A porn site's lawsuit is bad news for the search phenom, but may be good news for companies that produce content.
NEW YORK (FORTUNE) - The most successful Internet companies have grown rich by exploiting other people's content -- without paying for it.
AOL prospered as its members filled chat rooms. EBay (Research) thrives by selling other people's stuff. Teens create the pages on News Corp.'s (Research) MySpace. Yahoo! (Research) and Google index all this content, and much more.
The creators of content have not fared nearly as well as the Internet has grown. Think about the music industry, or big-city newspapers or even Penthouse magazine, which went bankrupt in part because so much "adult" content can be found for free online.
An unfolding legal battle between Perfect 10, an "adult" magazine, and Google (Research) is all about who gets to profit from content on the Web. On Feb. 21, a U.S. District Court Judge named A. Howard Matz ruled that Google's image search function had violated the law by copying, without permission, photographs of naked women created by Perfect 10; such copying, the judge said, violated the magazine's intellectual property rights. (Yes, nude photos are deemed intellectual property under the law.)
Judge Matz's ruling explores some new legal territory, which we'll touch on in a moment because his decision has implications for other pending lawsuits against Google. It also highlights the challenge facing anyone trying to make money from creating online content.
As Norman Zada, the publisher of Perfect 10, told me: "What business can survive when the things they sell are available for free?"
His lawyer, Dan Cooper, says: "Any form of intellectual property could be jeopardized in this manner. And if people lose their financial incentive to create content, then ultimately creativity is going to dry up -- whether it's adult content, motion pictures or music."
Similar arguments are being made in the other lawsuits against Google, one from a French wire service called Agence France Presse, another from five book publishing companies and a third from the Authors Guild and Lincoln biographer Herbert Mitgang, children's book author Betty Miles and poet Daniel Hoffman. All assert that Google violates copyright law.
Google is appealing the Perfect 10 case. Its lawyers and executives say that the search engine respects copyrights. And they expect to prevail in the other cases. While Perfect 10 has won an injunction, preventing its images from being shown on Google, the search engine's litigation counsel, Michael Kwun, said it "will affect only searches related to Perfect 10."
'Don't sell Google stock'
"Don't sell Google stock based on this district court decision," advises Martin Schwimmer, a copyright lawyer who represents Fortune 50 companies and maintains The Trademark Blog at http://www.schwimmerlegal.com/.
Still, the ruling is mostly bad news for Google. Judge Matz decided that Google's action of reproducing so-called "thumbnail" photographs of Perfect 10 models -- do an image search for "Amy Caro" or "Vibe Sorenson" if you want to see for yourself -- goes beyond the "fair use" provision of copyright law that permits limited use of copyrighted materials, such as quotations from books in news stories or book reviews.
Perfect 10's lawyers argued that the thumbnails, which it notes are quite a bit larger than the average thumbnail, have value to the magazine because it sells small images to a British cell phone company.
"Google's use of thumbnails likely does harm the potential market for downloading of P10's reduced-size images onto cell phones," Matz wrote. He added later: "The court reaches this conclusion despite the enormous public benefit that search engines such as Google provide." You can read the judge's decision, which examines a slew of legal issues, here.
It's hard to know what impact, if any, this decision will have on the other cases.
Agence France Presse (AFP) is charging that Google News infringes on its copyright by displaying headlines, thumbnails and story leads without permission. Its lawyer, Joshua Kaufman of Washington, D.C., said he was "very pleased" with the California ruling. He notes that the French news agency sells its headlines to mobile phone users. "If people can just take your headlines, who needs to subscribe to AFP's headline service?," he says. Google has agreed to drop AFP from its news index, but the lawsuit is proceeding.
Authors and publishers object to a Google venture called Book Search, an ambitious attempt to scan the contents of several university libraries and make them available for search. The search results will display only a few lines of copyrighted works, which Google says is fair use. But publishers and authors say that Google has no right to scan entire works without their permission, even if only portions are displayed. Google says publishers can request to opt out of the project.
These copyright battles will only intensify as more video moves to the Internet. NBC recently ordered Web sites to stop showing clips from Saturday Night Live, even though they bring much-needed buzz to the show. Sports highlights are another bone of contention.
Some lawyers argue that merely posting material online gives search engines like Google an "implied license" to use it. Schwimmer, the independent legal expert, asks: "If you put up content on your Web site, and you don't password protect it, what do you expect is going to happen?"
It's hard to know what to think about all this. As an Internet user, I love Google. I've done dozens of Google searches to research this story. I'm a fan of Gmail and Google Earth, and I'm even a small advertiser on Google -- I've bought keywords (like my name) to attract traffic to my own Web site.
But I make a living by writing, and it's plain to see what the Internet is doing to print media. Google News is a computer program. Real news gathering requires reporters and editors. The guys behind the Perfect 10 lawsuit may be doing the other media companies a favor.