A proposed agreement drafted by Google, authors and publishers to settle their years-long copyright litigation has been rejected, in a major setback to Google's ambitious plans to build a massive marketplace and library for digital books.

"The question presented is whether the [proposed settlement] is fair, adequate, and reasonable. I conclude that it is not," Judge Denny Chin from the US District Court for the Southern District of New York said in a 48-page ruling. "While the digitisation of books and the creation of a universal digital library would benefit many, the [proposed settlement] would simply go too far."

The settlement would grant Google "significant rights to exploit entire books, without permission from copyright owners. Indeed, the [settlement] would grant Google a significant advantage over competitors, rewarding it for engaging in wholesale copying of copyrighted works without permission, while releasing claims well beyond those presented in the case," Judge Chin said.

The judge suggested that the proposal, which has already been revised once, would be more palatable from a legal standpoint if it's switched from an 'opt out' to an 'opt in' settlement. He also acknowledged that, at least in concept, the creation of "a universal digital library" would be beneficial to many people and organisations.

Google finds the decision "clearly disappointing" and will review its options, said Hilary Ware, a Google managing counsel.

"Like many others, we believe this agreement has the potential to open up access to millions of books that are currently hard to find in the US today. Regardless of the outcome, we'll continue to work to make more of the world's books discoverable online through Google Books and Google eBooks," she said.

'Massive copyright infringement' vs 'Fair use'

The legal fight began in 2005, when the Authors Guild and the Association of American Publishers filed separate class-action lawsuits objecting to Google's practice of digitising library books without always getting permission from copyright owners.

The lawsuits alleged massive copyright infringement on Google's part by scanning, storing and indexing these copyright books without authorisation and making their full text searchable on the Google Books search engine.

Google argued in its defence that its practice was protected under the fair use principle because for the books in question, it only displayed brief text snippets of their content.

That litigation dragged on until October 2008 when Google and the plaintiffs surprisingly reached an agreement to settle the matter and hammered out an extremely complex proposal that soon became the target of both praise and criticism.

That settlement proposal called for Google to pay $125m and in exchange obtain from the plaintiffs rights to display longer portions of in-copyright books.

The settlement would also have made it possible for people and institutions to buy online access to the books through individual purchases or subscriptions. Revenue would also have been generated from Google's online ads.

The agreement proposed creating an independent, non-profit entity called the Book Rights Registry to locate copyright owners and compensate authors and publishers for access to their works via a royalty system.

Opposition to the proposals

The proposal drew boos from a wide variety of quarters, including the US Department of Justice, which recommended that the court reject the proposal and a subsequent revision that narrowed the agreement's scope in various ways, including geographically.

Also opposed to the proposal were Google competitors such as Amazon and Microsoft, respected legal experts, well-known authors and publishers from the US and abroad, some legislators and scholars.

Some arguments against the proposal were that it would give Google too much control over the books and their prices, especially the so-called 'orphan works', whose copyright owners can't be located and which are often out of print. The DoJ specifically questioned the proposed settlement's compliance with US antitrust and copyright laws.

So, as expected, the DoJ also hailed the ruling.

"We believe the Court reached the right result on this complex, proposed settlement," spokeswoman Gina Talamona said. "The department expressed to the Court that, as structured, the settlement proposed by Google and the authors and publishers exceeded the scope of the underlying lawsuit on which it was based and created concerns regarding antitrust, class certification and copyright issues. We are pleased that the Court supported our position. "

The parties had been waiting for Judge Chin's decision on the proposed settlement since early last year.

However, it was well worth the wait, according to The Open Book Alliance, a group opposing the settlement that includes Yahoo, Microsoft, Amazon and the National Writers Union.

The decision is "a victory for the public interest and for competition in the literary and Internet ecosystems," the group said, adding that it "looks forward to participating in a collaborative process that will focus on developing an open digital public library created to serve the public interest that respects the rights of creators while promoting innovation and competition."

Judge Chin will preside over a 'status conference' on April 25.

See also: Photographers hit Google Books with legal action