Choosing up sides over e-books

Quite an interesting battle is taking shape in the suddenly hot world of e-books.

For many, of course, “e-books” are synonymous with Amazon and its Kindle device. But over the past few months, several would-be challengers to Amazon’s Kindle kingdom have emerged to do battle. In July, No. 1 brick-and-mortar bookseller Barnes & Noble unveiled a revamped online e-bookstore and announced a partnership with e-book reading device maker Plastic Logic, which plans to introduce a thinner, touch-screen version of an e-reader early next year.

kindle-newsweekA few weeks ago, Sony entered the fray with a pair of new e-book readers and its own revamped e-bookstore. (Technically speaking, Sony has been in the e-book business longer than Amazon has, but for reason known only to Sony it seemed to be trying to keep its involvement a secret until this month.) Last week, Sony announced a third e-reader, this one with wireless connectivity to allow Kindle-like direct-to-device downloads (no need to stop at the PC first for transfer to the handheld device).

The big news in Sony’s announcement, however, was its embrace of EPUB, a series of open technical standards for the file structure, packaging and publishing of e-books over digital networks developed by the International Digital Publishing Forum, an industry group, and supported by a number of major publishers. Last week, Sony’s embrace of EPUB was seconded by Google, which announced it would use the standards to distribute (at no cost) the nearly 1 million public domain works it has compiled in digital form as part of its Library of the Future project (many of the works were originally digitized by the non-profit Project Gutenberg).

As an open platform, EPUB poses a significant challenge to Amazon, which has followed an iTunes-like strategy of enclosing the Kindle and Kindle e-books within the walled-garden of a proprietary format and DRM–the better to set prices and control margins. Should the rest of the industry adopt EPUB–which Amazon has so-far shunned–Amazon’s current status as the 800-pound gorilla of the e-book market would be threatened. (Shameless plug: For more on Amazon’s strategy and the implications of the EPUB initiative, see my report, The Evolution of the E-book Marketat GigaOm Pro [subscription required].)

The real drama, however, is just getting started. Looming over all the recent machinations is the proposed settlement in the litigation brought by the Authors Guild and major publishers against Google over its Google Book Search project.

For those joining us late, back in 2004, Google, in partnership with a group of large public and university libraries, began scanning and digitizing the libraries’ collections to make them searchable. Authors and publishers sued claiming copyright infringement; Google claimed fair use. After three years of often contentious negotiations a settlement was reached, which is currently awaiting approval by the court. Under the terms of the agreement, which do not resolve the basic legal question over fair use, Google would pay publishers $125 million to settle the infringement claims. In return, Google would get a blanket license to digitize and sell so-called “orphan works”–books that are still under copyright, based on when they were first published, but whose copyright owner(s) cannot be located. Revenue from the sales would be divided between Google and the rights owners, whose portion would be held in escrow by a new rights registry (initially funded by Google but administered by authors and publishers)  for dispersal if and when the proper owner of the copyright comes forward to claim it.

The settlement was immediately controversial. Because it stems from private litigation, Google alone would be able to rely on its blanket license conferred by its terms. Anyone else looking to sell orphan works in e-book form would still need to track down rights holders individually (and forgo distributing those works when such efforts are unavailing). Their only other option is to distribute anyway and risk potentially ruinous damage awards from litigation should the rights holders someday turn up.

Google, in other words, would enjoy what amounts to a private, exclusive compulsory license to distribute orphan works in e-book form. Critics of the arrangement, not  least among them Amazon, regard that outcome as potentially (even probably) anti-competitive. Sometime around March of this year, the Department of Justice began to wonder the same thing, and began asking Google and the publishers involved in the agreement for documents related to the settlement. In April, it notified the court that it was conducting a formal investigation of the settlement (i.e. with subpoenas and depositions under oath).

Last week, things heated up further. Amazon, along with Microsoft, Yahoo and several archives and library groups, launched a new advocacy group called the Open Book Alliance, which, according to its mission statement, is dedicated to  “counter[ing] Google, the Association of American Publishers and the Authors’ Guild’s scheme to monopolize the access, distribution and pricing of the largest digital database of books in the world.”

According to the press release announcing the group’s formation, the Open Book Alliance “will work to inform policymakers and the public about the serious legal, competitive, and policy issues in the settlement proposal.”

“The public interest demands that any mass book digitization and distribution effort be undertaken in the open, grounded in sound public policy, and mindful of the need to promote long-term benefits for consumers rather than those of a few commercial interests,” the group’s co-chairs, Peter Brantley and Gary Reback said in a blog post accompanying the announcement.

sony-laytest-ebook-readerThere is deep irony in this. Amazon, after all, has based its entire e-book strategy precisely on not undertaking its “mass…distribution effort…in the open,” but rather from within the confines of its proprietary walled garden and in pursuit of its “commercial interests.” For its part, Microsoft is hardly a stranger to proprietary formats and has fought mightily against open-source technology in other contexts.

Amazon and Microsoft are hardly the only ones finding grounds for a new outlook on life in the Google Books settlement, however. At nearly the same moment as Amazon and Microsoft were announcing the launch of the Open Book Alliance, Sony, the very avatar of proprietary formats, sent a letter (pdf) to the judge in the case seeking permission (since granted) to file a brief, amicus curiae, in support of the settlement, declaring it could have a “profoundly positive impact on the market for e-book readers and related devices.”

The brief won’t be filed for a few weeks, so we don’t yet know the particulars of Sony’s case. But its motives are pretty clear: Having millions of orphan works available from Google in the EPUB format–which Amazon does not support–would have a “profoundly positive impact” on the competitive position of Sony’s e-book readers, which do support EPUB.

Ultimately, of course, the impact of the Google Book settlement, should it be approved, isn’t so much likely to be profoundly positive or negative (or even ironic) as it is profoundly paradoxical. On the one hand, Google’s exclusive, blanket license to sell orphan e-books on its face has obviously anti-competitive potential. On the other hand, Google’s grand ambitions for the e-book market and its embrace of open standards may represent the best opportunity in the near term to introduce meaningful competition to Amazon and its Kindle kingdom.

In any case, the proposed settlement is no longer merely about resolving a case of private litigation (if it ever was). It has now become the fulcrum of a battle over the future competitive landscape of the e-book market.

That’s a development that holds important public policy implications. I’ll discuss those in an upcoming post.