Charleston Conference Saturday Morning Plenary November 6, 2010, 10:00 AM

1. Of Books andOf Books and
CompetitionCompetition
Charleston Conference 2010Charleston Conference 2010
Bill HannayBill Hannay
Schiff Hardin LLP, ChicagoSchiff Hardin LLP, Chicago
whannay@schiffhardin.comwhannay@schiffhardin.com

2. 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 theRaises lots of questions about the
nature of competition in the book worldnature of competition in the book world
 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 ...

3. 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.
Excerpt from

4. 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

5. So, is there anything newSo, is there anything new
under ye oldeunder ye olde helioshelios??
Flash forward to 2004 ...

6. 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
statementstatement
 11/13/09 – Amended Settlement11/13/09 – Amended Settlement
Agreement (“ASA”) filedAgreement (“ASA”) filed
 11/19/09 – Court preliminarily approves11/19/09 – Court preliminarily approves
 02/04/10 – DOJ files 202/04/10 – DOJ files 2ndnd
statementstatement
 02/18/10 – Fairness Hearing held02/18/10 – Fairness Hearing held

7. The Issues in DisputeThe Issues in Dispute
 The principal battle in the suit was aboutThe principal battle in the suit was about
the nature and scope ofthe nature and scope of copyrightcopyright lawslaws
including ownership and fair use issues.including ownership and fair use issues.
 But the 2008 settlement led to a firestormBut the 2008 settlement led to a firestorm
over the scope of federalover the scope of federal class actionclass action law.law.
 The Department of Justice entered theThe Department of Justice entered the
fray at that point and launched anfray at that point and launched an antitrustantitrust
investigation into the settlement’s impactinvestigation into the settlement’s impact
on “competition.” (It continues.)on “competition.” (It continues.)

8. 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.ht
m
Statement 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.ht
m
Cites to the DOJ’s 2 StatementsCites to the DOJ’s 2 Statements

9. DOJ Views: On the one hand ...DOJ Views: On the one hand ...
 ““Breathing life into millions of works thatBreathing life into millions of works that
are now effectively dormant, allowingare now effectively dormant, allowing
users to search the text of millions ofusers to search the text of millions of
books at no cost, creating a rights registry,books at no cost, creating a rights registry,
and enhancing the accessibility of suchand enhancing the accessibility of such
works for the disabled and others are allworks for the disabled and others are all
worthy objectives.”worthy objectives.”

10. DOJ View: On the other ...DOJ View: On the other ...
 ““The rights granted to Google under the ASAThe rights granted to Google under the ASA
confer significant and possibly anti-competitiveconfer significant and possibly anti-competitive
advantages on a single entity...”advantages on a single entity...”
 ““... Google would remain the only competitor in... Google would remain the only competitor in
the digital marketplace with the rights to ...the digital marketplace with the rights to ...
exploit a vast array of works in multiple formats.exploit a vast array of works in multiple formats.
Google also would have the exclusive ability toGoogle also would have the exclusive ability to
exploit unclaimed works (including so-calledexploit unclaimed works (including so-called
“orphan works”) without risk of liability. The“orphan works”) without risk of liability. The
ASA’s pricing mechanisms ... also continue toASA’s pricing mechanisms ... also continue to
raise antitrust concerns.”raise antitrust concerns.”

11. What’s the antitrust problem?What’s the antitrust problem?
 Publishers & other search engines mayPublishers & other search engines may
not be able to compete in the future due tonot be able to compete in the future due to
Google’s enormous lead, its market share,Google’s enormous lead, its market share,
and the very copyright barriers to entryand the very copyright barriers to entry
that led to the litigation.that led to the litigation.
 Private parties are jointly restructuring thePrivate parties are jointly restructuring the
publishing industry, with settlement termspublishing industry, with settlement terms
replacing copyright laws and without anyreplacing copyright laws and without any
legislative authorization.legislative authorization.

12. What’s the DOJ’s bottom lineWhat’s the DOJ’s bottom line
 The DOJ “has reluctantly concluded thatThe DOJ “has reluctantly concluded that
use of the class action mechanism in theuse of the class action mechanism in the
manner proposed by the ASA is a bridgemanner proposed by the ASA is a bridge
too far.”too far.”
 ““... the ASA’s collectively agreed-upon... the ASA’s collectively agreed-upon
constraints on the rightsholders’constraints on the rightsholders’
relationships with Google continue to raiserelationships with Google continue to raise
concerns. In addition, Google’s de factoconcerns. In addition, Google’s de facto
exclusive access to orphan and rights-exclusive access to orphan and rights-
uncertain works remains unaddressed....”uncertain works remains unaddressed....”

13. 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 Courtserved by direction from the Court
encouraging the continuation of settlementencouraging the continuation of settlement
discussions between the parties.”discussions between the parties.”

14. What do others say?What do others say?

15. Library Associations ExpressedLibrary Associations Expressed
Concerns Similar to DOJ’sConcerns Similar to DOJ’s
 The cost of creating ... a repository andThe cost of creating ... a repository and
Google’s significant lead time advantageGoogle’s significant lead time advantage
suggest that no other entity will create asuggest that no other entity will create a
competing digital repository for thecompeting digital repository for the
foreseeable future. In the absence offoreseeable future. In the absence of
competition ..., the settlement couldcompetition ..., the settlement could
compromise fundamental library values....compromise fundamental library values....
 [T]he absence of competition for the[T]he absence of competition for the
institutional subscription service ... makesinstitutional subscription service ... makes
libraries particularly vulnerable to profitlibraries particularly vulnerable to profit
maximizing pricing.maximizing pricing.

16. Eric M. Fraser writing inEric M. Fraser writing in
the Stan. Tech. L. Rev. says:the Stan. Tech. L. Rev. says:
 ““The settlement effectively gives GoogleThe settlement effectively gives Google
simultaneous agreements with virtually allsimultaneous agreements with virtually all
the rightsholders to in-copyright Americanthe rightsholders to in-copyright American
books. ... The simultaneity concentratesbooks. ... The simultaneity concentrates
pricing power, leading to cartel pricing (apricing power, leading to cartel pricing (a
problem under § 1 of the Sherman Act) andproblem under § 1 of the Sherman Act) and
monopolization (a § 2 problem).”monopolization (a § 2 problem).”

17. Others FindOthers Find NoNo Antitrust HarmAntitrust Harm
 Mark A. Lemley, an attorney representingMark A. Lemley, an attorney representing
Google in the litigation, has written “AnGoogle in the litigation, has written “An
Antitrust Assessment of the Google BookAntitrust Assessment of the Google Book
Search Settlement” and finds criticisms bySearch Settlement” and finds criticisms by
the DOJ and others to be “unpersuasive.”the DOJ and others to be “unpersuasive.”
 Einer Elhauge, a Harvard Law ProfessorEiner Elhauge, a Harvard Law Professor
who received research support fromwho received research support from
Google, has written “Why the GoogleGoogle, has written “Why the Google
Books Settlement is Procompetitive.”Books Settlement is Procompetitive.”

18. 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 JudgeAll 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 sayHe might rewrite the settlement and say
he’ll approve ithe’ll approve it ifif parties make changes.parties make changes.
 He has been promoted to the US Ct ofHe 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 (?).

19. What do I think?What do I think?
 I think that one way or the other we will beI think that one way or the other we will be
dancing to that well-known 1940s swingdancing to that well-known 1940s swing
melody:melody:
It’s the Boogie-Woogie Google BoyIt’s the Boogie-Woogie Google Boy
of Company G!of Company G!

20. SkyRiver v. OCLCSkyRiver v. OCLC
Complaint filed July 29, 2010Complaint filed July 29, 2010
Now let’s turn to ...Now let’s turn to ...

21. Dramatis PersonaeDramatis Personae
 PlaintiffsPlaintiffs
 SkyRiver Technology SolutionsSkyRiver Technology Solutions
 Innovative Interfaces, Inc.Innovative Interfaces, Inc.
 DefendantDefendant
 OCLC Online Computer LibraryOCLC Online Computer Library
Center, Inc.Center, Inc.

22.  SkyRiver Technology Solutions – foundedSkyRiver Technology Solutions – founded
in October 2009 – CEO Leslie Strausin October 2009 – CEO Leslie Straus
 SkyRiver’s website describes it as “a newSkyRiver’s website describes it as “a new
bibliographic utility that offers a low costbibliographic 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 membersand (last week) Oberlin Group members

23.  Innovative Interfaces, Inc. – founded inInnovative Interfaces, Inc. – founded in
1978 – “born in the spare bedroom of CEO1978 – “born in the spare bedroom of CEO
Jerry Kline's El Cerrito home”Jerry Kline's El Cerrito home”
 It provides integrated library systemsIt 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 MillenniumInnovative boasts 1200 Millennium
systems installed.systems installed.

24.  OCLC – founded in 1967 by a group ofOCLC – founded in 1967 by a group of
Ohio libraries – CEO Jay JordanOhio libraries – CEO Jay Jordan
 Merged with RLG in 2006. OCLC is nowMerged with RLG in 2006. OCLC is now
“a worldwide organization in which almost“a worldwide organization in which almost
27,000 libraries, archives and museums in27,000 libraries, archives and museums in
171 countries are members.”171 countries are members.”
 Membership is “open to libraries and otherMembership is “open to libraries and other
memory organizations of all types andmemory organizations of all types and
sizes.”sizes.”

25. The lawsuit against OCLC isThe lawsuit against OCLC is
actuallyactually twotwo lawsuits combined intolawsuits combined into
one complaint: one by SkyRiverone complaint: one by SkyRiver
and one by Innovativeand one by Innovative

26. SkyRiver’s SuitSkyRiver’s Suit
 SkyRiver alleges OCLC has monopolizedSkyRiver alleges OCLC has monopolized
three distinct service markets:three distinct service markets:
 The market for bibliographic data aboutThe market for bibliographic data about
the holdings of college, university andthe holdings of college, university and
research librariesresearch libraries
 The cataloging of bibliographic recordsThe cataloging of bibliographic records
of the holdings of academic librariesof the holdings of academic libraries
 The market for interlibrary lendingThe market for interlibrary lending
between and among academic libraries.between and among academic libraries.

27. Innovative’s SuitInnovative’s Suit
 Innovative claims that OCLC is attemptingInnovative claims that OCLC is attempting
to monopolize the market for integratedto monopolize the market for integrated
library systems (ILS).library systems (ILS).
 OCLC is alleged to be using its monopolyOCLC is alleged to be using its monopoly
power over its WorldCat database,power over its WorldCat database,
cataloging service, and ILL service in ancataloging service, and ILL service in an
attempt to monopolize the market forattempt to monopolize the market for
integrated library systems.integrated library systems.

28. How does the law work?How does the law work?
 The Sherman Act prohibits “monopolizing”The Sherman Act prohibits “monopolizing”
or “attempting to monopolize” a market.or “attempting to monopolize” a market.
 SkyRiver must prove that OCLC has aSkyRiver must prove that OCLC has a
monopolymonopoly andand maintains or got it throughmaintains or got it through
unfair, predatory or exclusionary means.unfair, predatory or exclusionary means.
 Innovative must prove that OCLC has aInnovative must prove that OCLC has a
dangerous probability of achievingdangerous probability of achieving
monopoly by using improper means withmonopoly by using improper means with
the specific intent to monopolize.the specific intent to monopolize.

29. 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 orexempt status to gobble up competitors or
would-be competitors. “Since 1982 OCLCwould-be competitors. “Since 1982 OCLC
has used its tax-free profits to acquire 14has used its tax-free profits to acquire 14
for-profit companies.”for-profit companies.”
(2)(2) It is alleged that, when libraries triedIt is alleged that, when libraries tried
switching to SkyRiver, OCLC retaliated byswitching to SkyRiver, OCLC retaliated by
imposing price increases of >1100% toimposing price increases of >1100% to
upload holdings to the WorldCat database.upload holdings to the WorldCat database.

30. What is Innovative’s claim?What is Innovative’s claim?
Innovative alleges that OCLC uses itsInnovative alleges that OCLC uses its
membership requirements to obtain themembership requirements to obtain the
agreement, assistance and services ofagreement, assistance and services of
libraries in developing OCLC productslibraries in developing OCLC products
such as WorldCat Local, which they aresuch as WorldCat Local, which they are
also obligated to purchase, whilealso obligated to purchase, while
competitors, such as Innovative, arecompetitors, such as Innovative, are
excluded from what should be competitiveexcluded from what should be competitive
procurement opportunities.procurement opportunities.

31. What’s the status?What’s the status?
 SkyRiver filed suit in San Francisco CA,SkyRiver filed suit in San Francisco CA,
and OCLC moved to transfer it to southernand OCLC moved to transfer it to southern
Ohio under 28 USC 1404 (“for theOhio under 28 USC 1404 (“for the
convenience of parties and witnessesconvenience of parties and witnesses
[and] in the interest of justice”).[and] in the interest of justice”).
 Last week, the Calif. court granted theLast week, the Calif. court granted the
motion becausemotion because inter aliainter alia “all but two of“all but two of
the libraries that have switched fromthe libraries that have switched from
OCLC to SkyRiver are closer to ... OhioOCLC to SkyRiver are closer to ... Ohio
than ... to California” and are materialthan ... to California” and are material
witnesses.witnesses.

32. What’s Next?What’s Next?
 The average period between filing aThe average period between filing a
complaint and trial is > 29 months.complaint and trial is > 29 months.
 But a defendant can move to dismiss aBut 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 complaintIt is hard to say. The 39-page complaint
seems thoughtfully written with lots ofseems thoughtfully written with lots of
detail, but the Sherman Act is a tricky law.detail, but the Sherman Act is a tricky law.

33. What do I think?What do I think?
 I think that you should join me in crooningI think that you should join me in crooning
that great old Henry Mancini song fromthat great old Henry Mancini song from
“Breakfast at Tiffany’s”:“Breakfast at Tiffany’s”:
SkyRiver, cheaper by a mileSkyRiver, cheaper by a mile
You’ll help me to refile ...You’ll help me to refile ...
someday.someday.