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In a victory for Google(s goog) in its long-running fight with the Authors Guild, the Second Circuit of Appeals overturned a lower court’s decision to grant class action status, and told the judge in the case to rule on whether Google’s book scanning was “fair use” under copyright law.

The decision, issued Monday in New York, is the latest twist in a case that began in 2005 when the Authors Guild and publishers sued to stop Google from scanning the world’s libraries. The parties reached a settlement that would have created a bookselling partnership, but Judge Denny Chin rejected the arrangement in 2011 following objections from some scholars and Google’s corporate rival.

The new ruling (see below) is a blow to the Authors Guild, which revived the original law suit in late 2011, because it unplugs Chin’s earlier decision to let the case proceed as a class action — allowing every registered author in America to sue together. Google had objected to the class action status, claiming it forced authors who liked the scanning project into a lawsuit with those who didn’t. The appeals court appeared to agree with Google’s position, writing that is “an argument which, in our view, may carry some force.”

But the most significant part of the ruling is that Chin must now directly rule on whether Google’s activities are “fair use” — a four-part test that looks at issues like the purpose of the copying and its effect on market sales. Google has long argued that its scanning of more than 20 million books has not hurt authors, but helps to make forgotten or hard-to-find works available to larger audience.

The new ruling also creates a political issues among the judges due to the fact that Judge Chin is now on the Second Circuit too (but continues to have the original Google case as a holdover from his time as a District judge). Monday’s unanimous ruling amounts to a challenge of sorts from his colleagues, who include Judge Pierre Leval, a noted fair use scholar.

Finally, the new ruling raises questions on how much longer the Authors Guild is willing to continue the expensive litigation. The appeals court’s decision to decertify the class action likely crushes the Guild’s hopes of a big settlement payoff; meanwhile, the Guild has also suffered setbacks in a parallel lawsuit known as “HathiTrust” that involves a copyright suit against university libraries.

Update: Google stated by email: “We are delighted by the court’s decision. The investment we have made in Google Books benefits readers and writers alike, helping unlock the great pool of knowledge contained in millions of books.” We’re still waiting for a statement from the Guild.

(For the full story, see my ebook The Battle for the Books: Inside Google’s Gambit to Create the World’s Biggest Library. It’s available for $2.99 here.)

Here’s a copy of the ruling:

2nd Circ Google

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