In March, Denny Chin, now a U.S. Circuit Judge in Manhattan, rejected a revised $125 million deal to resolve separate lawsuits over scanning books for online distribution by Google via its Google Books site. In his decision, the judge found the pact would give Google the ability to “exploit” books without the permission of copyright owners.

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In a 48-page decision, Denny Chin, a judge on the 2nd Circuit Court of Appeals, denied the 2008 settlement between Google, authors and publishers “without prejudice,” meaning they could submit a revised pact that would better protect copyright owners. The judge also suggested a potential solution.

“While the digitization of books and the creation of a universal digital library would benefit many,” Google’s current pact would “simply go too far” because Google could make books available online without copyright owners’ permission, Judge Chin wrote.

The deal would “give Google a significant advantage over competitors, rewarding it for engaging in wholesale copying of copyrighted works without permission,” he said.

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In research reported Thursday in the journal Science, the scientists at Harvard University, Massachusetts Institute of Technology, Google and the Encyclopedia Britannica unveiled a database of two billion words and phrases drawn from 5.2 million books in Google’s digital library published during the past 200 years. With this tool, researchers can measure trends through the language authors used and the names of people they mentioned.

It’s the first time scholars have used Google’s controversial trove of digital books for academic research, and the result was opened to the public online Thursday.

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Filed last Friday, the latest version of the settlement is more limited in scope, but has still drawn the ire of critics, who claim it remains rife with “anti-trust, class action and copyright violations.”

Chin evidently disagrees, and Google (GOOG) is obviously quite pleased that he has done so. “The preliminary approval order sends a positive initial message; this agreement promises to benefit readers and researchers, and enhance the ability of authors and publishers to distribute their content in digital form,” the company said in a statement.

“We remain hopeful that the agreement will receive final approval from the court,” Google continues, “and will realize the goal of significantly expanding online access to works through Google Book Search, an ambitious effort to make millions of books searchable via the Web.”

In a statement of its own, the Open Books Alliance, one of the settlement’s harshest critics, warned Google not to get too, too hopeful. “Today, in an expected procedural move, Judge Denny Chin granted preliminary approval to the revised Settlement of Google’s copyright infringement lawsuit,” the group said.

“This is not a surprising development and is not any indication that the court will or will not accept the terms of Settlement 2.0,” the Alliance warned. “The same procedural preliminary approval was given to Settlement 1.0, and now sets up a court process that will allow those opposed to the revised settlement to let their objections known to the court. The U.S. Department of Justice has until February 4th to weigh in with the court, as their investigation into the matter continues.”

Thursday, journalists received an updated statement from the company saying the Chinese books in its library are available only in snippets, unless use of the full texts is approved by rights holders. Yet somehow, state-run newspaper China Daily seems to have taken this to mean Google plans to make a new settlement with Chinese authors. Today’s headline read, “Oodles of woe for Google,” and the lead paragraph says the company “may draw up a new statement to put out its copyright fire in China, according to a statement.”

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The China Written Works Copyright Society (CWWCS) has called on Chinese writers to stand up for their legal rights in the face of Web search giant Google’s proposed book settlement, according to a post published on the official Web site of Chinese Writers’ Association (CWA).

CWWCS claimed to have found copyrighted works written by a number of Chinese writers scanned and posted to Google’s digital library, Google Books.

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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.