In Hachette Book Group, Inc. v. Internet Archive, the Second Circuit began by succinctly defining the issue before the appeals court: “is it ‘fair use’ for a nonprofit organization to scan copyright-protected print books in their entirety and distribute those digital copies online, in full, for free, subject to a one-to-one owned-to-loaned ratio between its print copies and the digital copies it makes available at any given time, all without authorization from the copyright-holding publishers or authors? Applying the relevant provisions of the Copyright Act as well as binding Supreme Court and Second Circuit precedent, we conclude the answer is no.”
January 10, 2025 Feature
The Second Circuit Affirms Decision Rejecting Fair Use Defense Asserted by Internet Archive for Its Free Ebook Lending Website
Jesse Feitel, Elizabeth A. McNamara, Linda Steinman, and Jack Browning
In a 66-page decision, the Second Circuit then proceeded to affirm the district court’s decision that Internet Archive’s (IA) digitization and widespread online distribution of free ebooks is brazen copyright infringement, not fair use. The resounding victory for Hachette, HarperCollins, Penguin Random House, and John Wiley & Sons in the book publishers’ long-running copyright infringement lawsuit against IA found that all four factors of the fair use inquiry favored the book publishers and relied on common sense to conclude that IA’s free ebook website would harm authors by depriving them of well-earned “compensation for their unique creations.”
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To create and sustain its so-called Free Digital Library, also known as the “Open Library,” IA obtained copies of millions of in-copyright print books (generally used books), created digital scans of those works, and then posted the full text of those works on its website. IA permitted anyone around the world with internet access to “borrow” the full text of these unauthorized ebooks. IA justified its practice by arguing that it maintained a one-to-one “owned-to-loaned” ratio for these digital books. In other words, it allowed only as many concurrent “checkouts” of an ebook title as it had physical copies of that work in its storage.
Later, in 2018, IA launched the “Open Libraries Project,” which propelled its growth by allowing any library to “contribute” any supposedly noncirculating print book to the number of concurrent “checkouts” of a work available on the IA website. These so-called partner libraries would send IA a catalog of their noncirculating books, and if there was a match with IA’s offerings, IA’s website would increase the number of available concurrent checkouts of that work by one. During the relevant period, IA hosted more than 3 million copyrighted titles on its website, and its nearly 6 million users engaged in approximately 25 million “borrows” each year.
For several years prior to the suit, IA ignored the warnings of the Association of American Publishers (AAP) and the Authors Guild that its activities constituted copyright infringement. Eventually, in June 2020, four major book publishers, in a suit coordinated by the AAP, filed suit in the U.S. District Court for the Southern District of New York alleging that IA infringed their copyrights in 127 sample books, ranging from J.D. Salinger’s The Catcher in the Rye to Ian Woofenden’s Wind Power for Dummies. Each publisher plaintiff makes ebooks available to public libraries in the United States through commercial aggregators, such as OverDrive. Library ebooks have been increasingly popular; the number of ebooks checked out by library patrons through OverDrive increased dramatically between 2010 and 2020, with more than 93 percent of public libraries in the United States participating in ebook lending.
In response to the lawsuit, IA asserted that its mass digitization and free distribution of ebooks is a protected fair use because it is a noncommercial library whose distribution of ebooks is functionally equivalent to a library’s lending of physical books. After extensive discovery, the parties cross-moved for summary judgment on the issue of liability. On March 24, 2023, U.S. District Court Judge John G. Koeltl granted the publishers’ motion for summary judgment and soundly rejected IA’s position:
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. But no case or legal principle supports that notion. Every authority points the other direction. . . . [F]air use does not allow . . . the mass reproduction and distribution of complete copyrighted works in a way that does not transform those works and that creates directly competing substitutes for the originals. Because that is what IA has done with respect to the Works in Suit, its defense of fair use fails as a matter of law.
The Second Circuit affirmed. On the first factor, the Second Circuit made clear that whether a defendant’s use is transformative is the heart of the fair use analysis and found that IA’s free ebook website served the “same exact purpose as the originals: making authors’ works available to read” and “is meant to—and does—substitute for the original Works.” It squarely rejected IA’s argument that, like the challenged uses at issue in the U.S. Supreme Court’s decision in Sony Corporation of America v. Universal City Studios, Inc. and the Second Circuit’s decision in Fox News Network v. TVEyes, its digital library is transformative because it uses technology “to make lending more convenient and efficient” and “deliver[s] the work only to one already entitled to view it—the one person borrowing the book at a time.”
In Sony, the defendant manufactured home videotape recorders that allowed consumers to record television programs so they could watch them at a later time and was sued for contributory copyright infringement. In a decision that came before the term “transformative” was introduced into the fair use analysis, the Supreme Court held that the first factor favored fair use because “‘time-shifting for private home use . . . [is] a noncommercial, nonprofit activity’ that ‘merely enables a viewer to see such a work which [they] had [already] been invited to witness in its entirety free of charge.’”
And in TVEyes, where the defendant recorded significant quantities of live television news programs and compiled the recordings into a text-searchable database that allowed paying users to access the clips, the Second Circuit had the occasion to “contextualize[] Sony within the modern fair use framework,” and it explained that “‘[w]hile Sony was decided before ‘transformative’ became a term of art, the apparent reasoning was that a secondary use may be a fair use if it utilizes technology to achieve the transformative purpose of improving the efficiency of delivering content without unreasonably encroaching on the commercial entitlements of the rights holder.’”
While the Second Circuit rejected the defendant’s fair use argument in TVEyes, the court nevertheless “concluded that the use at issue was at least ‘somewhat transformative’ because it ‘enhanc[ed] efficiency’ by enabling users to view programming that discussed topics of interest to them ‘without having to monitor thirty-two days of programming in order to catch each relevant discussion.’”
Here, in this case, the Second Circuit held that IA could not align itself with these past copyright defendants. It emphasized that the “‘efficiencies’ identified in the Sony and TVEyes decisions are distinct from the purported efficiencies offered by IA’s Free Digital Library.” Sony’s time-shifting was novel and came “long before modern technology made it possible for one to view virtually any content at any time,” and the technology at issue in another case, Capitol Records, LLC v. ReDigi Inc., “offered a uniquely efficient service: allowing users to watch short clips of television programs featuring their selected search terms.”
In stark contrast, “IA’s Free Digital Library offers few efficiencies beyond those already offered by Publishers’ own eBooks.” Because IA simply allows users to access the very same ebooks that are authorized and offered by the plaintiff publishers, IA “offers the same efficiencies as Publishers’ derivative works while greatly impinging on their exclusive right to prepare those works.”
The court also rejected IA’s argument that, as in Sony, it was delivering each ebook “‘only to one already entitled to view it’—i.e., the one person who would be entitled to check out the physical copy of each Work”—because “this characterization confuses IA’s practices with traditional library lending of print books. IA does not perform the traditional functions of a library; it prepares derivatives of Publishers’ Works and delivers those derivatives to its users in full. . . . IA can[not] prepare and distribute derivative works en masse and assert that it is simply performing the traditional functions of a library.”
The court then turned to the other inquiry at issue in the first factor—commerciality. Below, Judge Koeltl held that IA’s use of the publishers’ works was commercial because, despite its status as a nonprofit and offer of free ebooks, IA “still ‘exploits the Works in Suit without paying the customary price,’” including by soliciting donations and earning commissions from “buy” buttons directing users to Better World Books, a corporate entity related to its founder.
The Second Circuit reached a contrary result, holding that IA’s use of the works was not commercial in nature, despite the complex synergies between IA and Better World Books. It declined to afford IA’s fundraising efforts much weight because, unlike the defendant in TVEyes, “IA does not profit directly from its Free Digital Library.” Likewise, IA’s partnership with Better World Books was “too attenuated for us to characterize the use as commercial on that basis.” In sum, the Second Circuit concluded that finding commerciality on this record “would greatly restrain the ability of nonprofits to seek donations while making fair use of copyrighted works.”
Nevertheless, because the Second Circuit found that IA’s use of the works was definitively not transformative, the first factor weighed in favor of the plaintiffs. Further, the fact that the Second Circuit found IA’s activities to be noncommercial broadens the reach of the court’s overall fair use decision.
Turning to the second factor, which examines the nature of the copyrighted work, IA argued that it was neutral because the publishers had sued over both fiction and nonfiction books. But the court observed that “[a]lthough we have previously stated that the second factor tends to favor fair use when the copied works are factual, rather than fictional, that general statement is an oversimplification of the Works in this case.” And here, “[w]hile the Works in Suit include both fiction and nonfiction books, even the nonfiction books contain original expression ‘close[ ] to the core of intended copyright protection.’” Because even the nonfiction books in suit “represent the authors’ original expressions of those facts and ideas—and those ‘subjective descriptions and portraits’ reflect ‘the author’s individualized expression[,]’” the court held that the second factor favored the plaintiff publishers.
Moving on to the third factor, the court held that the amount and substantiality of the portion of the copyrighted works used also favored the publishers because “it is undisputed that IA copies the Works in their entirety and distributes those copies to the public in full.” IA’s principal third-factor argument—that it needs to copy the entirety of each book in order to facilitate its lending program—failed because it “hinges entirely on its assumption that its use of the Works is transformative[, b]ut IA does not scan the Works in their entirety to achieve a transformative secondary purpose; it scans the Works in their entirety to substitute IA’s digital books for Publishers’ print books and eBooks.”
The court also explained that this copying was not analogous to the copying at issue in the Google Books case, for example, where Google permissibly copied the entire text of copyrighted books for the transformative purpose of creating “searchable databases that allowed users to view snippets of text pertaining to their search terms.” By contrast, as in TVEyes, where the defendant “made available ‘virtually the entirety of the [plaintiff’s] programming that TVEyes users want[ed] to see and hear[,]’” the third factor favored the publishers because IA “makes unauthorized digital copies of the Works and reveals those copies to the public in their entirety.”
The fourth factor, looming large over the analysis, also favored the publishers. The Second Circuit began its analysis of this factor, which examines the effect of the challenged use on the potential market for or value of the copyrighted work, by confirming that IA, as the proponent of the fair use defense, bears the “burden of proving that the secondary use does not compete in the relevant market.”
In this case, the publishers asserted that they suffered market harm because IA failed to pay customary license fees that libraries ordinarily pay to make the publishers’ ebooks available for lending and because they would lose library and consumer sales in the future if IA’s practices were to become widespread (the relevant test). In opposition, IA argued that its Free Digital Library causes no harm to publishers’ markets for the works because IA’s lending “offers a distinct service” from publishers’ ebooks, not a substitute, and because “all available evidence shows that IA’s lending caused no harm at all” to publishers’ thriving markets for the works.
First, the court debunked IA’s “simple” argument that its ebooks cannot serve as a substitute for the publishers’ original works because it makes a transformative use of them—since it does not do so. It further emphasized that it was “likely” that IA’s identical copies would serve as a substitute for the original works and “the undisputed evidence suggests it is intended to achieve that exact result.”
Indeed, the court focused on the fact that IA’s many pitches to libraries “advertise[ ] its digital books as a free alternative to Publishers’ print and eBooks.” The court then swiftly took apart IA’s expert reports, which it found suffered from numerous logical failings in their efforts to prove that IA’s Free Digital Library has no effect on publishers’ markets for print and ebooks.
The Second Circuit also held that it was of no moment that the publishers offered no empirical evidence of market harm in the form of lost sales of their own because they could instead rely on “the ‘common-sense’ inference of market harm without data to back that up.”
Ultimately, the Second Circuit found both forms of market harm asserted by the publishers. First, it found market harm on the ground that it was undisputed that IA failed to pay the publishers a customary license fee to make the works in suit available for digital lending. Second, the court was also “convinced that ‘unrestricted and widespread conduct of the sort engaged in by [IA] would result in a substantially adverse impact on the potential market for [the Works in Suit]’” because “IA’s Free Digital Library serves as a satisfactory substitute for the original Works.” “Though Publishers have not provided empirical data to support this observation, we routinely rely on such logical inferences where appropriate in assessing the fourth fair use factor.” In other words, no affirmative evidence was necessary to understand that were the court “to approve IA’s use of the Works, there would be little reason for consumers or libraries to pay Publishers for content they could access for free on IA’s website.”
In sum, because “IA’s Free Digital Library functions as a replacement for the originals, it is reasonable and logical to conclude not only that IA’s digital books currently function as a competing substitute for Publishers’ licensed editions of the Works, but also that, if IA’s practices were to become ‘unrestricted and widespread,’ . . . it would decimate Publishers’ markets for the Works in Suit across formats.” Therefore, the fourth factor favored the publishers.
Finally, the court recognized that it also must “balance the benefit the public will derive if the use is permitted [against] the personal gain the copyright owner will receive if the use is denied.” IA’s papers relied significantly on the claimed “significant public benefits” afforded by its lending program, “including expanding access to free literary materials[,]” and argued that prohibiting its practices would harm “those who have difficulty accessing physical libraries and [] researchers and authors who use controlled digital lending in creating new works.”
The court staunchly disagreed. The public would suffer if IA’s program were allowed to continue, the court held, because the Copyright Act is specifically designed to promote the protection of authors’ original works and allow authors to set the terms of engagement of their works for some time after those works are created. And while “expanding access to knowledge would, in a general sense, benefit the public,” the court relied on Harper & Row to reiterate that “‘[a]ny copyright infringer may claim to benefit the public by increasing public access to the copyrighted work.’”
Rather than considering how IA may offer marginal benefits to the public in the short term, the court focused on the “long-term consequences”: “If authors and creators knew that their original works could be copied and disseminated for free, there would be little motivation to produce new works. And a dearth of creative activity would undoubtedly negatively impact the public. It is this reality that the Copyright Act seeks to avoid.”
IA’s unauthorized lending program “would—and does—harm authors” because “[w]ith each digital book IA disseminates, it deprives Publishers and authors of the revenues due to them as compensation for their unique creations.” In sum, because “[a]ny short-term public benefits of IA’s Free Digital Library are outweighed not only by harm to Publishers and authors but also by the long-term detriments society may suffer if IA’s infringing use were allowed to continue,” the court’s public benefits analysis also favored the plaintiff publishers.
Weighing the factors together, the court rejected IA’s fair use defense because each factor favored the plaintiffs.
Takeaway: Clarity and Common Sense Restored in the Fourth Factor
The Second Circuit forcefully restored common sense and clarity to the fourth factor. In its briefing, IA faulted the plaintiff publishers for not coming forward with affirmative evidence of market harm and urged the court to reject the plaintiffs’ “common-sense claim that if users can download an identical copy of a Work for free, few will pay to buy or lease Publishers’ editions.”
IA relied extensively on a decision by the D.C. Court of Appeals in American Society for Testing & Materials v. Public.Resource.Org, Inc. (ASTM II). IA argued that ASTM II stood for the proposition that it may not be appropriate to rely on common sense in evaluating market harm even where the defendant has copied the plaintiff’s works in full.
The Second Circuit, however, properly cabined ASTM II to its facts, where the defendant made available copies of outdated technical standards that were incorporated into law and otherwise not freely available—but not current technical standards. Here, IA’s use of the publishers’ books—which, unlike the ASTM technical standards, are timeless works that remain unchanged after publication—was not transformative and would function as a competing substitute.
Finally, the court went into some helpful detail on the burden of proof issues: “While the rightsholder may bear some initial burden of identifying relevant markets, ‘we have never held that the rightsholder bears the burden of showing actual market harm’” and, therefore, the “Publishers need not present empirical data of their own in connection with IA’s asserted affirmative defense.” In other words, aside from identifying the relevant markets—here, the robust market for library ebook licensing—the plaintiff publishers were under no obligation to come forward with empirical evidence of market harm.
Takeaway: Public Benefits Analysis
In his majority opinion in Google LLC v. Oracle America, Inc., Justice Stephen Breyer’s assessment of market harm included the following observation:
Further, we must take into account the public benefits the copying will likely produce. Are those benefits, for example, related to copyright’s concern for the creative production of new expression? Are they comparatively important, or unimportant, when compared with dollar amounts likely lost (taking into account as well the nature of the source of the loss)? Cf. MCA, INC. v. Wilson, 677 F.2d 180, 183 (CA2 1981) (calling for a balancing of public benefits and losses to copyright owner under this factor).
We do not say that these questions are always relevant to the application of fair use, not even in the world of computer programs. Nor do we say that these questions are the only questions a court might ask. But we do find them relevant here in helping to determine the likely market effects of Google’s reimplementation.
IA’s appellate briefing relied heavily on this analysis, arguing that the court’s failure to find fair use here would deprive readers of “‘significant public benefits,’ including expanding access to free literary materials,” and that an adverse ruling “would cause harm ‘to those who have difficulty accessing physical libraries and to researchers and authors who use controlled digital lending in creating new works.’”
In the Hachette decision, the Second Circuit cited to an alternative phrasing of Justice Breyer’s inquiry, recognizing that “[a]lthough IA cannot disprove market harm, we still ‘balance the benefit the public will derive if the use is permitted [against] the personal gain the copyright owner will receive if the use is denied.’”
The court gave little weight or attention to IA’s extensive broader public policy–based arguments (as well as those advanced by its amici). Instead, the court stayed focused on the more nuanced public benefits—extended to both the public and creators—that are contemplated by the Copyright Act and reflected in the four-factor analysis:
To be sure, expanding access to knowledge would, in a general sense, benefit the public. But “[a]ny copyright infringer may claim to benefit the public by increasing public access to the copyrighted work.” Harper & Row, 471 U.S. at 569, 105 S. Ct. 2218. That does not alone render the infringement lawful. Indeed, the Copyright Act and its empowering constitutional authority reflect a considered judgment that “the Progress of Science and useful Arts” is best promoted by laws that protect authors’ original works and permit authors to set the terms of engagement, at least for a limited time. See Sony, 464 U.S. at 429, 104 S. Ct. 774. Doing so benefits the public “by providing rewards for authorship.” Google Books, 804 F.3d at 212. This monopolistic power is a feature, not a bug, of the Copyright Act.
In this case, the court explained, “[w]ithin the framework of the Copyright Act, IA’s argument regarding the public interest is shortsighted. True, libraries and consumers may reap some short-term benefits from access to free digital books, but what are the long-term consequences?” Those consequences—namely, causing harm by “depriv[ing] Publishers and authors of the revenues due to them as compensation for their unique creations”—were sufficiently concrete to outweigh whatever public benefits are created by IA’s conduct.