A look at the latest ruling against the Internet Archive

Controlled Digital Lending: A Recap

The case against the Internet Archive is the first time any court has considered whether controlled digital lending is fair use. The Internet Archive’s digital lending program is one version of controlled digital lending. Controlled digital lending is a method whereby libraries lend digital scans of print materials in their collections, adding some restrictions that are designed to make the digital lending as similar as possible to the lending of print materials.

Probably the most important of these restrictions is the owned-to-loaned ratio. The owned-to-loaned ratio holds that a library can only lend digital scans to the same extent that it can lend the physical materials. If a library owns one print copy of a book, it can only loan one copy of that book to one patron at a time, whether the copy is physical or digital. So, if a patron borrows the digital copy, then neither the print nor the digital copy should be available to another patron for the duration of the borrowing period. In this way, the digital copy acts as a substitute for the original and does not add to the library’s collection.

Controlled digital lending potentially allows libraries to serve patrons in new ways, expanding their reach beyond their physical walls. With controlled digital lending, libraries are not limited to serving patrons who are physically present, but instead are able to reach almost anyone, almost anywhere. Moreover, it helps libraries derive additional value from their print collections. Libraries are filled with print books that patrons rarely use. Controlled digital lending can help libraries put these books to use by making them easier to discover and access.

However, copyright law does not clearly permit controlled digital lending. While the copyright statute specifically allows libraries to lend their print materials, the same statute does not apply to digital copies of those print materials. For this reason, controlled digital lending relies on an argument that it is fair use for libraries to engage in this kind of lending. It asks the question: If the copyright statute allows libraries to lend their books to patrons, why can’t libraries lend digital substitutes of those books to patrons who are online?

The Second Circuit Decision

In June 2020, a group of publishers sued the Internet Archive over its digital lending program. The publishers won at trial in the Southern District of New York, and the Internet Archive appealed to the Second Circuit.

The issue on appeal was whether the Internet Archive’s lending of 127 books that are otherwise commercially available as ebooks constituted fair use. When considering fair use, courts look at four nonexclusive factors, balancing the arguments on both sides against each other. These factors are: The purpose and character of the use, including whether the use is commercial; the nature of the copied work; the amount and substantiality copied; and the harm to the market for the original by the secondary use.

Starting with factor one, the purpose and character of the use, courts look at whether a secondary use serves a transformative purpose, somehow doing something different than the original. Uses that are transformative weigh in favor of fair use and uses that  of the original weigh against.

The Second Circuit held that factor one weighed against fair use. The Internet Archive argued that its digital lending was transformative because it made lending more efficient and that its digital copies permit uses that are impossible with print books. Even so, the court held that the Internet Archive’s digital scans were not transformative because they served the “exact same purposes as the originals: making authors’ works available to read.”

Turning to factor two, the nature of the copied work, courts look at whether a secondary use copied a highly expressive work or a less expressive or fact-based work. Typically, copying highly creative works or fiction works weighs against fair use and copying fact-based, nonfiction works cuts toward fair use.

Again, the Second Circuit found that this factor weighed against fair use. The Internet Archive argued that factor two should be neutral, since it copied both fiction and nonfiction books. Interestingly, however, the court held that, even though courts often hold that fair use favors copying nonfiction works, factor two weighed against fair use because the Internet Archive copied works that were still the original expressions of their authors, even if they were nonfiction.

For the third factor, the amount and substantiality copied, courts look at how much of a work a secondary use copied as a percentage of the overall work. In general, copying less of a work cuts toward fair use and copying more cuts against fair use. At the same time, however, courts consider this factor in context of factor one. If someone needs to copy an entire work to support a transformative use, then even that much can be fair use.

Here too, the Second Circuit held that this factor weighed against fair use. Since the court rejected the Internet Archive’s argument that its use was transformative, the Internet Archive could not justify the amount it copied in its digital lending program.

Finally, on the fourth factor, the harm to the market for original work, courts often look at whether a secondary use acts as a substitute for the original in the market. Uses that are market substitutes weigh against fair use and uses that do something different, and thus can exist separately in the market from the original, weigh toward fair use.

Once again, the Second Circuit found that factor four weighed against fair use. Although the Internet Archive offered evidence that its digital lending program did not harm the sales of the publishers’ ebooks, the court was unconvinced. “Here, not only is IA’s Free Digital Library likely to serve as a substitute for the originals, the undisputed evidence suggests it is intended to achieve that exact result.”

Altogether, this decision was not close. The Internet Archive lost on nearly all of its arguments, and controlled digital lending is not fair use, at least as it applies to digital scans of books that are otherwise available as ebooks.

What does this mean for academic libraries?

While this decision will have some impact on academic libraries, we need to wait and see exactly what that impact will be. Reading the decision narrowly, it only directly applies to lending scans of books that are commercially available as ebooks. So it may leave room for other implementations of controlled digital lending. For example, perhaps using controlled digital lending for scans of materials that are not available as ebooks may still be fair use. Additionally, while the Internet Archive is a nonprofit, it is not an educational institution, and its patron base is probably larger than many academic libraries. So, perhaps a digital lending program that is more limited in scope and application would have different fair use arguments than those in this case.

Even so, future courts will not be limited to apply this case only to similar situations. Indeed, much of the reasoning that the Second Circuit used could apply to controlled digital lending programs more broadly, outside of this specific context. So, even though this case directly applies to one type of digital lending, future courts might use it for others—including academic libraries.

Moreover, the way the Second Circuit understood derivative works could have negative consequences for fair use cases down the road. The court called ebooks “paradigmatic” examples of derivative works and wrote that “[c]hanging the medium of a work is a derivative use rather than a transformative one.” As such, it held that the Internet Archive’s 1-for-1 digital scans of print materials were non-transformative and ultimately not fair use.

This, however, does not clearly align with the statutory definition of derivative works. The law defines derivative works as works that are based on one or more preexisting works, listing as examples translations, fictionalizations, movie versions of novels, or “any other form in which a work may be recast, transformed, or adapted.” Even though the quoted language is broad enough to include digital scans of print materials, the statutory examples suggest that derivative works are not simply reproductions of the original work. Instead, these examples seem to describe situations where someone creates a new work that adds something to the original. Indeed, the fact that the copyright statute gives authors the right to control “reproductions” of their works in 17 USC 106(1) separately from the right to create derivative works in 106(2) further implies that derivative works are not simply reproductions. In turn, 1-for-1 digital scans of print materials are not derivative works.

The Second Circuit’s expansive understanding of derivative works could be problematic for future fair use cases for the same reason it was problematic for the Internet Archive in this case: The court held that the Internet Archive’s use was non-transformative because it impermissibly infringed on the derivative right. There is tension in the law between transformative derivative works and transformative fair uses, and the Court correctly avoided extending fair use to works that should be protected as derivative works. However, courts must also be careful not to allow the derivative right to interfere with transformative fair uses. By expanding the definition of derivative works, courts may improperly block transformative fair uses in the future. A better analysis on this point would have held that the Internet Archive’s digital scans were non-transformative because they were reproductions that served exactly the same purpose as the originals.

Maybe it’s not all bad

One positive aspect of this decision is its analysis of commerciality as part of fair use factor one. Typically, fair use weighs against uses that are commercial in nature, even though commerciality does not completely bar fair use. The trial court in the Internet Archive case wrote that the digital lending program was commercial and this weighed against fair use because it “uses its Website to attract new members, solicit donations, and bolster its standing in the library community.” Thus the Internet Archive earned both revenue in the form of donations and intangible benefits like new users and improved status.

The Second Circuit correctly rejected this argument, holding that the Internet Archive's use was not commercial. It recognized that the trial court's understanding of commerciality was so broad that it would mean that nearly any use could be considered commercial. “Characterizing these general benefits as commercial profits would render commercial the activities of virtually any nonprofit organization that bolsters its reputation through its own nonprofit activities.” In overturning this part of the lower court’s decision, the Second Circuit will help to ensure that only explicitly commercial activities should be considered as such for future fair use analyses.

Where do we go from here?

While this decision is certainly not ideal for libraries who want to use controlled digital lending, its full impact will not bear out for some time. With luck, my concerns about the Second Circuit’s understanding of derivative works will go unfounded and its ruling on commerciality will help future fair use cases. All we can do now is watch and see what happens.