Second Circuit Rules on Open Library Book-Scanning Case
On May 15, 2024, we published a post about an important legal dispute between the Internet Archive (“IA”) and the publisher Hachette, along with other major publishers (the “Publishers"). On June 1, 2020, the Publishers sued IA and five other defendants in the Southern District of New York for copyright infringement involving 127 books that had been scanned and made available to the public through IA’s Open Library project under a theory of controlled digital lending. After the District Court's ruling on March 24, 2023, which held IA liable for copyright infringement, IA appealed the decision. On September 4th of this year, the 2nd Circuit issued its Opinion, affirming the District Court's decision in the case.
The 2nd Circuit concurred with the lower court in rejecting IA’s fair use defense on all four factors of the fair use analysis, although the appeals court’s analysis did differ in some respects from that of the district court. After analyzing each factor separately, the 2nd Circuit found that digitally copying copyright-protected print books in their entirety and distributing them online with a one-to-one owned-to-loaned ratio between the print copies and the digital copies does not constitute fair use.
When addressing IA’s purpose for the use, transformativeness was the key element in determining whether fair use applied. The court found IA’s use to be nontransformative, primarily because simply scanning the books did not add any expressive transformation that would make the copies more than mere derivatives. The 2nd Circuit added that “[t]o preserve [the derivative works] right, the degree of transformation must go beyond that required to qualify as a derivative.” (23).
IA argued that its use was transformative because it makes lending “more convenient and efficient” and delivers the work only to “one already entitled to view it―the one person borrowing the book at a time.” (23). The 2nd Circuit contested IA’s interpretation of efficiency, citing the Sony and TVEyes cases. The court pointed out that the contexts in which the uses by Sony and TVEyes were considered transformative were different from IA’s case. In those instances, the defendants’ changes were transformative because the technology used was new and unavailable at the time. In IA’s case, however, making digital copies of books available is not significantly different from what publishers already do by offering licenses for the ebook format. Therefore, the court ruled that IA’s use was nontransformative, which weighed against a fair use defense.
Since the use was nontransformative, the 2nd Circuit did not give much weight to the second element of the first factor—commercial versus nonprofit use. The court did find that the use was noncommercial because IA offered the copies for free and did not derive direct profits from the ads that appeared on their webpage, as the revenue generated was not significant enough to be considered profit. As a result, the court acknowledged that while IA’s use of the books benefits from avoiding a license, this was not sufficient to characterize the use as commercial exploitation.
The 2nd Circuit considered that the nature of the works weighed against fair use. Among the books made available, there were both nonfiction works and fictional books. Fictional works are typically considered more creative and are more strongly protected under copyright law, but the court also noted that nonfiction books can include a great amount of creative organization and expression in addition to factual material.
When addressing the third factor, the court noted that there was no doubt the amount of content IA used from the books disfavored fair use. There was no reasonable need to scan entire books to create a transformative work because there was no transformative work in this case. Instead, IA scanned the books to offer a substitute, which is not the purpose of the fair use exemption.
When analyzing the fourth factor, the court emphasized that IA’s use of the copyrighted works had a substitutive purpose, and such substitutive uses usually have an impact on the market for publishers. IA presented two impact evaluations from experts, which purported that there was no statistically significant relationship between access to the Open Libraries Project and a decrease in revenue for publishers. Interestingly, the 2nd Circuit did not consider the statistical analyses valid, arguing that IA’s expert studies did not control for other variables that could also have impacted the results. Omitted variables like COVID-19 could also have affected publishers’ revenue in 2020.
However, the court more heavily relied on circuit precedent, which holds that substitutive secondary works in similar cases typically cause market harm to copyright owners. Responding to IA’s empirical analysis, the court stated, “... as a general matter, a copyright holder is entitled to demand a royalty for licensing others to use its copyrighted work, and the impact on potential licensing revenues is a proper subject for consideration in assessing the fourth factor.” (53). The court continued, “though Publishers have not provided empirical data to support [their] observation, we routinely rely on such logical inferences where appropriate in assessing the fourth fair use factor.” (54). Based on these premises, the 2nd Circuit concluded that it is logically “self-evident” that if IA’s use were to become widespread, it would adversely affect publishers’ markets for the books, thus disfavoring fair use on the fourth factor as well.
It remains unclear whether the Internet Archive plans to appeal the decision to the U.S. Supreme Court, but it would be interesting if the Supreme Court chose to grant certiorari, especially given the nuanced nature of this case and its far-reaching implications.