Paul Courant Offers a Economist's View of the Google Book Settlement

We conclude our week-long focus on The Economists’ Voice 2.0: The Financial Crisis, Health Care Reform, and More, edited by Joseph Stiglitz and Aaron Edlin with an essay Paul N. Courant, an economist and dean of libraries at the University of Michigan.

In his essay, “The Stakes in the Google Books Settlement,” Paul Courant examines the implications of the recent settlement to allow Google to digitize books. Here is an excerpt from that article:

“In contrast, scuttling of the settlement or greatly limiting the volume of works to be covered would put us back to where we started—the only people with good access to the scholarly and cultural record of the twentieth century would be those with physical access to re­search libraries, and even for them, that literature would be more difficult to access than most works published before or since.”—Paul Courant

Basically the proposed settlement would create a market in elec­tronically available copies of out-of- print works that are plausibly in copyright. Google would provide free browsing access (usually 20 percent of a book would be viewable in a given search) and would sell permanent online access to complete versions on behalf of itself and a newly created Book Rights Registry (BRR) that would represent the interests of rights holders of works subject to the settlement. Google would also sell site licenses to institutions such as colleges and uni­versities, enabling students and employees of those institutions to have access to the collections in much the same way that they now have access to electronic journals and databases purchased by their li­braries. Google would obtain 37 percent of the revenue from both the retail product and the site license, with the rest to be distributed to rights holders.

The obvious benefit of the settlement is that it provides electronic access to many millions of works at one fell swoop, saving the trans­actions costs that would be involved if Google, libraries, and others seeking to provide access to the scanned works had to negotiate work by work and rights holder by rights holder, assuming that rights hold­ers could be found. The ability to search simultaneously the collec­tions of the world’s great research libraries, to browse those collections, and to be able to purchase immediate electronic access provides un­calculated, but almost certainly large, consumer surplus.

The settlement would also permit academic libraries and their universities, at least after a time, to save a great deal of money and space, as the necessity of holding extensively duplicated print collec­tions would be eliminated. Moreover, the settlement includes the orphan (foundling) works, removing the risks that would otherwise attend to displaying works where rights are unknown and adding to the value that would be available to students, professors, and other users of Google’s newly created giant electronic bookstore. Inclusion of the orphan works is essential to creating an effective product for the academic market, because without them neither Google nor any­one else could risk putting collections online without costly establish­ment of rights (or the lack thereof) book by book, and the resulting collection of out-of-print works would be seriously incomplete. One can never conclusively prove a book to be orphaned. There is always the possibility that a rights holder will materialize, with a lawyer not far behind.

OBJECTIONS

The objections to the original settlement agreement are many and varied. One set involves privacy, which I do not consider here. Others involve a cluster of legal questions, notably involving technical issues of civil procedure surrounding class action lawsuits, of which I have little interest and less understanding. Still others have a good deal of economic content.

The settlement would plausibly bestow considerable market power on the BRR and Google. Although other parties could choose to scan libraries’ works and provide market access by contracting with the BRR, only Google would be authorized to use the Google scans in the marketplace, and for at least the foreseeable future, the Google scans constitute the overwhelming majority of scans, because no one else has been willing to commit the hundreds of millions of dollars necessary to scan the tens of millions of works that reside in the world’s research libraries.

Many objections to the Google settlement are based on a concern that Google and the BRR will have monopoly power in the newly developed market for electronic access to out-of-print copyrighted works. Some assertions in this regard are simply silly: Google will not have a monopoly on access to the works, which are still available in the source libraries. Nor will it have been granted a monopoly on electronic access to works with known rights holders; such works may be rescanned and sold by other providers, including rights hold­ers themselves, should it prove to be the case that the market in these works is sufficiently profitable to attract entry.

The orphan works are another matter. The settlement gives Google rights to distribute orphan works and provides for no mecha­nism that could practicably convey such rights to other entities. More­over, unlike the situation when rights holders are known, there is no way for copyright holders of orphaned works to contract with other parties for distribution of those works, because it is in the nature of orphan works that the holders of the rights are unknown. This leads the Department of Justice to be concerned that the settlement, as drafted, “appears to create a dangerous probability that only Google would have the ability to market to libraries and other institutions a comprehensive digital-book subscription” (U.S. Department of Justice 2009, 24).

EXPLOITING THE ORPHANS

The disposition of both the orphan works and revenues attributed to them is one of the most controversial features of the settlement. One important economic objection is distributional. There is clear public benefit to providing access to orphan works. But under the settle­ment agreement, if the rights holders to orphan works are not found after .ve years, the principal bene.ciaries of the revenues attributable to orphan works would be the authors and publishers who hold the rights to other works. Why them? Well, to be honest, one can’t help but think that it is because these rights holders were active parties in the lawsuits, whereas orphans, parents, consumers, and others were not. Other obvious possibilities would be to return these funds to consumers as rebates, to give them to the libraries that bought and preserved the works in the first place (would I have thought of this were I not Michigan’s librarian?), or to reduce the federal deficit.

That Google has an advantageous position with regard to the or­phan works is clear. Whether that position is worth any money to speak of is an open question. Books that are in copyright and out of print have already proved themselves to be something less than star performers in the marketplace. To be sure, libraries will .nd it valu­able to have access to as complete a collection as possible. At the same time, the settlement adduces a principle of “broad access” in deter­mining prices for institutional licenses. Moreover, the orphan works will continue to be available in print form and as part of Google’s retail product, and 20 percent of each book will be available for free preview. Additionally, it seems likely that Google is more interested in attracting people to its site than it is in pro.ting directly from sales of books, and hence it would prefer prices to be low.

Sadly, I don’t have an estimate of the price elasticity of demand for out-of- print works with unknown owners, but I am con.dent that Google’s ability to exploit its monopoly position in orphan works is far weaker than the ability of commercial journal publishers to exploit their position in fields where getting the next essential grant requires immediate access to the most current published papers. The fear among some librarians, including Robert Darnton of Harvard (2009), that Google will be able to set extortionate prices in the manner of many commercial journal publishers, seems to me to misapprehend important differences between old books and current scienti.c journal articles. Professor Darnton and I have de­bated the question at some length in a recent exchange in The New York Review of Books.

Fortunately, concerns about legal barriers to entry can be laid to rest by changing the treatment of the orphan works while preserving the benefits of the settlement to the public and to the scholarly com­munity. All of the efficiency gains from the settlement’s treatment of orphan works are due to the settlement’s waiver of legal liability from their sale and display. That waiver makes the books available and gen­erates value for those who would search and read them. The distribu­tion of revenues to rights holders of other books serves no compelling distributional interest.

Thus any mechanisms that allowed other entities (e.g., libraries, publishers, the Internet Archive, Microsoft) to display and facilitate the search of orphan works on the same or similar terms that Google has under the draft settlement would realize the efficiency gains with­out distributional harm. And by allowing entry, any such mechanism would eliminate the most troubling element of a potential monopoly that could arise from the settlement.

Thus a revised settlement (as suggested by the U.S. Department of Justice 2009, 25) that provided competitors with the ability to use the orphan works on the same terms as Google, or legislation with a similar consequence, would be an unambiguous improvement over the original settlement. The great benefit of a new market in electronic versions of the literature of most of the twentieth cen­tury could be realized with a reduced risk of monopoly and with­out enriching unrelated parties with the fruits of orphans’ labor. In contrast, scuttling of the settlement or greatly limiting the volume of works to be covered would put us back to where we started—the only people with good access to the scholarly and cultural record of the twentieth century would be those with physical access to re­search libraries, and even for them, that literature would be more difficult to access than most works published before or since.