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Google settles lawsuit with authors/publishers -- What it means for Google, others and antitrust

Google, the most-sued intellectual property infringer in the world, just settled a class action lawsuit with authors and publishers for $125m and a revenue sharing deal going forward;  this deal has much broader implications than most would think for Google, for other companies suing Google for theft, and for the pending Google-Yahoo ad partnership.

Implications for Google: After steadfastly maintaining that they had done nothing wrong and that they were protected by the concept of fair use, Google has now de facto conceded that it was broadly infringing on authors' and publishers' copyrights, while also signalling it feared losing in court. 

  • It will be hard for Google to argue it did nothing wrong, given the facts that it is paying $125m to aggrieved parties in damages, covering their legal bills, and funding a registry mechanism that will protect and pay authors and publishers going forward.  

Google also has changed its business model; it now has agreed to revenue share going forward for content that it previously took for free. In other words, Google's business model now has more mouths to feed -- and it suggests there will be even more content mouths to feed -- if other content industries eventually settle with Google. This obviously has long term implications for Google's revenues and margins.

  • This could be a watershed settlement, if it indeed changes the Google business model from one where it profits off of others content for free, to one where it has to pay for a key input into its model.  

Implications for other companies suing Google:  Why this is such an important precedent is that there are lots of other owners of content suing Google for theft.

What remains to be seen is if Google is in "Settlements R Us" mode because it is sitting on $14b in cash -- or if this is a special one-off deal with the authors and publishers.

  • My gut says Google is in settlement mode, because Google has realized it has essentially stolen from, and made enemies of, most of the content industry.
  • If they are indeed in settlement mode, the cost of settling for Google -- just went up.   

Implications for antitrust and Google-Yahoo:  This settlement spotlights for DOJ that book digitization is now another de facto Google monopoly enterprise.

  • Google said at the press conference that it already has digitized about seven million books and plans to digitize tens of millions more.
    • That is ten times the number of the next book digitization competitor, Microsoft, which announced in May 2008, that it was stopping digitizing books at about 750,000 (per "Planet Google" p. 106.)
  • What is important to antitrust is that, Google as the dominant player in world book digitization, does not allow any other search engine to index Google book search. This means Google has established through this settlement de facto market exclusivity for the world's digitized book market.
    • This is relevant to Google-Yahoo because Google maintains it does not require exclusives that could prevent competitors from fully competing.
      • Clearly in digitized books, Google now has de facto exclusive rights, which foreclose competition.
        • In other words, if you want to search for books in a key library, Google is the only game in town.
      • In APIs, or technical interfaces, Google also engages in exclusive arrangements to foreclose competition in advertising tools.

Meanwhile back at the DOJ, it is becoming more apparent that the reason the DOJ has problems with the pending Google-Yahoo agreement is that DOJ has concluded that Google indeed has market power and that the proposed partnership with its #2 competitor, Yahoo, creates an anti-competitive situation to collude and fix prices.

  • Google's dominance in the market for digitized books is just another timely reminder of how dominant Google has become and  how far its dominant tentacles can reach. 

Bottom line: This was a good day for authors and publishers in that they got compensation from Google for the wrong done to them, while also establishing a going forward Google system to compensate authors and publishers.

  • Other companies suing Google should be hearing a "ka-ching! ka-ching!" sound dancing in their heads.
  • And for the DOJ, they just got a new and different lesson on the extraordinary reach of Google's market power.