By Diane Bartz
WASHINGTON (Reuters) - A New York court has rejected a class action settlement hammered out between Google Inc and publishers that would allow the Web search leader to scan millions of books and make them available online.
Under terms of the proposed settlement of a 2005 lawsuit brought by the Authors Guild and Association of American Publishers, Google would create a registry of books and pay $125 million to people whose copyrighted books have been scanned and to locate the authors of scanned books who have not come forward.
In exchange, Google was to have been allowed to continue digitizing books, sell subscriptions to an online database and sell online access to individual books. It would share the revenue of books if the authors could be found.
But Judge Denny Chin said the agreement "would simply go too far" and would give Google a significant competitive advantage.
The Justice Department is also looking into the deal, and has said it might violate antitrust and copyright law.
Google has scanned some 12 million books from some of the country's finest libraries in what it has said was an effort to provide easier access to the world's knowledge.
In its original lawsuit, Google was sued by the Authors Guild and others who accused the search giant of violating copyright laws.
Other critics contended that the massive scanning effort -- with no copyright permission -- gave Google an unfair competitive advantage and broke antitrust law.
The judge agreed on both counts.
"The ASA (amended settlement agreement) would give 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," Chin wrote in rejecting the deal.
The government's antitrust concerns were similar. They focused on a group of books often described as "orphan works" because they are still in copyright but the rights holder cannot be found. The settlement gives Google the right to market these works.
Critics of the proposed settlement include Amazon.com Inc, which markets a reader that would not be compatible with Google's library and Microsoft Corp. Sony Corp, which makes an electronic reader compatible with Google's software, favors the pact.
Google sent an email statement it said was attributable to Hillary Ware, its managing counsel.
"This is clearly disappointing, but we'll review the court's decision and consider our options," the statement said. "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."
Under the agreement, authors and publishers would register works and be paid for books and other publications the search giant puts online. The settlement covered books that were out of print but still in copyright.
Other complaints about the settlement -- such as a lack of adequate notice to the writers whose works were affected -- were rejected by the judge.
Since the settlement, Google launched in December an electronic bookstore with three million books, with permission from the relevant publishers.
(Reporting by Grant McCool and Diane Bartz; editing by Richard Chang and Andre Grenon)