Google also used all of this to improve their OCR algorithms, almost certainly used in Google Cloud Vision[0], but I doubt this was a consideration when deciding if it was transformative/fair use.
> Yet they did not build and market a service to authors that would write novels for them based on their OCR-ed catalog.
I find this to be a very appropriate analogy. If Google had done such a thing, they would be facing the same kinds of lawsuits that Microsoft is facing now. And despite Microsoft's money, I don't see how they can wiggle their way out of this one. They basically ignored the license terms and attribution requirements of the authors. Something Microsoft would never stand for, if "the shoe was on the other foot".
Indeed; that would be an excellent topic for litigation, and they would fight it with every lawyer they have b/c it could invalidate their efforts to zero out human labor costs in all possible areas.
0: https://cloud.google.com/vision