NEW YORK (

TheStreet

) --

Google's

(GOOG) - Get Report

plans to build the world's largest digital library ran into a legal roadblock on Tuesday, when a federal judge rejected the $125 million class-action settlement plan reached between Google and authors and publishers groups in 2008.

Judge Denny Chin of the U.S. District Court for the Southern District of New York said the settlement had not struck the right balance between Google's right to profit from its digital library and the rights of authors and publishers, describing the settlement and his decision this way: "The question presented is whether the ASA

the Amended Settlement Agreement is fair, adequate, and reasonable. I conclude that it is not."

Judge Chin continued, "While the digitization of books and the creation of a universal digital library would benefit many ... 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, while releasing claims well beyond those presented in the case."

The court case between Google and the publishing world dates to 2005, and it took several years for Google and publishers to work out an agreement announced in October 2008. The settlement would have allowed Google to make millions of out-of-copyright books available online and sell access to them, while also allowing publishers and authors to profit from sale of books online. The settlement made allies of Google and the publishing community, yet the settlement faced opposition from the Justice Department, among many other groups.

Beyond academics and consumer groups, some of the tech world heavyweights were against Google's settlement, including

Microsoft

(MSFT) - Get Report

and

Amazon

(AMZN) - Get Report

.

"This is clearly disappointing, but we'll review the Court's decision and consider our options," Hilary Ware, managing counsel at Google, said in a statement. "Like many others, we believe this agreement has the potential to open up access to millions of books that are currently hard to find in the U.S. today. Regardless of the outcome, we'll continue to work to make more of the world's books discoverable online through Google Books and Google eBooks."

Judge Chin also noted that objections raised by critics of the Google settlement could be effectively dealt with if it became an "opt-in" program, rather than an opt-out agreement.

Google shares finished at $577.32, up 82 cents, on Tuesday.

-- Written by Eric Rosenbaum from New York.

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