100% to upload holdings to the WorldCat to upload holdings to the WorldCat database.database.

What is Innovative’s claim?What is Innovative’s claim?

Innovative alleges that OCLC uses its Innovative alleges that OCLC uses its membership requirements to obtain membership requirements to obtain the agreement, assistance and the agreement, assistance and services of libraries in developing services of libraries in developing OCLC products such as WorldCat OCLC products such as WorldCat Local, which they are also obligated Local, which they are also obligated to purchase, while competitors, such to purchase, while competitors, such as Innovative, are excluded from as Innovative, are excluded from what should be competitive what should be competitive procurement opportunities.procurement opportunities.

What’s the status?What’s the status?

SkyRiver filed suit in San Francisco CA, and SkyRiver filed suit in San Francisco CA, and OCLC moved to transfer it to southern OCLC moved to transfer it to southern Ohio under 28 USC 1404 (“for the Ohio under 28 USC 1404 (“for the convenience of parties and witnesses convenience of parties and witnesses [and] in the interest of justice”).[and] in the interest of justice”).

Last week, the Calif. court granted the Last week, the Calif. court granted the motion because motion because inter aliainter alia “all but two of “all but two of the libraries that have switched from OCLC the libraries that have switched from OCLC to SkyRiver are closer to ... Ohio than ... to to SkyRiver are closer to ... Ohio than ... to California” and are material witnesses.California” and are material witnesses.

What’s Next?What’s Next?

The average period between filing a The average period between filing a complaint and trial is > 29 months. complaint and trial is > 29 months.

But a defendant can move to dismiss a But a defendant can move to dismiss a complaint for failure to state a claim now.complaint for failure to state a claim now.

If OCLC so moves, will it prevail?If OCLC so moves, will it prevail? It is hard to say. The 39-page complaint It is hard to say. The 39-page complaint

seems thoughtfully written with lots of seems thoughtfully written with lots of detail, but the Sherman Act is a tricky law.detail, but the Sherman Act is a tricky law.

What do I think?What do I think?

I think that you should join me in I think that you should join me in crooning that great old Henry crooning that great old Henry Mancini song from “Breakfast at Mancini song from “Breakfast at Tiffany’s”:Tiffany’s”:

SkyRiver, cheaper by a mileSkyRiver, cheaper by a mileYou’ll help me to refile ... You’ll help me to refile ...

someday.someday.