I'm not sure why so many people here seem to be surprised by this, I got the exact same impression from the hearing. The problem for Google on the copyrightability front is that "compilations" of non-copyrightable items can be copyrightable even if the underlying items themselves are not, if the "selection, coordination, or arrangement" of those items involves sufficient creativity to be considered an "original work…
Not exactly; an API can be completely re-implemented from scratch and still be compatible. If it was just about the API code, there wouldn't even be a case.
The idea that an API could legally be an "original work of authorship" makes a lot of sense; but the technical implications could indeed harm the industry overall.
Essentially what this means is: I build a system, you're not allowed to build a compatible system. Yet another reason why open source is the only way forward.