By James Grimmelmann, Associate Professor, New York Law School.
David Balto's reply to my Issue Brief on the proposed Google Book Search settlement is careful and thoughtful. Unfortunately, it gets some of its analysis of the settlement's anticompetitive effects wrong. I'll respond to three of the points on which I believe he's mistaken.
First, Balto's discussion of barriers to entry makes an unwarranted leap. He writes, "First, Google will affirmatively not obtain a monopoly over orphan works because the settlement does nothing to make entry more difficult for a second entrant."
He's right about making things more difficult, but wrong about the monopoly. The settlement gives Google a monopoly not by raising barriers for other entrants, but by preferentially lowering them for Google. The barriers to entry for the large-scale market in selling orphan works are currently prohibitive; no one at all can legally compete in it. The settlement opens it up only to Google; and the result will be a monopoly. (I was sloppy about my phrasing in the Issue Brief here -- I said the settlement "creates" a barrier to entry, which may be the source of Balto's more substantive error.)
Here's an analogy to make this distinction clear. Imagine that it were generally illegal to buy or sell milk. A company -- call it Moogle -- obtains from the government a special authorization to start selling milk. Moogle hasn't done anything to raise entry barriers for its competitors; the barriers were forbiddingly high to start with. But as a result of this special dispensation, Moogle now has the milk market all to itself. That's a monopoly.
This leads into a second way in which Balto's argument is questionable. He believes that Google's success in obtaining this settlement means that other potential book-scanners will be similarly able to obtain settlements authorizing them to sell books. He focuses on class certification, which he argues would be readily achievable for a hypothetical second scanner (let's call it "Two-gle"), once Google's precedent is on the books.
I have my doubts. There are serious grounds to question whether Two- gle's motion for class certification would be as trivial as Balto suggests. The Google case is already pushing at the limits of class action law. The parties are spending tens of millions of dollars in legal fees getting this class certified -- and that's with cooperative plaintiffs. Two-gle could quite plausibly face plaintiffs who like the Google deal well enough not to welcome competition. They could sabotage Two-gle's efforts in all sorts of ways: drafting idiosyncratic and fact-specific complaints, fighting any motion to force a class on them, or flatly refusing to negotate for the kind of settlement Google got.