This post is an update. Read the original post here, the first addendum here and the second addendum here.

Throughout 2020, Lutzker & Lutzker published multiple insights relating to the copyright dispute between Internet Archive and four major publishing companies — Hachette Book Group Inc., HarperCollins Publishers LLC, John Wiley & Sons Inc. and Penguin Random House LLC (the “Publishers”).

On March 24, 2023, the U.S. District Court for the Southern District of New York granted summary judgment to the Publishers. Hachette Book Group, Inc. et al v. Internet Archive et al., No. 1:20-cv-04160-JGK-OTW (S.D.N.Y. 2023) (“Opinion”). The Court considered Internet Archive’s “fair use defense” and decided that the actions of Internet Archive in scanning physical copies of books and lending them to readers as an eBook was not a “transformative” use, and thus summary judgment was granted to the Publishers. Internet Archive plans to appeal the decision.

The litigation focused on 127 of the Publishers’ copyrighted books. Internet Archive distinguishes itself from other libraries because instead of licensing eBooks from publishers under various models, the typical industry standard, Internet Archive purchases print books, digitally scans them, and distributes the digital copies while holding the physical copies in storage. While other libraries pay a licensing fee to the Publishers for eBooks and have set limitations on the number of times an eBook can be lent out, Internet Archive uses Controlled Digital Lending (“CDL”) to ensure that eBooks are only lent out in limited numbers tied to the number of copies in their physical possession. Internet Archive also uses software that prevents patrons from copying or viewing the eBook after the loan period.

However, in response to the COVID-19 pandemic, Internet Archive lifted the limitations on lending, calling the program the National Emergency Library. In response, the Publishers filed suit, and Internet Archive “closed” the National Emergency Library and resumed CDL. Factors that led to the Court rejecting Internet Archive’s fair use defense were that Internet Archive broke the “promise” of CDL and the lack of verification that partner libraries have removed “physical copies from circulation.”

Fair use is codified in the Copyright Law of the United States 17 U.S.C. § 107 which states that:

In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include —

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

There is not one determinative fair use factor for Courts to weigh over the others; instead, the Court must consider all factors on a case-by-case basis. It is important to note that 17 U.S.C. §108 does offer libraries certain authorizations to reproduce and distribute copyrighted works without the copyright owner’s permission. However, Internet Archive “did not justify its infringing acts” under §108 and thus the Court looked to §107, which details the fair use defense, to determine if Internet Archive infringed upon the Publishers’ copyrights. Opinion at 16.

In the Second Circuit, the Court looks to see if a work is “transformative” while analyzing the first fair use factor. To be considered a “transformative” work, there must be “something new, with a further purpose or different character, altering the first with new expression, meaning, or message, rather than merely superseding the original work.” Capitol Recs., LLC v. ReDigi Inc., 910 F.3d 649, 660 (2d Cir. 2018). A work could also be considered transformative if there is an added utility to the work. Opinion at 17.

Here, the Court held that “[t]here is nothing transformative about [Internet Archive]’s copying and unauthorized lending of the Works in Suit.” Id. at 18. The Court distinguished this case from similar cases where the work was considered transformative because, unlike in the other cases, Internet Archive made available the entirety of the book, for all users and not just “print-disabled readers” as was the case in Authors Guild v. HathiTrust. 755 F.3d 87 (2d Cir. 2014). Furthermore, the Court held that Internet Archive did not expand the utility of the works because Internet Archive did not create a “full text searchable database” that still protected the full text of the books at issue, as was the case in Authors Guild v. Google, 804 F.3d 202 (2d Cir. 2015). Scanning the books and “lend[ing] digital copies en masse” is not a transformation of the works. Opinion at 25.

Despite the fact that Internet Archive is a “wholly noncommercial library,” the Court found that Internet Archive’s use of the work was commercial in nature. Id. at 28. Internet Archive may not have made a monetary profit from their use of the Publishers’ works, but Internet Archive still benefited from the use, without having to account to the Publishers. Id. at 27. Thus, the Court weighed the commercial-noncommercial distinction in favor of the Publishers.

Furthermore, the Court found that Internet Archive was not protected by the “First Sale Doctrine,” which is codified in 17 U.S.C. §109(a). The first sale doctrine allows purchasers of copyrighted works to resell or lend their copy of a work without the permission of the copyright owner. However, the Court believed that because Internet Archive is scanning the books and not lending out the physical copies purchased, the first sale doctrine does not apply in this case. The Court considered Internet Archive’s scanning of the books to be a reproduction of the works, which is not protected by §109. Id. at 29-30. Thus, the Court weighed the first fair use factor in favor of the Publishers.

Next, the Court looked to the second fair use factor, the nature of the copyrighted work. Creative works, such as works of fiction, are offered stronger copyright protection than non-fiction works. Id. at 35. The Court weighed this factor in favor of the Publishers as well “because the fiction books, as paradigmatic creative works, are close to the core of intended copyright protection. See, e.g., Am. Buddha, 2015 WL 11170727, at *5. But the Copyright Act also values and seeks to protect the non-fiction Works in Suit, which contain ‘subjective descriptions and portraits … whose power lies in the author’s individualized expression,’ Harper & Row, 471 U.S. at 563.” Id. at 35.

The third fair use factor, the “amount and substantiality of the portion used in relation to the copyrighted work as a whole” also weighed in favor of the Publishers because Internet Archive copied the entirety of the copyrighted works. Id. at 37.

Factor four, “the effect of use on the potential market” was also determined by the Court to favor the Publishers. Id. at 41. Even though Internet Archive is not selling the books, the Court believed that Internet Archive should still be required to pay the licensing fee for eBooks, just as other libraries are required to do in order to lend the books to patrons. Id. at 39. The Court believed that should others follow Internet Archive’s example, there would be a severely negative effect on the potential market at issue. Internet Archive stated that “publishers have suffered no economic harm as a result of [their CDL] …the books the library lends are bought and paid for, ensuring that rights holders receive all of the financial benefits for which they are entitled.” The facts that Internet Archive provided data demonstrating that there was not any actual harm to the Publishers’ and authors’ revenue, and in fact some books sold better once they were uploaded to Internet Archive, did not sway the Court. Id. at 43.

The Court was also not swayed by arguments from Internet Archive regarding the public benefits of its online library. Id. at 44. Even though Internet Archive makes it possible for those without access to their local libraries to read books they would not otherwise be able to, the Court believed that the potential market harm to the Publishers outweighed the public benefits. Id.

Publishers and authors are celebrating the Court’s decision, believing it protects economic incentive to those in creative fields. Groups like the Creative Economy Coalition, of which the Association of American Publishers and the Authors Guild are members, are strong supporters of the Court’s interpretation of the Copyright Act and believe that licensing fees are a fair price for libraries to pay. Furthermore, the Publishers and the Coalition believe that existing licensing fee models allow for dissemination of information while still allowing authors to economically benefit from their works.

Others worry about the implications of this decision for educational use and researchers. The Court did distinguish this case from other cases involving research databases, such as Authors Guild v. Google, Inc. and Authors Guild v. HathiTrust, stating that uploading full scans of physical books is different than “snippet views of books” or databases where people can search for particular terms across various works. However, some scholars worry that damages have yet to be determined and believe the scope of damages could have a negative impact on aspects not limited to the 127 works at issue. This suit does not call into question the Internet Archive’s Way Back Machine and its preserved books that are in the public domain or have been copied with the permission of the copyright owners. Should the Court award the Publishers significant damages, these aspects of Internet Archive’s activities could be impacted by this suit.

The Court’s decision will have far reaching consequences regarding books, libraries, the Internet and fair use. Copyright and fair use are areas of law that are open to multiple interpretations and are very fact specific. Lutzker & Lutzker will be following the appeal and providing updates.