The Quixotic Battle Over Controlled Digital Lending Heats Up

“IA ridiculously claims that its Open Library causes no market harm to the Publishers because they have already been paid for the physical books that IA digitizes and distributes online…. This self-serving position ignores the fact that IA is usurping a different market—the thriving one for ebook licensing with which Controlled Digital Lending directly competes.”

controlled digital lendingIn June 2020, a few months into the pandemic, a group of four large publishing houses—Hachette Book Group, HarperCollins Publishers, John Wiley & Sons, and Penguin Random House (collectively, the Publishers)—sued Internet Archive (IA) in the Southern District of New York for “willful mass copyright infringement.” The spat centers around IA’s Open Library project, which scans millions of physical books and delivers them digitally across the globe for free to anyone with an internet connection. IA proclaims that the “ultimate goal of the Open Library is to make all the published works of humankind available to everyone in the world,” but it conspicuously fails to mention that its utopian vision doesn’t include getting permission from copyright owners before offering their works on its virtual bookshelves. IA argues before the court that it doesn’t need permission because its actions qualify as fair use under the dubious new theory of controlled digital lending (CDL), which it claims to be “fundamentally the same as traditional library lending” since it “poses no new harm to authors or the publishing industry.”

According to IA, what it means to be a “library” in the digital age lies at the heart of this dispute. The core function of a library is expanding fair access to information by lending out books to patrons, which has long been protected by the first sale doctrine. IA argues that CDL—where libraries make and disseminate digital versions of the physical books on their shelves without permission—is simply a more efficient way for libraries to fulfill their primary mission. The CDL theory has become quite the cause célèbre for the copyleft, with digital rights groups predictably declaring that the lawsuit is “aimed at intimidating libraries and diminishing their role in society.” After two years of discovery, the docket is finally heating up, with summary judgment briefs (here and here), oppositions (here and here), replies (here and here), and a surprising number of amicus briefs now filed in the litigation. The district court’s decision is expected soon, and it very likely will side with the Publishers: Nothing about what IA does is remotely close to what real libraries do under the first sale doctrine, and the CDL theory rests on the sort of twisted logic that only the most ardent copyright skeptic could love.

The Attack on the Ebook Licensing Marketplace

The controversy over CDL is really about the marketplace for ebooks writ large. Under the first sale doctrine, the owner of a lawfully made physical copy can dispose of it by sale or loan without the copyright owner’s permission. Consistent with the “common law’s refusal to permit restraints on the alienation of chattels,” as Justice Breyer put it in Kirtsaeng v. John Wiley & Sons, the authorized first sale of a copy exhausts the copyright owner’s distribution right as to that particular copy. But while the first sale doctrine empowers a library to loan the physical books in its collection to patrons, it plays almost no role with digital ebooks, which are typically licensed and not sold. The move from physical sales has allowed authors and publishers to experiment with different licensing structures, from limiting the number of uses or users per title to all-you-can-eat subscription buffets. IA confusingly paints such decisions as antithetical to the public good, but as Justice O’Connor reminded us in Eldred v. Ashcroft, “copyright law celebrates the profit motive, recognizing that the incentive to profit from the exploitation of copyrights will redound to the public benefit.”

The exclusive right of copyright owners to control how their ebooks are offered in the marketplace is being attacked on two fronts. The first is in state legislatures, where groups like Library Futures are pressing for new laws that would dictate how ebooks are licensed to public libraries within each state. Early forms of these laws were doomed from the start since they forced publishers to grant licenses and thus conflicted with the distribution right under the Copyright Act. The governor of New York vetoed the bill in that state as “preempted by federal copyright law,” and a district court declared Maryland’s version “unconstitutional and unenforceable” because it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” These defeats recognized how federal law protects the exclusive right to distribute ebooks, but not everyone has received the message. Library Futures has now doubled down with draft state legislation that supposedly avoids the preemption problem even though it still directly conflicts with federal law by prescribing the terms of ebook licenses, such as quantity, price, and duration.

The second line of attack on the licensing market for ebooks—CDL—is far more pernicious. Indeed, Library Futures admits that the state licensing bills are a diversion and that its real goal is CDL, which “logically extends the current paradigm for print books” by allowing digital copies to “be lent to one person at a time.” It’s no surprise that Library Futures endorses the practice. Its cofounder and board chair is coauthor of the infamous CDL White Paper, which lays out the legal arguments that purportedly justify the practice. Under the CDL theory, libraries can make digital versions of the physical books in their collections and disseminate the new copies to the public over the internet. So long as certain conditions are met—most importantly, the “owned to loaned” ratio, where the total number of digital loans never exceeds the number of owned physical copies on hand—the White Paper argues that “CDL is about replicating with digital lending the legal and economically significant aspects of physical lending.” And while the unconstitutionally overbroad state ebook licensing bills at least acknowledge the fact that licenses are needed, CDL just pretends like it’s all fair use.

The CDL Theory Is a Baseless Fantasy

On the merits, IA primarily argues that its Open Library implementation of CDL constitutes transformative fair use that causes no cognizable market harm to the Publishers. IA doesn’t—and can’t—argue transformativeness in the traditional sense under Campbell v. Acuff-Rose Music, which looks at whether the new work merely supersedes the objects of the original or instead transforms it with new expression or meaning. Even the White Paper begrudgingly admits that “CDL is not clearly transformative” under Campbell, though it instead claims that it doesn’t matter since it “aligns closely with the statutory purpose of the first sale doctrine.” The thrust of the White Paper is that CDL represents a magical synergism, heretofore unrecognized in the courts, between first sale and fair use. Since first sale allows the owner of a physical copy to loan it to someone else, the theory goes, the fair use doctrine steps in to allow that owner to make new copies for digital lending. The White Paper notes that there are “no cases directly addressing the interaction” of first sale and fair use, though it does point to the Capitol Records v. ReDigi case as being “in some ways closely analogous to CDL.”

At the time the White Paper was published in September 2018, the ReDigi case was on appeal to the Second Circuit. The ReDigi service allowed people to sell their “used” digital music files online, and the software would delete the source file from the seller’s computer as it was uploaded to the buyer. As with CDL, ReDigi limited the number of copies in existence at a given time, but the district court held that neither first sale nor fair use excused the inevitable copying. In its amicus brief supporting ReDigi’s appeal, IA urged the Second Circuit to adopt the White Paper’s central theory that fair use expands the application of first sale to the digital realm. IA explained that a decision in ReDigi’s favor would “encourage innovative digital services in libraries” and provide “additional legal certainty” that its own Open Library is noninfringing. The Second Circuit, in an opinion by Judge Leval, rejected the “policy-based arguments” that “the Copyright Act must be read to vindicate purchasers’ ability to alienate digital copyrighted works under the first sale doctrine,” and it noted that invitations to change the law should be directed to Congress.

The ReDigi court unambiguously confirmed the stark difference between handing someone a physical copy and distributing new digital copies online, even if the number of copies is somehow controlled. But rather than abandon its flawed position, IA has become more resolute. It now claims that CDL is transformative because it expands utility and improves the efficiency of delivering content to those entitled to receive it. Here again the Second Circuit rains on IA’s parade. ReDigi explained that a utility-expanding use “provides information about the original,” such as copying books to create a searchable database that doesn’t “allow users to read the texts.” It also includes time-shifting by “one entitled to receive the content” as in Sony v. Universal, which was retconned into a case about delivery efficiency by the Second Circuit. IA doesn’t supply information about copyrighted works—it provides entire works without adding anything new. And while the home viewers in Sony were entitled to receive the licensed over-the-air transmissions, IA’s users have no entitlement whatsoever to receive IA’s unlicensed internet transmissions of its unlicensed digital copies.

Internet Archive Will Likely Lose on the Merits—And It Should

The crux of the first sale doctrine is that “the owner of a particular copy” that has been “lawfully made” may then distribute that specific copy to someone else without permission. ReDigi confirms the modest fact that there’s no such thing as digital first sale because new copies are necessarily made and fair use doesn’t magically swoop in to save the day. Not only is IA’s distribution of verbatim copies for the exact same purpose in no way transformative, it also clearly acts as a market substitute. IA ridiculously claims that its Open Library causes no market harm to the Publishers because they have already been paid for the physical books that IA digitizes and distributes online. According to IA, the customary price that libraries pay to lend out the physical books they already own is zero, and CDL changes nothing even though they are giving away new digital copies online. This self-serving position ignores the fact that IA is usurping a different market—the thriving one for ebook licensing with which CDL directly competes. Of course, IA knows this is all nonsense. It even solicits new library partners by telling them that they won’t have to pay for ebook licenses anymore.

IA wraps itself in the amicable guise of a “library,” but its supposed beneficence comes at the expense of the copyright owners that it robs on an incredible scale. Author Sandra Cisneros filed a declaration in support of the Publishers stating the simple truth: “Real libraries do not do what Internet Archive does.” The litigation has revealed the remarkable depth of IA’s scam: IA points to the White Paper for independent legal cover even though it participated in its creation; IA doesn’t follow the suggested mitigations in the White Paper, such as limiting CDL to older works and imposing geographic restrictions; IA doesn’t own many (if not most) of the physical books that it digitally lends, making the “owned to loaned” ratio even more of a sham; IA claims to be acting in good faith, yet it continued to add thousands of the Publishers’ works after the suit was filed. The list goes on. When IA asked Professor Peter Jaszi to join a statement supporting the CDL theory, he instead called it a “one-sided puff piece that seriously misrepresents both the state of the law and the risks to institutions of pursuing the strategy.” He’s right. There is little doubt that the district court will recognize IA’s piracy for what it really is, and so too will the Second Circuit when IA inevitably appeals its well-deserved loss.

Image Source: Deposit Photos
Image ID: 97990554
Author: carballo


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Join the Discussion

5 comments so far.

  • [Avatar for Thiago Theo]
    Thiago Theo
    April 15, 2023 01:24 am

    This is an incredible rousing article. A Federal judge’s ruling offered a stern rebuke of the Internet Archive’s National Emergency Library and its controlled digital lending .

  • [Avatar for Anon]
    February 7, 2023 02:16 pm


    Your statement is in error.

    You assume the conclusion to be arrived at with insisting that there could be no Fair Use in that “first digital capture.”

    That is simply just not so — Fair Use is HEAVILY facto dependent, and there may well be Fair Use present.

    This is actually shown in the library cases.

    It MAY be a different matter whether that established line of reasoning can carry over to this different entity, but by no means can you do as you have done here.

  • [Avatar for Watching the IP Dog]
    Watching the IP Dog
    February 7, 2023 10:00 am

    How much do the briefs and case law focus on the clear infringement of the initial copying of each book, by digital scanning, before any additional infringement by digital distribution? The initial per-book copying is in no way transformative or fair use, and any distribution of such copy would be a separate infringement. The digital copy constitutes “the fruit of the forbidden tree” of the initial copying infringement. The doctrine of “unclean hands” would vitiate even lawful acts built on underlying infringement. This case epitomizes the sayings, “the ends don’t justify the means,” and “two wrongs don’t make a right.”

  • [Avatar for Pro Say]
    Pro Say
    February 6, 2023 01:30 pm

    The Archive’s baseless, meritless, foolish attempt at stealing that which belongs to others will — as it should — fail.

    Indeed, the money they have and will expend on their fool’s errand could potentially bankrupt them.

    The folks who run this jewel need to stay in their lane.

    For both their good and ours.

  • [Avatar for Anon]
    February 6, 2023 12:12 pm

    The district court’s decision is expected soon, and it very likely will side with the Publishers: Nothing about what IA does is remotely close to what real libraries do under the first sale doctrine, and the CDL theory rests on the sort of twisted logic that only the most ardent copyright skeptic could love.

    Completely disagree – on a number of different fronts.