In an emphatic 47-page opinion, federal judge John G. Koeltl found the Internet Archive infringed the copyrights of four plaintiff publishers by scanning and lending their books under a legally contested practice known as CDL (controlled digital lending). And after three years of contentious legal wrangling, the case wasn’t even close.

“At bottom, IA’s fair use defense rests on the notion that lawfully acquiring a copyrighted print book entitles the recipient to make an unauthorized copy and distribute it in place of the print book, so long as it does not simultaneously lend the print book,” Koeltl wrote in a March 24 opinion granting the publisher plaintiffs’ motion for summary judgment and denying the Internet Archive’s cross-motion. “But no case or legal principle supports that notion. Every authority points the other direction.”

The ruling comes just days after a March 20 hearing, during which the judge sounded deeply skeptical of the Internet Archive's case. At the 90-minute hearing, Elizabeth McNamara, arguing for the plaintiff publishers, told the court that the concept of controlled digital was "built on a fallacy" and that the Internet Archive's scanning and lending of library books was copyright infringement on a massive scale. Arguing for the Internet Archive, Joseph Gratz countered that CDL is a carefully considered practice and that "lending books by more efficient technological means" was “transformative” and therefore protected by fair use.

The closely watched copyright infringement lawsuit was first filed on June 1, 2020, in the Southern District of New York by Hachette, HarperCollins, Penguin Random House, and Wiley, organized by the Association of American Publishers. The suit specifically involves 127 works from the plaintiff publishers, a sample of the 33,000 plaintiff publishers' works said to be included in the Internet Archive's library, with court filings suggesting the library includes an estimated 3.6 million works potentially under copyright.

While publisher and author groups had long been troubled by both the IA's program and the concept of controlled digital lending (a decade-old protocol under which libraries scan legally acquired physical books and lend the scans in lieu of the print under rules designed to mimic a physical lend) a lawsuit did not appear imminent until March, 2020 when the Internet Archive rattled publishers and authors by unilaterally launching its now shuttered National Emergency Library initiative, which temporarily removed restrictions on the IA's collection in response to the pandemic closures of schools and libraries.

Fair Use?

But after three years of litigation Koeltl easily found for the publishers, holding that the Internet Archive's scanning and lending clearly constituted a prima facie case of copyright infringement and that the Internet Archive's fair use defense failed on the facts and the law.

All four factors of the fair use test, Koeltl ruled, strongly favored the publishers.

"The crux of IA’s first factor argument is that an organization has the right under fair use to make whatever copies of its print books are necessary to facilitate digital lending of that book," Koeltl writes. "But there is no such right, which risks eviscerating the rights of authors and publishers to profit from the creation and dissemination of derivatives of their protected works. IA’s wholesale copying and unauthorized lending of digital copies of the Publishers’ print books does not transform the use of the books, and IA profits from exploiting the copyrighted material without paying the customary price. The first fair use factor strongly favors the Publishers."

Specifically, Koeltl rejected what is essentially the most important argument for fair use under the first factor (which deals with the nature of the use, such as noncommercial, educational, etc.)—that the Internet Archive's program is "transformative."

"There is nothing transformative about IA’s copying and unauthorized lending of the Works in Suit," the judge found. "IA does not reproduce the Works in Suit to provide criticism, commentary, or information about them. IA’s e-books do not 'add something new, with a further purpose or different character, altering the with new expression, meaning or message.' IA simply scans the Works in Suit to become e-books and lends them to users of its website for free."

Koeltl also dispatched with what he called the Internet Archive's "first sale argument under the guise of fair use" as part of his first factor analysis.

“
IA’s wholesale copying and unauthorized lending of digital copies of the publishers’ print books does not transform the use of the books, and IA profits from exploiting the copyrighted material without paying the customary price.
”

"In ReDigi, the Court of Appeals plainly held that the first sale doctrine...does not include a right of reproduction, and that any broader scope of the first sale doctrine should be sought from Congress, not the courts," Koeltl held, citing the landmark 2018 appeals court decision which held there was no resale right for digital works under section 109 of the Copyright Act because, unlike physical works, the digital market necessarily involves the use of unauthorized copies.

Launched in 2011, ReDigi offered a system that proposed to remove iTunes tracks from a user’s computer so they could be offered for resale. And while the courts acknowledged that the service did "mimic an analog sale" and was "designed in good faith to achieve a goal generally favored by the law of copyright,” the service was found to be infringing because it necessarily required an unauthorized copy to work, a finding Koeltl stressed also applied to controlled digital lending.

“The Court of Appeals…explained that the measures ReDigi took to avoid increasing the total number of copies in existence did ‘not rebut or nullify the fact that’ ReDigi’s program unquestionably created new copies of each work and involved unauthorized reproduction,” Koeltl writes. "As the court explained, in language that applies equally to IA: 'We are not free to disregard the terms of [the First Sale doctrine] merely because the entity performing an unauthorized reproduction makes efforts to nullify its consequences by the counterbalancing' removal from circulation of the preexisting copies."

Koeltl concludes that "the promise of a one-to-one 'owned-to-loaned ratio,' whether cast under Section 109 or fair use, is no defense."

After a cursory review of the second and third fair use factors (the nature of the works used, and the amount of the works used), which also tilted strongly to the publishers, Koeltl turned to the all important fourth factor: market impact. And despite the IA's claims that the plaintiff publishers were not financially harmed by the Internet Archive's controlled digital lending activities, those claims, Koeltl held, failed on both the facts and the law.

"In this case, there is a 'thriving e-book licensing market' for libraries," Koeltl writes (pointing out that in 2020 OverDrive counted more than 430 million checkouts; that Penguin Random House's library e-book licenses generated $59 million annually; and that, from 2015-2020, HarperCollins earned $46.91 million). "IA supplants the Publishers’ place in this market. IA offers users complete e-book editions of the Works in Suit without IA’s having paid the Publishers a fee to license those e-books, and it gives libraries an alternative to buying e-book licenses from the Publishers."

Koeltl also dismissed expert testimony suggesting that publishers' bottom lines were unharmed by the Internet Archive's online library, holding that as a matter of law it "deprives the Publishers of revenues to which they are entitled as the copyright holders," because libraries are incentivized "to offer IA’s bootleg e-books" rather than to "pay for authorized e-book licenses."

And crucially, the judge brushed aside the Internet Archive's "public benefit" argument with a single paragraph. "IA argues that its digital lending makes it easier for patrons who live far from physical libraries to access books and that it supports research, scholarship, and cultural participation by making books widely accessible on the Internet,' Koeltl writes. "But these alleged benefits cannot outweigh the market harm to the Publishers."

Fallout

In a sliver of good news for the Internet Archive, Koeltl held that their petition to have statutory damages remitted per section 504 of the Copyright Act was "relevant" and said its lawyers could renew the argument in connection with any final judgment in the case. Section 504, which deals with damages, offers some relief where the infringer is a “nonprofit educational institution, library, or archives,” and the infringers “believed and had reasonable grounds for believing” that its use of the work was fair use.

And Koeltl also acknowledged that the Internet Archive is of course still free to lend books in its collection that are in the public domain, and free to use works still covered by copyright in "a manner consistent with the uses deemed to be fair in Google Books and HathiTrust," such as indexing, snippet view, and full access for the print disabled. That line suggests the publishers will likely not prevail in asking for the infringing scans to be destroyed, as the initial complaint had asked for, as it acknowledges there are legal uses for the IA's in-copyright scans.

But with a permanent injunction now in the offing, the ruling stands as an unequivocal, potentially fatal blow to the practice of controlled digital lending, which Internet Archive officials appeared to acknowledge in a statement on Friday afternoon.

"This decision impacts libraries across the US who rely on controlled digital lending to connect their patrons with books online," the Internet Archive statement reads. "It hurts authors by saying that unfair licensing models are the only way their books can be read online. And it holds back access to information in the digital age, harming all readers, everywhere."

Of course, there is also the appeal process, which Internet Archive officials vowed to pursue.

“Libraries are more than the customer service departments for corporate database products. For democracy to thrive at global scale, libraries must be able to sustain their historic role in society—owning, preserving, and lending books," said Internet Archive founder Brewster Kahle. "This ruling is a blow for libraries, readers, and authors and we plan to appeal it.”

The victorious publishers and their supporters offered a different assessment of Koeltl's decision.

"IA tried to justify its illegal creation and distribution of e-books under a legally absurd theory of fair use. Judge Koeltl saw through their rhetoric and false comparisons," said Authors Guild CEO Mary Rasenberger.

“The publishing community is grateful to the Court for its unequivocal affirmation of the Copyright Act and respect for established precedent," said Maria A. Pallante, President and CEO of the Association of American Publishers. "In rejecting arguments that would have pushed fair use to illogical markers, the Court has underscored the importance of authors, publishers, and creative markets in a global society. In celebrating the opinion, we also thank the thousands of public libraries across the country that serve their communities everyday through lawful e-book licenses. We hope the opinion will prove educational to the defendant and anyone else who finds public laws inconvenient to their own interests.”

This article has been updated.