One at a Time: What is Controlled Digital Lending?

By Carolyn Wimbly Martin and Ethan Barr

On June 1, 2020, various publishing companies filed a lawsuit against the Internet Archive’s “Open Library” and National Emergency Library projects, alleging that the organization willfully engaged in digital piracy while collecting significant revenue from libraries that paid for their scanning services. Hachette Book Group, Inc. et al v. Internet Archive et al., Case Number 1:20-cv-04160 (S.D.N.Y.). Although the Internet Archive shut down its National Emergency Library project, which allowed users to check out multiple digitized copies of physical texts owned by numerous libraries simultaneously, several issues remain to be litigated. One of these is the broader issue of controlled digital lending (CDL).

CDL is not a novel concept. In the education field, consortiums of schools have established inter-library loan programs for years, and  this is just the electronic version. Regardless, CDL has been questioned in the context of copyright law long before the COVID-19 pandemic led libraries to relax their limited lending policies. Many copyright owners argue that libraries do not have the authority to copy their works and, as a result, they lose sales and an incentive to create works in the first place. On the other hand, libraries and other lending organizations believe that the fair use doctrine and their use of digital rights management (DRM), discussed below,  protects them from infringement liability.

As is the case with many copyright controversies, there is a dispute between copyright owners protecting their economic incentive to innovate and consumers arguing for their right to access educational information. The pandemic has necessitated a transition to remote learning and work, therefore exacerbating the digital divide and a need for digital access to copyrighted materials. However, the debate surrounding CDL is almost sure to continue as we return to our physical schools and offices. Here we explore the use of CDL and the legal arguments both for and against it.

What is CDL and what are its advantages?

CDL, a practice popularized by the Internet Archive, is a digital library system by which lenders convert physical copies of texts to digital versions for their users. There are several reasons for this approach. It provides an opportunity for lawfully obtained hard copies of older or rare works, digitized at the library’s own expense, to be easily accessible to a wider audience. As a result, CDL can be used to preserve tattered texts that are out of print. Additionally, it provides more exposure for print materials. For example, a children’s author with a small network and limited budget can expand his reach by sending his books to a library engaging in CDL.

Of course, the COVID-19 pandemic has also highlighted a need for remote access to academic texts, the primary impetus for an increase in CDL usage. Perhaps most importantly, CDL also provides disabled individuals with access to texts that can be read with assistive technology, a necessity even before the pandemic.

Proponents of CDL agree on a few general guidelines. First, libraries utilizing these methods should legally own or obtain licenses for copies of the physical books before digitizing them. This seems obvious, but it ensures that organizations engage in effective quality control of their archives. Second, libraries should refrain from lending more copies than they own at any given time, commonly known as the “owned to loaned” ratio. This means that if a library has one physical copy of a book, it cannot lend both the physical book and a digital copy out simultaneously or multiple digital copies of a single work. Instead, it must lend out either one copy of the physical book or one copy of the digitized version. Finally, in order to maintain an appropriate owned to loaned ratio, libraries should implement technological protections to prevent digitized texts from being copied, such as DRM. (For a more detailed legal analysis of DRM, please see our previous post here.) By increasing access for economically and physically challenged individuals, exposing rare or out-of-print volumes of texts, and accelerating the transition of an industry frequently considered antiquated to the Digital Age, CDL has clear benefits, but there are copyright challenges despite these safeguards.

What is the issue with CDL?

Many book publishers and authors view CDL as a glorified form of digital piracy. They believe that libraries are simply infringing on their exclusive rights to copy and distribute their works. Considering that libraries are the largest purchaser of books, spending billions of dollars on various texts, CDL essentially pits publishers against their biggest customers. Several publishing companies, such as Penguin Random House and HarperCollins, have already established licenses with libraries, in which they sell existing digital copies of books for e-lending. By purchasing these licenses, copyright owners receive some payment for the license of their works. However, when libraries digitize copies of physical books without authors’ permission, there is no revenue generated from the allegedly unauthorized copying and re-distribution. As a result, these authors receive no compensation through CDL.

Furthermore, copyright owners are concerned with libraries failing to follow the generally accepted guidelines, as mentioned above. While some reputable organizations may implement effective DRM, others may use untested or less secure technology. For example, if a library accidentally lends a scholarly article without encryption or a watermark, users could potentially make an unlimited number of illegal copies of that file. On the more extreme side, a library could fail to monitor the number of copies being distributed at any given time. Without a broad ruling on the legality of CDL, such libraries may be able to limit or evade liability if copyright owners are not vigilant.

This alleged piracy and failure to follow guidelines could ultimately affect the market for creative works as a whole. For instance, in February 2019, a group of writers’ unions, literary organizations and creative individuals assembled an “appeal to readers and librarians,” which rallied against the use of CDL in support of reproduction and public lending rights. They argued that the practice subtracted revenue from duly deserving authors and, in turn, deprived readers of new content that authors and their publishers would be unable to afford to produce. In addition to economic detriments, it is worth exploring the framework of copyright law surrounding CDL. 

The Current Legal Landscape

Some believe that online libraries fall under a safe harbor provision within the Digital Millennium Copyright Act (DMCA), which allows users to police infringement by submitting “takedown notices.” However, takedown notices are used to notify online organizations of copyright infringement perpetrated by third-party users. Therefore, the DMCA’s “safe harbor” provisions do not apply because the libraries engaging in CDL are the entities responsible for the copying and distribution. For example, while the Internet Archive removes certain works upon request, it does so only after it has willfully copied the works and thus remains exposed to claims of copyright infringement.

More apt is Section 108(a-c) of the Copyright Act, which provides nonprofit libraries and archives with an exception to make copies of copyrighted works for  noncommercial reasons. These subsections have been used predominantly to preserve older, rare books, rather than current best-sellers. Moreover, these provisions expressly permit only “one copy or phonorecord of a work,” except in cases of a deteriorating, damaged or lost work—and even within this exception, only three copies are permitted. While the Act allows libraries to make portions of copies available for personal research or study there is nothing permitting CDL or other similarly expansive e-lending concepts, with one possible exception. Indeed, any unauthorized reproduction may constitute a cause of action as a preliminary matter. See MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511 (9th Cir. 1993).

The additional exception was an idea first advanced by Arnie Lutzker during negotiations among copyright owners, libraries and congressional staff over the 1998 copyright term extension bill. The exception was enacted as Section 108(h) and provides that, subject to certain conditions, during the last 20 years of the term of copyright (the extra years added by the 1998 amendment), reproduction, distribution display and performance of copyrighted works can be made. Specifically, libraries and archives can make and distribute copies, including facsimile or digital copies, of works for preservation, scholarship and research, if they determine after a reasonable investigation that the work is not subject to normal commercial exploitation and a copy cannot be obtained for a reasonable price. If the copyright owner becomes aware of the potential exploitation and files a notice with the Copyright Office disputing the determination, the uses can be blocked. However, without that notice and with the reasonable determination, old works still under copyright can be copied and distributed. However, since Section 108(h) only applies to older works in the last 20 years of copyright protection, libraries and archives  wishing to engage in CDL of newer works will need to rely on the case-specific fair use doctrine.

Fair use depends on four separate factors, which may be determinative of the issue of CDL. First, fair use depends on “the purpose and character of the use,” and in assessing this factor, courts tend to favor fair use for noncommercial purposes. 17 U.S.C. § 107(1). Second, the “nature of the copyrighted work” is considered. 17 U.S.C. § 107(2). Users who are able to “transform” the exploited work have an advantage on this factor, as will uses for scholarship, research and education rather than works copied solely for entertainment. While many libraries engage in CDL to increase access to literary works without charge, courts may be reluctant to hold that simply creating e-books from physical versions is sufficiently transformative, especially in an era when e-versions of books are readily available. Generally, more needs to be done, such as reworking the original treatise for a new purpose. Third, courts tend to favor fair use when a party copies minimal excerpts of a work. 17 U.S.C. § 107(3). CDL necessarily involves copying most if not entire works that have already been published, so this factor favors copyright owners.

Finally, the most controversial factor in the case of CDL is likely the “effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107(4). Although libraries engaging in CDL do not necessarily benefit from user fees for digital access, they do directly affect the publishing market for both e-books and physical books as a result of their unauthorized reproduction. With ineffective DRM and the possibility of borrowers producing additional copies, such libraries may also be subject to liability for contributory infringement. Thus, a determination of fair use could depend on a financial or economic analysis of revenue streams.

One further caution should be noted. Fair use is determined on a case-by-case basis, so the facts of a specific case may be determinative and drive a court’s decision in one direction or another. For example, the Second Circuit Court of Appeals determined that full-text searchable databases of copyrighted works for disabled users are covered under fair use. Authors Guild, Inc. v. HathiTrust, 755 F.3d 87 (2d Cir. 2014). Therefore, a library at Gallaudet University, a school for the deaf and hard of hearing, may be able to utilize CDL practices, whereas a library for non-disabled users may be prohibited from engaging in the same practice.

A Global View

Considering globalization and the vast expanse of the Internet, it is also worth mentioning that some countries and international organizations have also begun to address the issue of CDL and intellectual property rights. For instance, Canada has already added an infringement exception to its Copyright Act for libraries engaging in inter-library loan programs. Additionally, the European Union and several other nations have long-established “public lending rights” that require libraries to pay copyright owners for freely lending their works, and they have discussed the issue of digitizing “out-of-commerce” works at length. The EU in particular has emphasized its desire to preserve and increase access to scientific and cultural information that can only be found in works that are no longer in print. Most of these seminal works can only be found in libraries, so CDL could provide that assistance. Of course, if these works are still protected by copyright, the European Commission understands that there must be a deeper legal analysis.


In the context of U.S .copyright law, there is a battle between protecting copyright owners’ control and increasing access to creative or educational works for the sake of innovation. Although the answer may lie in judicial determinations of fair use arguments, courts may or may not determine that CDL practices are excusable infringement based on particular sets of circumstances. It will be important to monitor the Hachette case, which is still in progress, to see whether the court decides the issue of CDL broadly or confined to the facts of the case. Lutzker & Lutzker will continue its updates on this case in our Internet Archive blog series.

If you have questions about CDL as a lending institution, or as a copyright owner seeking to combat infringement of your work, feel free to contact Lutzker & Lutzker for analysis tailored to your specific situation.