Google has never let a challenge come to court over its claim of “fair use” when copying every story’s headline, photo and first few paragraphs to repackage on Google News. And it’s done this because Google suspects it might lose.

It just settled a case with Agence France-Presse and signed a licensing deal with the Associated Press because it suspects it might lose in court. But to many bloggers reacting to Sam Zell’s comment that Google is “stealing” his newspapers content, things are so cut and dry. To them, Google has the right to anything it wants. After all, they say, it’s not even making money from Google News. What follows is my best explanation for why Google worries about its weaknesses more than the bloggers understand.

Fair use of copyrighted material is allowed under select circumstances. Let’s look to the exact wording of the law for a basic understanding of what defines fair use:

In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

2. the nature of the copyrighted work;

3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

4. the effect of the use upon the potential market for or value of the copyrighted work.

Let’s briefly focus on the third bullet point, where Google scores poorly. It isn't taking newspaper content to use in a report it's written. It isn't commenting on a report. It's just taking the article and repackaging it under its own brand. Basically, it’s failed that test.

On the first point, Google also scores poorly, but less blatantly. After the flare up about Zell's comments, numerous bloggers claimed Google does not benefit financially from Google News. But they're not looking carefully.

Assume for a moment that all multi-billion dollar companies are in every project ultimately for the money, including Google. So how does Google make money off its Google News service, which doesn't have any ads? It benefits in two ways:

- BRANDING. By indexing and displaying newspaper content on its Web site, Google's brand is increasingly viewed as a reliable place to find any information. That brand reputation is making them a hell of a lot of money and creates loyal customers. Google converts loyalty into money in numerous ways across its entire site. Not serving ads in one section such as Google News doesn’t absolve it from the fact it makes plenty of money in the rest of its sections. Since increased usage and dependency on Google News drives traffic elsewhere on Google, it is making money from the product. Lots of money.

To counteract this argument, Google could relaunch Google News as a freestanding site similar to YouTube. Easy fix. But they won’t make that change because it counteracts their entire reason for creating Google News, which is making money.

- AD SENSE. By driving up links to newspaper Web sites, loads of remnant inventory is created on those sites. Since local advertisers have no interest in these one-off page views, the remnant space is most often filled with Google AdSense ads. This isn't coincidence. Google understands the effect of driving up remnant inventory via Google News.

All multi-billion dollar companies are in it for the money, Google included. They're not featuring Google News prominently on their ever-so-sparse home page just to be nice. The verdict: Google News fails a second important test of fair use because it is, in fact, generating revenue.

At this point, they’ve already lost the case. Still, our last test really seals the deal. The law requires some consideration of, “the effect of the use upon the potential market for or value of the copyrighted work.” In other words, by letting Google continually take this content, how are newspapers affected? Lucky for us, the effects are recorded over and over again in market studies across the country.

In nearly every market, when people are asked to name their sources for local news, many say Google. How can that be? Google doesn’t produce any content. Shouldn’t users know the difference between linking to content and actually providing it? Maybe. But they don’t care.

The Pew Internet & American Life Project asked people where they went to get their news yesterday, 16 percent went to a national TV news site, 14 percent went to Google or Yahoo, and 9 percent to the local newspaper.

The bottomline is newspapers’ entire business model is based on being the No. 1 source for local news. If this branding position is damaged or eroded in any way, then newspapers will lose customers and money. Studies show that Google News erodes the newspaper brand, and should be stopped for that reason.

Since Google obviously knows it’s in legal jeopardy, I suggest it do something proactive rather than risk losing court judgments (and millions or billions of dollars).

Spiders shouldn't be allowed to take content from any site without permission.

The entire way the robots.txt file works is backward. The file should award permission instead of opting out. Google and others have no legal right to copy your content without asking. And you, as the content owner, have no requirement to tell anyone they're not allowed to just take content. You've already told them they can't take it simply by holding the copyright.

Google ignores copyright. But it's not just Google. The entire Web is still set up this way because Congress hasn't yet understood the implications.

Google should lobby for a law that reverses the flow of the robots.txt file, so that content providers are forced to grant them permission for indexing the content rather than simply not opting out. There’s a big difference legally.

And if Congress won’t make a law, I suggest Google change the rules on its own. Obviously there are a lot of businesses who will take the five minutes needed to reformat their robots.txt file to grant permission.

If Google News is automatically included in that permission, some won’t participate, and they shouldn’t.