The Congressional Research Service has released The Google Library Project: Is Digitization for Purposes of Online Indexing Fair Use Under Copyright Law?. (Thanks to ResourceShelf.)
Here's an excerpt:
The Google Book Search Library Project, announced in December 2004, raised important questions about infringing reproduction and fair use under copyright law. Google planned to digitize, index, and display "snippets" of print books in the collections of five major libraries without the permission of the books' copyright holders, if any. Authors and publishers owning copyrights to these books sued Google in September and October 2005, seeking to enjoin and recover damages for Google's alleged infringement of their exclusive rights to reproduce and publicly display their works. Google and proponents of its Library Project disputed these allegations. They essentially contended that Google's proposed uses were not infringing because Google allowed rights holders to "opt out" of having their books digitized or indexed. They also argued that, even if Google's proposed uses were infringing, they constituted fair uses under copyright law.
The arguments of the parties and their supporters highlighted several questions of first impression. First, does an entity conducting an unauthorized digitization and indexing project avoid committing copyright infringement by offering rights holders the opportunity to "opt out," or request removal or exclusion of their content? Is requiring rights holders to take steps to stop allegedly infringing digitization and indexing like requiring rights holders to use meta-tags to keep search engines from indexing online content? Or do rights holders employ sufficient measures to keep their books from being digitized and indexed online by publishing in print? Second, can unauthorized digitization, indexing, and display of "snippets" of print works constitute a fair use? Assuming unauthorized indexing and display of "snippets" are fair uses, can digitization claim to be a fair use on the grounds that apparently prima facie infringing activities that facilitate legitimate uses are fair uses?
On October 28, 2008, Google, authors, and publishers announced a proposed settlement, which, if approved by the court, could leave these and related questions unanswered. However, although a court granted preliminary approval to the settlement on November 17, 2008, final approval is still pending. Until final approval is granted, any rights holder belonging to the proposed settlement class—which includes "all persons having copyright interests in books" in the United States—could object to the agreement. The court could also reject the agreement as unfair, unreasonable, or inadequate. Moreover, even assuming final court approval, future cases may raise similar questions about infringing reproduction and fair use.