The federal judge overseeing the Google Books case dealt a setback to Google and the publishing industry on Tuesday by rejecting a massive proposed settlement. Judge Denny Chin wrote that the latest iteration of the settlement "is not fair, adequate, and reasonable" because it would give Google a de facto monopoly in the book search market and adversely affect the rights of millions of copyright holders.

The fight over Google Books has been brewing since Google announced its book-scanning project in 2004. A coalition of authors and publishers sued the following year, and in 2008, a settlement was announced. It has attracted a growing army of critics, including the US government.

The settlement is especially controversial because it uses class action law to affect the rights of a breathtakingly broad array of authors and publishers. In approving a class action settlement, a judge must determine if it fairly represents the interests of the affected parties—in this case, millions of copyright holders. And those copyright holders have not been shy about voicing their displeasure. Approximately 6,800 copyright holders opted out of the settlement, and about 500 comments were filed, mostly in opposition. Some of the objections raised were weighty enough to convince Judge Chin to scuttle the deal.

Your honor, we object

Most importantly, the proposed settlement was far more ambitious than the underlying legal dispute. "The case was about the use of an indexing and searching tool," Judge Chin wrote, "not the sale of complete copyrighted works." Yet the settlement gave Google broad latitude to open an online books store to sell copies of many of the books it has scanned.

And crucially, through the legal fiction of the class action mechanism, the settlement gives Google the right to sell copies of "orphan works" whose copyright holders—by definition—cannot otherwise give their permission. "The questions of who should be entrusted with guardianship over orphan books, under what terms, and with what safeguards are matters more appropriately decided by Congress than through an agreement among private, self-interested parties," Chin wrote.

Second, Judge Chin noted that there were many conflicts of interests between the named plaintiffs (the Authors Guild and the Association of American Publishers) and copyright holders they were supposed to represent. For example, a group of academic authors argued that many academics seek to maximize access to their works, whereas the named plaintiffs were commercial authors and publishers focused on maximizing profits. The settlement was also opposed by numerous groups of foreign authors who argued that their interests had not been adequately represented in negotiations. They also argued that the opt-out requirements were particularly burdensome for foreign authors and that the settlement conflicted with international treaty obligations.

The settlement also raises significant antitrust concerns. The Obama Administration filed a formal objection to the settlement that largely focused on its anticompetitive effects. Judge Chin endorsed some of those concerns in his ruling, noting that the settlement—and especially the licensing of orphan works—would "arguably give Google control over the [book] search market." Google could index orphan works with impunity, while Google's competitors would have no realistic way to use such works.

Other objections did not impress Judge Chin. He dismissed arguments that copyright holders had had inadequate notice, pointing out that more than a million notices had been sent out and that the case had received widespread attention in the media. He also shrugged off privacy concerns. Strangely, Judge Chin cited objections focused on the privacy of users of Google's future online book service, but then focused on provisions guaranteeing the privacy of copyright holders in his response. In any event, Judge Chin had plenty of other reasons to reject the deal and so didn't belabor this one.

The unclear path forward

Ars contacted Google for comment, and received a generic statement expressing disappointment and stating the company needed to review the ruling before deciding how to respond. Google pledged to "continue to work to make more of the world's books discoverable online through Google Books and Google eBooks."

It's unclear where things go from here. The settlement was the product of several years' negotiation, and Judge Chin took more than a year to hand down his decision. With the online books market evolving rapidly, the case may grow less important as Apple, Amazon, and other competitors build their own digital book empires.

Presumably, the failure of this settlement will touch off another round of intense behind-the-scenes negotiation. James Grimmelmann, a law professor at New York Law School, suggests that the parties have two options: they can seek to appeal the judge's ruling, or they can submit yet another settlement in hopes of getting Judge Chin's approval.

In his ruling, Chin hinted that he would look more favorably on an "opt-in" settlement—e.g. one that applied only to those authors and publishers who explicitly chose to accept it. But as Chicago Law School's Randy Picker notes, the "evil genius" of the decision was precisely the way it gave Google a license for orphan works. So any settlement that's acceptable to Judge Chin might be unacceptable to Google.

We've always thought Google had a strong argument in the underlying lawsuit, and we'd love to see them choose to fight and vindicate everyone's fair use rights. Barring that, we hope Judge Chin will continue to cast a skeptical eye on any effort to use class action law to establish a de facto monopoly in the online books market.