Running Head: STRAYING FROM THE PATH

Straying From the Path: How OCLC Navigates its Purpose, Non-profit Rules, and Interlibrary Lending

Claire DMura Erin McCaslin Kooyman Sola Whitehead University of Washington LIS 550: Assignment 3

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OCLC (Online Computer Library Center), a major nonprofit library organization, has been sued by SkyRiver and Innovative Interfaces, two library service companies, for anticompetitive practices and violating antitrust laws in four parts of OCLCs business services: bibliographic data, cataloging, interlibrary loans, and integrated library services. This legal action raises concerns about monopolistic practices by OCLC that could affect how OCLC continues to provide services to 72,000 libraries worldwide. First, we examine what constitutes a nonprofit organization. Looking at this argument from a legal perspective, we conclude that many of OCLCs actions are within the strict definition of nonprofit based on Ohio state law. However, looking at the federal antitrust laws, SkyRiver and Innovative seem to have some valid allegations in their case. To support this opinion we look at the history and necessity of interlibrary lending (ILL), and how OCLC provides this service to its member libraries. Because ILL cannot be separated easily from other essential library services, the lawsuit has raised concerns that OCLC is using coercive tactics, such as punitive pricing, to get member libraries to participate. In addition, we look at the organization of OCLC in reference to the case brought by SkyRiver and Innovative, and examine some of its actions that to public perception do not support its nonprofit status. We also look at how these actions are moving the nonprofit organization farther away from its published objectives and the needs of libraries today.

To Be a Nonprofit The ins and outs of what it means to be a nonprofit are much more complicated than it initially sounds. Shouldnt it mean that an organization doesnt work to make a profit? To be a nonprofit does not necessarily mean that an organization must not generate funding greater than

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its expenses, rather the nonprofit designation dictates what must be done with any profits, and what cannot be done. Nonprofits are expected to devote any excess earnings to their nonprofit purposes (Hopkins, 2005, p. 6). Additionally, an organization being designated a nonprofit does not necessarily mean the organization is tax-exempt. Not all nonprofits are tax-exempt, although most tax-exempt organizations are nonprofits. An organization may lose its tax-exempt status and still be considered a nonprofit. The designations nonprofit and tax-exempt are typically determined by two different legal entities: state law determines nonprofit status, whereas federal tax law is the basis for tax-exempt status (Hopkins, 2005, p. 6). The first step for an organization in gaining nonprofit, tax-exempt status is to form a nonprofit corporation. The most important aspect of this process is the preparation of articles of incorporation, which outline an organizations primary purposes. These articles are submitted to the state in which the organization is seeking incorporation, usually in a form that is prescribed by that states law. The most crucial component of the articles of incorporation is the entitys purposes (OHare, 2005, p. 1). The purposes outlined in this document are the defining factor in whether or not an entity qualifies for both nonprofit status and tax-exemption. After the articles of incorporation are filed with the state, the state will return a document (usually a certificate or charter) that recognizes the nonprofit as a legal entity and the effective date of incorporation (OHare, 2005, p. 2). In Ohio, nonprofit corporation law is determined by Ohio Revised Code 1702, which defines a nonprofit corporation as, domestic or foreign corporation that is formed otherwise than for the pecuniary gain or profit of, and whose net earnings or any part of them is not distributable to, its members, directors, officers, or other private persons, except that the payment of reasonable compensation for services (Ohio, 2001).

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If a nonprofit, after being formally recognized by the state in which it is incorporated, would like to apply for tax-exemption it must go through further paperwork, namely Form 1023, with the Internal Revenue Service. The IRS considers several categories of tax exemption, which are designated by a code such as 501(c)(3). OCLC is a 501(c)(3) organization, as are most other tax-exempt nonprofits, which means it is organized and operated exclusively for broadly defined charitable, religious, educational, scientific or literary purposes (Hyatt, 2005, p. 11). If recognized, the IRS will provide the organization with a letter of determination. Nonprofit organizations are also usually exempt from state income taxes, and most states will automatically recognize exemption from state income tax once federal exemption has been recognized (Hyatt, 2005, p. 10). Some states, such as Ohio, have exemptions for other state and local taxes, such as property and sales taxes. These exemptions, however, do not come automatically, and usually have much narrower standards. It was this type of property tax exemption that was revoked from OCLC in 1984. As summed up by blogger Peter Murray, this case began in 1980 when OCLC applied for property tax exemption with the Ohio Tax Commissioner under RC 5709.12 and RC 5709.121 and was denied. OCLC filed an appeal asserting that, The commissioner erroneously held as a matter of law and fact that there is nothing unique in the nature of Appellant OCLCs services that would make it an unlikely service to be engaged in by private enterprise (Murray, 2010). The appeal was again denied, and OCLC took the case to the Ohio Supreme Court (Murray, 2010). The Ohio Supreme Court upheld all previous decisions on the grounds that, OCLC is neither a public college or academy or a public institution of learning, as those terms are employed under R.C. 5709.07, nor was the property found to be used exclusively for charitable

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purposes so as to entitle OCLC to an exemption under R.C. 5709.12 (OCLC v. Kinney, 1983). The court argued against OCLCs vicarious charitable exemption, and argued that the companys activities more closely resemble those of a publisher or database firm, not a library. In its opinion, the court states, OCLC essentially offers a product to charitable institutions, for a fee exceeding its cost, and, as the board concluded, is not itself a charitable organization (OCLC v. Kinney, 1983). This 1984 case shows how OCLC may walk a fine line as a nonprofit. While this case did, in fact successfully argue that OCLC did not meet the Ohio Tax Commissioners criteria for a charitable nonprofit as the law stood in 1984, OCLC has never been challenged on such in the eyes of the Ohio Secretary of State or the IRS. However, the arguments made in these proceedings are still compelling and worth noting. OCLC was not long without its statutory property tax exemption, however. In 1985, the Ohio State Legislature introduced a new section to the Ohio Revised Code that defined a narrow qualification that would allow OCLC to retain the property tax exemption. This code, R.C. 5709.72, allows property tax exemption for library technology development, specifically a nonprofit corporation that is exempt from federal income taxes under the provisions of section 501(c)(3) and the owners primary purposes are conducting research and development in library technology and providing computerized or automated services to public, charitable or educational libraries (Ohio, 1985). Clay Holtzman, the nonprofit business reporter at the Puget Sound Business Journal said it is not uncommon for state government to modify laws for their major employers, since the benefit of keeping the employer is greater than the taxes they would earn from them (personal communication, December 3, 2010). It may be fuzzy ethics, but it isnt illegal.

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In the current lawsuit, SkyRiver and Innovative Interfaces make charges against OCLCs nonprofit status, but in reality this could be outside of the scope of this case, and serves more as a reflection of OCLCs character. A citizen cannot sue to revoke the nonprofit status of an organization directly, but can file a complaint about abuse of the nonprofit to the appropriate agency, be it state or federal. Challenges to a nonprofit's status usually go through an official process with the IRS, in which the nonprofit organization is scrutinized through both compliance checks and examinations (IRS 2010a). These are administered through the Exempt Organizations (EO) function, which is part of the IRSs Tax Exempt and Government Entities (TE/GE) Operating Division. The examination process is essentially an IRS audit that looks at an organizations records, may also interview third parties, and has the power to modify an entitys exempt status based on its findings. A compliance check is less stringent and only reviews whether an organization is adhering to record keeping and information reporting requirements or whether an organizations activities are consistent with its stated tax-exempt purpose. A compliance check can be turned into an examination if the IRS agent finds closer scrutiny to be necessary (IRS, 2008). A nonprofit, tax-exempt organization can jeopardize its status if it, ceases to be operated exclusively for exempt purposes (IRS, 2010b). Some of the activities that will get a charity in trouble include: private inurement, excessive lobbying and operating for the primary purpose of conducting a trade or business that is not related to its exempt purpose (IRS 2010b). According to OCLCs articles of incorporation, the companys primary established purposes are: ...to maintain and operate a computerized library network and to promote the evolution of library use, of libraries themselves, and of librarianship, and to provide processes and products for the benefit of library users and libraries, including such objectives as

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increasing availability of library resources to individual library patrons and reducing the rate of rise of library per-unit costs, all for the fundamental public purpose of furthering ease of access to and use of the ever-expanding body of worldwide scientific, literary and educational knowledge and information. (OCLC, 2008) In order to show that OCLC is not living up to its legal nonprofit qualifications, a substantial portion of their operations would have to be shown to not further these purposes. This is not to say that a company cannot have any operations that fall outside of their primary purpose. These activities should be kept to minimum, and an organization must pay taxes on any income incurred as a result of these activities (Hopkins, 2005, p. 147). This is called the Unrelated Business Income Tax, and OCLC does pay it. Potentially more troubling to OCLCs tax-exempt status is a developing body of law derived from the courts called the commerciality doctrine. According to nonprofit lawyer and blogger Ellis Carter, under the commerciality doctrine, one of the factors that can indicate a commercial manner is the existence of for-profit competitors (2009). Carter states, It is not enough to price goods or services below the competition. To operate in a noncommercial manner, exempt organizations must provide services at substantially below cost, preferably to charitable recipients, and should not advertise in a commercial manner or operate in a manner that indicates a purpose of maximizing profits (2009). However, some legal experts criticize the commerciality doctrine for being too illdefined. Historically, it grew out of loose language in court opinions, which in turn seem to have reflected judges personal views as to what the law ought to be (rather than what it is) (Kelley, 2004, p. 2477). Kelley explains the commerciality doctrine to his law students by comparing it to the bludger from the game of quidditch in the Harry Potter books. This

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bludger is a hard ball that catches the players off-guard, knocking them off their broomsticks. Kelley says the commerciality doctrine works this way, inconsistently impacting some nonprofits and not others (2004, p. 2476). At this stage in the lawsuit, it is unclear if OCLC could be hit by the bludger of the commerciality doctrine. Challenges are most often brought to the IRS through outside channels, which are then analyzed by the IRS itself. Anyone in the public may file a complaint with the IRS against an organization using Form 13909, Tax-Exempt Organization Complaint (Referral) Form (IRS 2008). Additionally, IRS agents review an organizations 990 forms, similar to how taxpayers personal income taxes are analyzed, and may begin an examination based on the professional analysis. The IRS also reviews media reports and receives complaints from Congress regarding compliance, and any of these may initiate a closer look (IRS, 2010a). It is entirely possible (but still speculation) that attention drawn to OCLC from a broadly publicized antitrust case could result in review by the IRS. In recent years there seems to be growing confusion over what a nonprofit is and how one should function. Nonprofit organizations have become more savvy in business, and some would argue necessarily so, as costs of operation have gone up, while public funding has not. According to an article in the New York Times, an increasing number of states are revoking charities property tax exemptions, and organizations such as hospitals and private universities are under fire for their large cash reserves and high profits (Strom, 2008). The idea behind tax exemptions is that the organizations provide a public service or substantially reduce the burdens of government, the article states, yet as these organizations look more and more like traditional businesses, cash-strapped governments are wanting to regain what they see as lost revenue (Strom, 2008).

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Allegations of Antitrust violations When looking at antitrust litigation, the first consideration of the court is that antitrust laws protect competition, not individual competitors (Steren, 2005, p. 89). The only protection afforded to individual competitors is when the elimination of that competitor will harm competition in the market. Allegations of antitrust practices are analyzed by several methods in the courts. The first and most definitive method is the per se method of analysis. If a practice, usually an anticompetitive agreement, is found to be a per se violation of antitrust law, there is no need to prove any actual injury to competition. Rather, the simple existence of the agreement is enough to make it illegal (Hopkins, 2005, p. 249). The rule of reason method of analysis is the most common, as well as the most cumbersome. This is used when the anticompetitive action in question is not a per se violation, and entails a full economic analysis of the practice. Initially, the burden is on the plaintiff to demonstrate the organizations anticompetitive actions. Once that has been met, the burden is shifted to the defendant to counter the claims and demonstrate procompetitive conduct. After such, the plaintiff may counter the arguments laid out by the defendant (Steren, 2005, p. 94). A rule of reason analysis requires both definition of the relevant market affected by the anticompetitive conduct, as well as the market power of the defendant. A relevant market includes both the product or service market, and the geographic area where the product or service is sold (Steren, 2005, p. 94). The complaint against OCLC defines three separate markets for established monopolies: The bibliographic data market, cataloging market and interlibrary lending market (SkyRiver v. OCLC). The complaint also defines the integrated library systems

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market as one where OCLC has an attempted monopoly. Despite how interconnected these markets are, the court is likely to treat them independently. After the markets are defined, the court will look at the market power of an organization. Market power is defined as, the ability to raise prices above the competitive level which is determined by analyzing the organizations market share and comparing that with the barriers to entry in the market (Steren, 2005, p. 94). Generally, an organization is considered to have market power with a market share of 30 percent and a high barrier to entry (Steren, 2005, p. 94). Taking those factors into account, the inquiry will examine the organizations individual conduct to determine if they have abused their market power and stifled competition. An alternative to the rule of reason analysis is the quick look analysis. In a quick look analysis, the practice in question is not a violation per se, but any anticompetitive effect on the market is obvious enough as to not warrant a rule of reason analysis. The Supreme Court has stated that the quick look is appropriate when an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets (Hopkins, 2005, p. 250). In the SkyRiver/Innovative v. OCLC lawsuit, the plaintiffs charge that OCLC is violating multiple antitrust laws, including Sections 1 and 2 of the Sherman Act. Section 1 of the Sherman act states, Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal (Sherman Act, 2010). The terms in Section 1 have historically been read broadly and encompass all types of concerted behavior (Steren, 2005, p. 90). The Supreme Court has written that, the sweeping language of Section 1 [of the Sherman Act] applies to nonprofit entities (Hopkins, 2005, p. 248).

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Whereas Section 1 concerns the action between two entities, Section 2 of the Sherman act prohibits unilateral anticompetitive conduct, or monopolization, and is intended to put a stop to abuses by an entity that results from its use of monopoly power. This section of this act states specifically: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. (Sherman Ac, 2010) There are numerous factors that must be in place to prove a monopoly to exist. A central concept in this case is the idea of monopoly power. An entitys monopoly power is essentially the ability to control prices or exclude competition (Steren, 2005, p. 90) and is a greater degree of the aforementioned market power. An indication of this monopoly power is an organizations market share. Steren (2005) offers these guidelines when determining the existence of monopoly power: An organization that holds 70 percent or more of the market share is considered to have monopoly power. An organization with less than 50 percent market share is not likely to be considered to have monopoly power. An organization with market share between 50 percent and 70 percent is the most grey area, and where the most difficult court arguments might occur (p. 90). In its complaint, SkyRiver/Innovative Interfaces asserts, OCLCs share of each of these markets for academic libraries in the United States is greater than 90 percent (SkyRiver v. OCLC). This claim, however, will require further concrete proof, which will be seen in later stages of the lawsuit. It is important to note that a monopoly isnt inherently unlawful. In order to be an unlawful monopoly, the entity must be proved to have both possession of monopoly power in the

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relevant market and willful acquisition or maintenance of that power (Steren, 2005, p. 91). Companies that achieve monopoly status by virtue of natural growth through superior product, business acumen, or even by regulation are perfectly lawful (Steren, 2005, p. 91). An unlawful monopoly requires the organization to have both monopoly power and willful maintenance of that power through the use of tactics that have no purpose but to discourage competition (Steren, 2005, p. 91). SkyRiver/Innovative Interfaces makes several claims that OCLC has been actively maintaining its monopoly power through exclusionary agreements, punitive pricing of several university libraries and unlawful tying arrangements. These claims will be further developed in later stages of the lawsuit.

Interlibrary Loan within librarianship no area is changing more rapidly than ILL (Sapp & Brunswick, 2002). Interlibrary loan (ILL) is an integral part of library services. It cannot be easily separated from other library services such as collection development, cost analyses, and circulation. As libraries are required to become ever more focused on balancing budgetary concerns with services to patrons, ILL becomes one of the services that can land on both sides of the scale: a possible cost savings due to a decreased budget for collection development, as well increased costs in the ILL department and the need for reliable, rapid ILL services in order to serve patrons. The SkyRiver/Innovative Interfaces lawsuit alleges that OCLC is using the importance of ILL to coerce libraries into using OCLC products, and is doing so by increasing the costs to those libraries which choose not to use OCLC for their catalog to participate in OCLC ILL

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services. However, ILL is not so easily split out for most libraries, and there are many reasons why. ILL has a long and rich history. Indeed, Winchell (1930) traced ILL in America back as far as 1850, when fourteen libraries, responding to a questionnaire from the Smithsonian institution, replied that they had regulations by which books may be lent by courtesy to persons at a distance (p. 41). Winchell further noted that in 1876, Samuel S. Green of the Worcester free public library wrote to the first volume of the Library Journal It would add greatly to the usefulness of our reference libraries if an agreement should be made to lend books to each other for short periods of time. It happens not unfrequently that some book is called for by a readerwhich he [the librarian] finds in the catalogue of another library, but which does not belong to his own collection. (p. 11) Winchell (1930) additionally cited Mr. Dewey as stating in 1892 that interlibrary loans were now of daily occurence [sic] (p. 12). Queries regarding the possibility of interlibrary loan were for many years conducted by letters sent from library to library. This could result in an extended period of time before the material was located, let alone obtained, and might take longer than the need existed for the patron (Winchell, 1930, p. 37). However, as new technologies developed, so too did the ability to find and obtain materials for ILL more rapidly, as well as the need for ILL departments to keep abreast of those changes. Indeed, Sapp and Brunswick (2002), in citing Walters, noted that the reality is that ILL staff are often on the bleeding edge of technological experimentation (p. 69). Over the course of the last 80 years, this bleeding edge has included development in the manner that library catalogs are created, maintained and made available to others, submission of ILL requests via fax, telephone, and e-mail, development of standardized ILL request forms, and

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integration of the ILL process with complementary departments throughout a library, such as collection development and billing procedures. One cannot explore recent literature on the topic of ILL without running into multiple references to OCLC. In fact, Chang and Jackson (1996) noted that the promise of a national online system that would automate many ILL functions became reality when OCLC, the Online Computer Library Center, activated its first ILL system in 1979. Most significantly, OCLC paved the way for electronic messaging systems in other major utilities and engineered links between bibliographic information in its online union catalog with the online requesting and messaging component. (p. 15) The links between bibliographic information and ILL, often referred to as verification due to the need to verify the existence and location of a title, has historically been one of the challenges of ILL. Chang and Jackson further noted that the first OCLC ILL system, due to allowing for verification and location of an item in a single step, expedited the process of ILL considerably, as it was no longer necessary to search catalogs, union lists or printed indexes (p. 15). Even as recently as 2002, Hilyer noted that verification is a challenging and potentially frustrating activity for ILL staff (p. 62). One of the reasons for this frustration was the problem of murky citations (p. 62) from the patron. Hilyer (2002) went on to indicate that services which transfer full bibliographic information from database records to ILL requests, such as that offered by OCLCs FirstSearch could alleviate this (p. 62). Today, no less than four separate products are available from OCLC alone for the purposes of resource sharing, and others have also created their own ILL integrated services. Currently, OCLCs ILLiad is often raised in the literature as a system which integrates borrowing, lending and document delivery.

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In addition to integrating borrowing, lending and delivery, OCLC has also addressed the issue of how to bill for ILL. Whether to bill or not, and if so how, is a decision that is at the discretion of each individual library. OCLCs ILL Fee Management system (IFM) is one of the options that libraries can choose to meet this need. Sapp & Brunswick (2002) noted that use of IFM allowed member libraries to bill and pay through the OCLC system, with only a small processing charge assessed. OCLC has estimated that over $10 million has been saved by libraries through the elimination of processing costs for invoices and checks (p. 63). The ILL literature periodically raises debate of access versus ownership. Under pressure due to rising costs of subscriptions and other materials, libraries may be inclined to reduce the amount spent on collection development in favor of increasing ILL activity. Sapp and Brunswick (2002) noted that this debate has been ongoing since the late 1980s (p. 64). However, even while algorithms were determined to set a bar that would place a material or subscription clearly in one or the other camp, concerns about the trend to move toward cancelling subscriptions and relying on ILL continued. Indeed, it was noted that a library based solely upon access would become no more than an information broker, totally at the mercy of suppliers (Brunswick & Sapp, 2002, p. 66). Although these concerns were cited in 2002, they do not appear to have been diminished over the course of the last eight years, as costs of all kinds have continued to rise for libraries, particularly academic research libraries which have a need to provide specific serial subscriptions to its researchers. Collection development also interacts with ILL aside from the access versus ownership debate. In 1999, Murphy and Rupp-Serrano noted that the most obvious information provided to collection development librarians by interlibrary loan and document delivery services is that of who requests what (p. 18). Purchases can be directed to the areas which are requesting the

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most materials. They also cited Mounir Khalil who, in 1993, urged that purchase decisions be based on a systematic analysis of collection use and ILL statistics, which could assist in determining collection strengths and weaknesses (p. 16). Cost considerations can rapidly become part of the discussion around the relationship between collection development and ILL, as the costs associated with borrowing items may be considerably smaller than the costs of purchasing those items. Other costs around ILL include staffing, supplies, equipment, and telecommunications (Chang & Jackson, 1996). Boucher (1997) cited that the two budget areas most critical to ILL are personnel and operations. In the definition of operations, Boucher noted that supplies, communications, and the purchase of such services as OCLC, RLIN and WLN constitute a large portion of the operations part of a budget (p. 128). As can be seen from the SkyRiver/Innovative Interfaces lawsuit, the cost of including bibliographic records in WorldCat, to allow for other participating libraries to have knowledge of items available for ILL, must now be considered as well, especially if a library is considering not using OCLC for its catalog. Because the OCLC subsystems can be so tightly integrated, it is understandable that libraries would aim to use it to meet multiple needs, including ILL. Pederson and Gregory (1994) described a study conducted at Iowa State University to compare ILL with commercial document suppliers. The study required that the commercial document suppliers evaluated be accessible over the OCLC ILL subsystem. Pederson and Gregory (1994) noted that Iowa State University used OCLC and that economies of scale would apply if all outgoing requests - those to libraries as well as those to commercial suppliers - could be placed on the same utility, with no need to change systems and/or type a manual form (p. 264). Thus, when OCLC is not used for some services, some of those economies of scale may be lost.

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The fact that OCLCs products can be closely integrated is not, in fact, at issue in the SkyRiver/Innovate Interfaces lawsuit. However, SkyRiver/Innovative Interfaces charge that OCLC maintains a monopoly over ILL by virtue of the integration of OCLCs ILL system and the bibliographic records stored in WorldCat. Libraries which choose not to use WorldCat for their catalogs would still need to submit records to WorldCat so that the ILL system would continue to function smoothly. It is here that it appears that OCLC may have lost sight of its purpose. The lawsuit states that batch loading records into WorldCat has been done in the past at a charge of $0.23 per record. This cost may be acceptable to libraries that opt to no longer use WorldCat for catalog purposes, but only participate in it in order to retain ILL services. However, both Michigan State University and California State University at Long Beach were quoted a charge of $2.85 per record for inclusion in WorldCat so that those records would be available for ILL. Due to the complexity of WorldCat, ILL and the other services and systems offered by OCLC, it is not possible to determine the true cost of batch loading records into WorldCat. However, without an explanation from OCLC explaining the reasoning behind the increased cost, it is difficult find a justification for the twelve-fold rise in per record charges. K.G. Schneider (2010a), in the Free Range Librarian blog, offered a thoughtful response by stating Offering differential batch loading costs is a form of punishment that hurts all of us if those libraries give up on OCLC altogether (though how much we are hurt is an interesting question), and it also paints OCLC as the big gorilla whose response is to simply put its competitors out of business. But there is nothing ethically wrong with redoing a cost model to offer libraries relief and encourage participation (and further increase the size of WorldCat).

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From the perspective of ILL, OCLC has made the process easier and faster. However, the service will only truly serve the library community if all members can participate. Although OCLC must be able to charge enough to maintain those critical services, the charges also must be in line the mission of OCLC.

Organizational Structure of OCLC OCLC has experienced immense changes since its inception as a small nonprofit company in the early 1970s. Through it tremendous growth and restructuring, however, OCLC has lost sight of what it did best, which is providing a collaborative service to libraries at an affordable price. OCLC started as a small organization headquartered in Ohio that provided a timely, cost effective and highly demanded service of shared bibliographic data for libraries (Grant, 2010). Today, OCLC has expanded to become a huge corporation serving over 72,000 libraries in 171 countries around the world (Young, 2010). In part, OCLCs growth can be attributed to its contracts with what Bailey-Hainer (2009) refers to as a network of regional service providers. These networks were defined as library service organizations that are independent from OCLC and which contract with OCLC to provide services to libraries and other organizations in their geographic region (Bailey-Hainer, 2009, p. 625). This service network and OCLC originally had a common goal of helping libraries, and while some of the ventures came at a financial loss to OCLC and the network, they would use other business ventures to subsidize the losses. The relationship and contracts between these service networks and OCLC changed throughout the years, with less and less financial and governance support between the entities as OCLC moved from a national company to an international one. This distribution structure no

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longer worked for OCLC and in 2008, OCLC decided to restructure their organization based in part on two studies related to distribution channels. One study was conducted by Barney and Arnand of Ohio State University and the other was done by R2 Consulting LLC. The R2 study looked at distribution models of insurance companies and the Microsoft Corporation, and came to the conclusion that OCLC needed to diversify their distribution network. OCLC altered their relationships and contracts with these service providers. This meant these companies faced assimilation by OCLC, consolidation or merging with each other or financial instability and collapse (Bailey-Hainer, 2009, p. 626-628). OCLC, despite its official nonprofit status, appears to be organizing itself more like a for-profit company. This may be due to the fact that to survive as a strong company, nonprofit or otherwise, these are necessary actions; but taken into consideration with other actions by OCLC, such as the purported pricing debacle, they could be viewed as moving away from their cooperative roots.

OCLCs Products and Services While OCLCs objectives have remained relatively unchanged, its actions have not always reflected its collaborative roots or its nonprofit mission. OCLC offers an incredible breadth of services to its member libraries, including the four brought to scrutiny in the SkyRiver/Innovative Interfaces lawsuit: cataloging services, bibliographic data services, interlibrary lending, and integrated library systems (Breeding, 2010). To receive services from OCLC, libraries must become a member of the OCLC cooperative. There are a number of terms and conditions a library must meet as outlined in OCLCs Membership and Governance Protocols, such as, Members shall be those entities that meet the minimum but continuing threshold of engagement with OCLC (OCLC, 2010, p.1) and agreeing to contribute and share

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intellectual content and resources with the consortium of member libraries. However, the protocols that specify the OCLC services and products qualifying for membership status can change annually (OCLC, 2010, p. 2). This makes it difficult for members to know if they are meeting their contracts and whether they should be concerned about exploring more cost efficient cataloging services based on OCLC raising the rate charged for Michigan State Universitys (MSU) to batch-load records into the OCLC WorldCat catalog. Such punitive pricing may be effective in keeping member libraries from straying from the fold, but it hardly supports the stated mission of the organization. OCLC is designed as an aggregator, offering multiple products to member libraries from its own productions, as well as products from companies they have acquired or with whom they have contracts. Pricing for these packages are not published on OCLCs website, but are negotiated with individual libraries or a consortium of libraries based on any number of factors, such as size and usage numbers. Some advantages to libraries in dealing with aggregators like OCLC are not having to negotiate so many individual contracts, which is time consuming and difficult, and the frequent use by aggregators of a user-friendly, integrated interface on which to operate all the complex systems and databases (Boss, 2003).

OCLCs Nonprofit Status and the Market Place A motivation behind the SkyRiver/Innovative Interfaces lawsuit is OCLCs new movement into Web Scale Management Services (WMS), where OCLC will be in direct competition with Innovative Interfaces. WMS will broaden OCLCs collaborative sharing to include a community of networked collections and acquisition data, which could change collection development decisions to be made on a global level, rather than on local or consortium

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levels (Collins, 2010, p.93). A response to Breedings article, from Bradley Watson, a professor at Franklin University, claims that OCLC is successful in providing libraries with affordable pricing structures due to its nonprofit status; another advantage over its for-profit competitors (Breeding, 2010). One difficulty in competing for market share of libraries is that there are a limited number of customers, and given the economy and nature of libraries, it is a stagnant market. Businesses can only hope to lure an existing consumer away from their current vendor, not capture a new part of the market. Another difficulty facing businesses serving the library industry is that for the last ten years, new innovations in integrated library services didnt advance fast enough to keep up with what libraries and their patrons expected. Andrew Pace (2009) attributes this stagnation of innovation to a glut of companies all offering very similar products, library loyalty to vendors and their contracts, and a large number of mergers and acquisitions, of which OCLC played a large role (p.643). OCLC is also showing its loss of its collaborative origins by buying and selling for-profit companies that compete with them, directly and indirectly, to help with the expansion across the globe. OCLC continues to operate these as for-profit companies, while allegedly backing them with their tax-exempt assets (Grant, 2010). The lawsuit, along with the bad press from the punitive pricing against MSU, again defeats the purported goals of OCLC of creating a collaborative and supporting the best interests of libraries in a cost effective manner.

OCLCs Push for a New Policy on WorldCat Records There are definitely some actions by OCLC that call into question its motivations and sincerity to its objectives and members. An example of these actions is in OCLCs dealings with

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Michigan State University and OCLCs use of punitive pricing for part of its service, even though MSU is still a member library. OCLC stated that the reason for this was that MSU was asking them to perform data stewardship duties for MSUs records (Breeding, 2010). Another example of not keeping their members interests at heart was the document OCLC introduced in November 2008 titled Policy for Use and Transfer of WorldCat Records. This policy included language in which it appeared that OCLC was trying to claim copyrights on the bibliographic data submitted by its member libraries. In a previous case, Feist v. Rural Telephone Service, the courts ruled that collections of data were denied copyright protection, but OCLC appeared to be attempting to obtain this copyright through contract law (Dames, 2009. p.16). The language OCLC used is, according to K. Matthew Dames, standard rhetoric companies use to indicate they are seeking ways to recoup or monetize their investment in noncreative collections of data or facts (Dames, 2009, p. 16). The language OCLC used would also cede ownership of any of the copyrights from member libraries on their original copyrightable contributions to the catalog. These are not actions of a nonprofit company nor are these the actions of a collaborative looking to make information easier to access, as OCLCs objectives clearly state. Member libraries would not sign the new contracts until the language was changed. Some members and industry experts are still unhappy with the new language, but thought there was enough of a change to sign their contracts with OCLC. There is still a lot of controversy over the intent of OCLC trying to claim intellectual rights over the data entered by member libraries. There is also worry that a policy of restricting data sharing could again hurt creativity and innovation (McElfresh, 2009, p. 6). If OCLC is going to stick to its objectives of lower costs for libraries and easy access of information for the public, then it needs to operate on open access

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principles. LibLime CEO Joshua Ferraros, a competitor in the market, suggests that OCLC doesnt understand its own business model. He goes on to say, Theyre not in the business of providing data, theyre in the business of providing services. (Oder, 2009). Librarian and blogger Karen Schneider repeats this exact sentiment: Ive said before that OCLC sometimes acts as if it doesnt understand the work its in. Its the services, not the data. (Schneider, 2010b). In September, 2010, Carl Grant, writer of the often cited Ex Libris blog, wrote: It appears to me that the interests of the OCLC we know today do not appear to be in total alignment with the needs and interests of its overall actual membership. Perhaps they are in alignment with the interests of the Board, Council, and other governing and administrative arms, but the feeling I get in talks with librarians is that it is not in alignment with what they want. As I talk to librarians, across the country today, I hear that what they want is an organization, a cooperative that is focused on developing and providing open and collaborative library content and services that are widely accessible by all in order that they (the librarians) can focus on re-establishing and/or maintaining the value of libraries in our society. Grant (2010) continues with some excellent suggestions on how OCLC could re-align itself with its nonprofit and collaborative roots, such as providing open interfaces that support both open source and proprietary extensions so that the totality of solutions and services available to the profession would deliver substantial added value to information. Rick Mason, in his Libology Blog (2010), suggests OCLC could split into two groups -- one nonprofit, where libraries pay a membership fee for access to the bibliographic data and WorldCat, and the other a for-profit component which would include many of OCLCs products and some services, such as ILLiad, FirstSearch, and WMS. These suggestions are good starting places for constructive

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conversations as OCLC is challenged in court on its motives, both economic and moral. Unfortunately, OCLCs actions are causing distrust, further questions, and divisive stances in libraries and among librarians when there needs to be unity and cooperation. OCLC continues to provide a much needed service, but members would like to see the return of the companys collaborative and nonprofit nature.

Conclusion This case is likely to be very lengthy and contentious, as there are strengths and weaknesses on both sides, and each party is undoubtedly going to be well represented. Based on what we have learned about antitrust law in this quarter, there does seem to be convincing evidence against OCLC for both attempted and established monopolies. The case also does a thorough job of highlighting OCLCs more unsavory behaviors. However, demonstrating many of these behaviors to be illegal rather than simply unethical may not happen in this case. The folks at OCLC know their domain well, and undoubtedly have been very careful in practice to not allow themselves to cross any legal lines in regards to their nonprofit status. On the other hand, SkyRiver/Innovative Interfaces makes some strange requests in their claims for relief, namely the request for the WorldCat database to be openly available to forprofit competitors. It simply doesnt make sense for OCLC to be required to freely hand over its primary product that all member libraries helped to build (and that all member libraries fund) to companies that have the express goal of making money. Instead, a better claim might be a guarantee that member libraries retain all rights to the data they create and contribute to OCLCs database so that the individual libraries may choose to share or not share with other companies. This solution would answer the concerns libraries have had over OCLCs attempted control of

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the data they created, as well as SkyRiver and Innovative Interfaces complaint that OCLC is holding unlawful exclusionary agreements. The sentiments echoed by the library community indicate that nobody wants the death of OCLC, but rather look at this case as an opportunity to express some grievances with how OCLC has been treating its members and possibly change the course. It needs to be considered that OCLC offers products that may have some superior functions if operated in a highly integrated manner. The ILL system serves as a strong example, and we have to ask: would ILL work as well if it were more fragmented? Having multiple systems that may or may not be fully interoperable could reasonably be expected to compromise some level of function. However, it should be the job of libraries as a whole to decide what they want, and not OCLC.

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