Several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle, these people said. If successful, such a settlement could have wide-ranging repercussions for the industry, potentially leading to cheaper e-books for consumers. However, not every publisher is in settlement discussions.

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J.P. Morgan’s Imran Khan puts that in context via this helpful chart. Remember that e-book sales didn’t really exist until the late fall of 2007, when Amazon introduced the first (really mugly) Kindle. And recall that Apple only entered the market in April of this year. So you can see where this is going (click to enlarge):

The caveat: The book market just isn’t that big. U.S. e-book sales to date are just $263 million, which means people have spent more money going to see “Clash of the Titans” and “The Expendables” this year than they have on digital ink.

Oooh! Great opportunity to show a clip from the best Elmore Leonard movie adaptation, hands down:

A study of 1,200 e-reader owners by Marketing and Research Resources Inc. found that 40 percent said they now read more than they did with print books. Of those surveyed, 58 percent said they read about the same as before while two percent said they read less than before. And 55 percent of the respondents in the May study, paid for by e-reader maker Sony Corp., thought they’d use the device to read even more books in the future. The study looked at owners of three devices: Amazon.com Inc.’s (AMZN) Kindle, Apple Inc.’s (AAPL) iPad and the Sony (SNE) Reader.

While e-readers are still a niche product just beginning to spread beyond early adopters, these new reading experiences are a big departure from the direction U.S. reading habits have been heading. A 2007 study by the National Endowment for the Arts caused a furor when it reported Americans are spending less time reading books. About half of all Americans ages 18 to 24 read no books for pleasure, it found.

Some 11 million Americans are expected to own at least one digital reading gadget by the end of September, estimates Forrester Research. U.S. e-book sales grew 183 percent in the first half of this year compared with the year-earlier period, according to the Association of American Publishers.

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The battle lines for and against the settlement have been drawn for months, as objectors and supporters have filed round after round of briefs with the U.S. District Court of the Southern District of New York. Google, the Authors Guild and the Association of American Publishers announced the settlement in October 2008.

But a cohort of settlement critics–and some supporters–are rolling into Manhattan anyway, seeking a chance to speak their minds.

The hearing, which begins at 10 a.m., is shaping up to be a lengthy affair.

Judge Denny Chin has given 28 parties five minutes each to speak. Twenty-three of those–including Microsoft (MSFT), Amazon.com (AMZN), AT&T (T) and the French Republic–are scheduled to speak in opposition.

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The filing is routine and reiterates arguments the search giant has repeatedly made to defend its 2008 settlement, which allows it to distribute millions of books it scanned online in exchange for sharing revenue with rights holders. It comes as briefs objecting to various parts of the agreement–which Google has already revised once–have continued to trickle in. Technology giants including Amazon.com (AMZN), Microsoft (MSFT) and AT&T (T) have argued that the settlement could limit competition in the digital books market because it would give Google exclusive access to some works and usurps Congress’s authority over copyright law.

Earlier this month, the U.S. Justice Department again expressed concerns against the pact, saying the settlement reaches too broadly and “suffers from the same core problem as the original agreement: it is an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute…in this litigation.”

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• Orphan works–books whose copyright holders are unknown–will be overseen by an independent trustee who will administer their licensing, not by Google.
• Books published outside the United States, United Kingdom, Canada and Australia will be excluded from the settlement.

Those are substantive alterations, but they clearly haven’t placated critics who accuse Google (GOOG) of attempting an “end-run around copyright law as we know it.”

The Open Book Alliance–a coalition whose members include the Internet Archive, Amazon (AMZN), Microsoft (MSFT) and Yahoo (YHOO)–has blasted the revision twice already, decrying it as “a sleight of hand” intended to distract people from Google’s continued efforts to establish a monopoly over digital content access and distribution.

“The proposed changes fail to address this deal’s fundamental flaws,” Open Book Alliance Co-Chair Gary Reback said in a vitriolic statement. “Despite Google’s effort to spin this deal, it does nothing to promote competition nor does it reform Google’s exclusive access and monopoly hold on this digital database of books. Their proposed ‘unclaimed works fiduciary’ will have zero authority to promote competition or expand access. It is a cynical diversion away from the parties’ continued reliance on the discredited argument that competitors can obtain access through the very means Google did–getting sued for copyright infringement and abusing the class action process. This deal remains rife with anti-trust, class action and copyright violations.”

The judge presiding over the case, who’d been urged by the U.S. Department of Justice to reject an earlier version of the settlement, set that date during a morning hearing so brief that when MediaMemo’s Peter Kafka asked Google CEO Eric Schmidt about it at a company roundtable this morning, Schmidt was unaware a date had been set. When Peter broke the news to him, Schmidt didn’t have much of a comment, but he did speak briefly about the settlement and Google’s view of it earlier in the morning.

From Peter’s paraphrased notes on the session:

With respect to book search, we were doing something that we thought was appropriate. We were sued, and after three years of discussion we’ve come to a settlement. This is perfectly normal. From our perspective, this is a settlement we like, it’s a settlement we think they’ll like, and we’ll hear what the court says, within minutes. Let me reframe your question: There’s nothing particularly exclusive about what we’re doing. The rights registry we’re doing is for the benefit of orphan works. “It’s not a particularly good business for us. We’re doing it because we think it’s the right thing to do.” We don’t think the settlement is perfect, but we think it’s good.

Though it’s not yet clear what form the revised settlement might take or what adjusted terms are being discussed, Google and the authors and publishers it has allied with it have quite a few critics to appease, including academics, librarians, privacy advocates, would-be rivals and the French and German governments.

“It is because the parties wish to work with the DOJ to the fullest extent possible that they have engaged, and plan to continue to engage, in negotiations,” the groups wrote in their request to U.S. District Judge Denny Chin. “Nevertheless, it is clear that the complex issues raised…preclude submission of an amended agreement by Oct. 7.” And with that they asked if they could return to the court Nov. 6 with a revised settlement and a new timeline for hearings.

Though it’s not yet clear what form the revised settlement might take or what adjusted terms are being discussed, the opposition is already crowing over it. “This is a huge victory for the many people and organizations who raised significant concerns that this settlement did not serve the public interest, stifled innovation, and restricted competition,” the Open Book Alliance, an ad hoc group led by some of Google’s largest rivals, said in a post to its blog. “It’s also an enormous loss for Google, which had been saying for months that no changes were necessary to the settlement. Now, that settlement, as we know it, is dead.”

In a court filing on behalf of the Open Book Alliance, a consortium that opposes the settlement, the attorney argues that the settlement between Google, the Authors Guild and the Association of American Publishers gives publishers and Google monopoly control over the pricing of digital books. Reback, who was involved in spurring the Justice Department to bring an antitrust suit against Microsoft in the 1990s, co-founded the consortium along with the Internet Archive, a nonprofit that is trying to create a digital archive of the Web, last month. Many members of the consortium, including the Internet Archive, Amazon.com (AMZN), Yahoo (YHOO) and Microsoft (MSFT), have filed their own briefs opposing the settlement too.

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“The mass digitization of books promises to bring tremendous value to consumers, libraries, scholars, and students,” the Alliance says in its mission statement. “The Open Book Alliance will work to advance and protect this promise. And, by protecting it, we will assert that any mass book digitization and publishing effort be open and competitive. The process of achieving this promise must be undertaken in the open, grounded in sound public policy and mindful of the need to promote long-term benefits for consumers rather than isolated commercial interests. The Open Book Alliance will counter Google, the Association of American Publishers and the Authors’ Guild’s scheme to monopolize the access, distribution and pricing of the largest digital database of books in the world. To this end, we will promote fair and flexible solutions aimed at achieving a more robust and open system.”

Rallying behind that cry is an array of nonprofit author groups, library institutions, and Google (GOOG) rivals that includes the American Society of Journalists and Authors, the New York Library Association, Microsoft (MSFT), Yahoo (YHOO) and Amazon (AMZN), which only confirmed its membership in the Alliance today. All of these participants fear that the Google Book Search Settlement, which will restore access to millions of out-of-print books, could one day give the company a monopoly on the largest digital library in the world.

With a Sept. 4 deadline for submissions to the court reviewing the settlement approaching, we’re likely to hear increasingly more cries that the settlement is bad for consumers, libraries, schools, authors and publishers.