The Internet Archive's efforts to provide free online access to digital scans of books have been dealt a blow by a recent ruling from the Second Circuit Court of Appeals. The court rejected the Internet Archive's argument that its controlled digital lending system, which allows for one person at a time to borrow each scanned e-book, constituted fair use and functioned like a traditional library.

In the decision, Judge Beth Robinson stated that the Internet Archive's digital copies of books did not add any new elements such as criticism, commentary, or altered content to the originals. As a result, the court concluded that this use of publishers' books was not transformative, effectively undermining the organization's fair use defense.

The ruling affirms the lower court's decision, permanently barring the Internet Archive from distributing not only the works involved in the lawsuit but also all books "available for electronic licensing." Judge Robinson further explained that considering the Internet Archive's use of the works as transformative would significantly limit copyright owners' exclusive right to prepare derivative works.

The Association of American Publishers, the trade organization behind the lawsuit, expressed satisfaction with the court's ruling. Maria Pallante, the president and CEO, highlighted that the decision upholds "the rights of authors and publishers to license and be compensated for their books and other creative works," emphasizing that infringement is both costly and contrary to the public interest.

Chris Freeland, the Internet Archive's director of library services, expressed disappointment in the court's opinion regarding the digital lending of books already available in electronic formats elsewhere. Freeland stated that the organization would continue to defend the rights of libraries to own, lend, and preserve books despite the setback.

The court's fair use analysis extended beyond the question of transformation. It also considered the publishers' claims that the Internet Archive was making a profit from e-book lending, the originality and extent of the copied works, and whether the e-books substituted the original works, potentially depriving authors of revenue. Ultimately, the judges ruled in favor of the publishers on each factor, highlighting the threat to the exclusive right of publishers to prepare derivative works, including publishing authors' works as e-books.

The Internet Archive attempted to argue that publishers' increasing profits indicated no market harm caused by its digital lending. However, Judge Robinson dismissed this argument, stating that the Internet Archive's digital books competed directly with publishers' e-books, potentially depriving authors of revenue. Robinson noted that while publishers did not provide empirical data to support their observations, logical inferences were sufficient for determining fair use.

On the issue of profit, the appeals court sided with the Internet Archive, contrary to the claims made by the publishers. The court disagreed with the assertion that the organization profited from e-books through soliciting donations or earning a small percentage from the sale of used books referred through its site. Judge Robinson clarified that while the Internet Archive must seek funds to sustain its operations, it did not directly profit from its Free Digital Library.

The court's decision marks a significant development in the ongoing debate surrounding digital lending and copyright law. As the Internet Archive navigates the legal landscape, the repercussions of this ruling may have broader implications for how digital content is accessed and shared in the future.