David R. Hansen & Kyle K. Courtney

This paper is about how libraries can legally lend digital copies of books. It explains the legal and policy rationales for the process— “controlled digital lending”— as well as a variety of risk factors and practical considerations that can guide libraries seeking to implement such lending.  We write this paper in support of the Position Statement on Controlled Digital Lending, a document endorsed by many libraries, librarians, and legal experts.  Our goal is to help libraries and their lawyers become more comfortable with the concept by more fully explaining the legal rationale for controlled digital lending, as well as situations in which this rationale is the strongest.

For this paper we define “controlled digital lending” (CDL) just as the Statement does:

CDL enables a library to circulate a digitized title in place of a physical one in a controlled manner. Under this approach, a library may only loan simultaneously the number of copies that it has legitimately acquired, usually through purchase or donation. For example, if a library owns three copies of a title and digitizes one copy, it may use CDL to circulate one digital copy and two print, or three digital copies, or two digital copies and one print; in all cases, it could only circulate the same number of copies that it owned before digitization. Essentially, CDL must maintain an “owned to loaned” ratio. Circulation in any format is controlled so that only one user can use any given copy at a time, for a limited time. Further, CDL systems generally employ appropriate technical measures to prevent users from retaining a permanent copy or distributing additional copies.

Thus, CDL would permit circulation of copies equal to those that had been legitimately acquired by the participating libraries. When the digital copy is being read by a patron, however, the corresponding physical copy is restricted and unavailable for consultation, so there is no situation in which the library is getting use of two copies for the price of one. A library can lend a physical book to a patron through standard circulation or to another library through interlibrary loan. What CDL does do is shift that lending to a new format that opens up access possibilities for readers with disabilities, physical access limitations, research efficiency needs, or other needs for digitally-accessible content.

A CDL system is not a brand-new concept. There are multiple versions of CDL-like systems currently being used in libraries. The idea was first explored in the pioneering article “Building a Collaborative Digital Collection: A Necessary Evolution in Libraries” by Michelle Wu, Professor of Law and Law Library Director at Georgetown University School of Law. Later, the Internet Archive created the “Open Library: Digital Lending Library” project, which has successfully utilized a unique CDL-like system for the past 8 years. Multiple libraries have now harnessed the same CDL system and partnered with Internet Archive to loan their digital copies of books. These partners include large library systems such as the Boston Public Library, to smaller specialized libraries such as the Allen County Public Library, which houses the largest genealogical collection of any public library in the country. And, most recently, Georgetown Law Library launched its own CDL service.

At its core, CDL is about replicating with digital lending the legal and economically significant aspects of physical lending. To do so, we libraries must truly exercise control in the process. The Statement identifies six specific requirements to do so. It states that for CDL, libraries should: 

1. ensure that original works are acquired lawfully;
2. apply CDL only to works that are owned and not licensed;
3. limit the total number of copies in any format in circulation at any time to the number of physical copies the library lawfully owns (maintain an “owned to loaned” ratio);
4. lend each digital version only to a single user at a time just as a physical copy would be loaned;
5. limit the time period for each lend to one that is analogous to physical lending; and
6. use digital rights management to prevent wholesale copying and redistribution.

Our principal legal argument for controlled digital lending is that fair use— an “equitable rule of reason”—permits libraries to do online what they have always done with physical collections under the first sale doctrine: lend books. The first sale doctrine, codified in Section 109 of the Copyright Act, provides that anyone who legally acquires a copyrighted work from the copyright holder receives the right to sell, display, or otherwise dispose of that particular copy, notwithstanding the interests of the copyright owner. This is how libraries loan books.  Additionally, fair use ultimately asks, “whether the copyright law’s goal of promoting the Progress of Science and useful Arts would be better served by allowing the use than by preventing it.” In this case we believe it would be. Controlled digital lending as we conceive it is premised on the idea that libraries can embrace their traditional lending role to the digital environment. The system we propose maintains the market balance long-recognized by the courts and Congress as between rightsholders and libraries, and makes it possible for libraries to fulfill their “vital function in society” by enabling the lending of books to benefit the general learning, research, and intellectual enrichment of readers by allowing them limited and controlled digital access to materials online.

I. The 20th Century Book Problem

For decades, libraries and cultural institutions have sought to provide greater access to their collections with the hope of reaching a broader and more diverse set of readers. A confluence of technological advances and expanding copyright protection have driven the problem.  

Copyright terms are now extremely long (95 years or more for many published works), “formalities” that once required rightsholders to take action to obtain and retain rights have been eliminated, rights are infinitely divisible among private parties causing uncertainty about ownership, and the quantity of copyright-eligible works has exploded with the technological ability to easily and quickly create and publish new works.  Librarians now puzzle over questions such as whether a work is actually still protected by copyright (did the rightsholder comply with applicable U.S. copyright formalities?), who owns digital rights (publisher or author?), and whether the rightsholder can be found (or is the work an orphan?). Attempting to clearly answer those questions on a title-by-title basis has proven costly, making full digital access for large numbers of works based on rightsholder permission difficult. Particularly for books and other published materials for which there was once an active market, libraries have not yet been able to provide broad full-text access online.

Many 20th Century books are not available for purchase as new copies in print or as digital versions online. Libraries would like to provide digital access, but many rightsholders have not offered those titles for sale in that format. The morass of rights management, combined with the orphan works problem and the ever-increasing copyright length, has made it complicated to see a path forward to broad digital access.

For modern libraries with users whose research and information use patterns mean they look to digital access first, this means that a whole world of research is effectively invisible to a variety of types of users. For some, the inability to physically travel to a library because of their remote physical location, economic wherewithal, or homebound limitations means that physical lending is not practical.  For others, physical access is a matter of great inefficiency in their research and learning. For users with print disabilities—those who currently have some digital access to print collections due to the fair use holding in the HathiTrust case which addressed copying and access of books for print-disabled users —access is currently hampered by hurdles that require users to self-identify disabilities and request special access to digital copies. For a large research library, this means holdings of millions of volumes, already purchased at a cost of hundreds of millions of dollars, are not accessible in a format that is more meaningful and easier to use for many researchers today.

For books primarily from the mid-20^th Century, presumptively still protected by copyright, but not currently available in electronic form from their rightsholders, we believe CDL holds significant promise. We also believe the legal rationale for lending these works is among the strongest of all types of works. Some of these books may well be described as “orphaned,” without identifiable owners. Others may have identifiable owners, but are in practice neglected, unavailable in the digital marketplace and with no plan for revitalization in modern formats. For all, it means that they are not fully meeting the basic goals of copyright to promote “the Progress of Science and the useful Arts.” Their unavailability online benefits neither creators nor the reading public.

So, how can libraries provide access? First, we start with a detailed look at the two fundamental copyright law doctrines that already empower libraries to fulfill their missions: first sale and fair use.

II. The Legal Framework: First Sale and Fair Use

Section 106 of the Copyright Act enumerates the basic bundle of rights granted to copyright owners: the exclusive right to control reproduction of the work, public distribution of the work, public performances, public displays, and creation of derivative works. For individuals who want to lend or resell copies of works they have purchased, the rightsholder’s exclusive right to control public distribution is potentially problematic. But, the rights granted in Section 106 are limited by a number of statutory exceptions. Section 109, the statutory first sale doctrine, is one such provision.  It states that “[n]otwithstanding the provisions of section 106(3) [the public distribution right], the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”

A. First Sale Doctrine

Entire industries and enterprises are built upon the first sale doctrine. Libraries were built on it. eBay relies on the provision when it permits users to sell copyright protected works through its site, used record stores similarly rely on it to distribute copies they have acquired, college bookstores buy and sell used textbooks based on this doctrine, and libraries rely on it to lend physical books in their collections. The first sale doctrine balances the rights of copyright owners to distribute with those of purchasers to dispose of their copies as they wish. Without it, copyright holders could enforce rights in the “secondary market,” which would impact selling, loaning, or gifting any copyrighted work. The rationale is that “once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.”

A critical limitation in the text of Section 109 is that it only allows the “owner of a copy” to “sell or otherwise dispose” of that particular copy. With distribution of physical copies, such as lending a print book to a library user, that framework works well enough. But to date, courts and legal scholars have struggled to identify what is a “particular” copy in the digital realm. Is the transfer of a digital copy from one device to another the transfer of a particular copy or the creation of a new copy? While we wait for the courts to sort out this statutory interpretation issue, libraries that seek to utilize CDL should still be able to apply the first sale doctrine’s rationale in the fair use context.

Much of the literature on first sale applied in the digital environment recognizes that library lending raises unique concerns requiring special treatment. Though other use scenarios are certainly possible, we view library lending uses as special, as detailed in the sections below, and of all uses among the most likely to be justified under a fair use rationale. Indeed, several libraries have already engaged in limited CDL for years without issue, indicating perhaps a tacit acknowledgement of the strength of their legal position. So, while the concept of digital first sale may have many potential applications, our focus is on a narrow and specialized use by libraries. We limit our analysis to non-commercial, controlled, digital lending by U.S. libraries of digitized copies of print books held in their collections.

B. Fair Use

That brings us next to fair use. Fair use applies to uses implicating any or all of the copyright holder’s exclusive rights, including both public distribution and the right to control reproductions. Like the first sale doctrine, fair use is widely used and entire industries (e.g., home recording device manufacturers, search engines, filmmakers, publishers ) rely on it. Described as an “equitable rule of reason,” fair use was developed by the courts beginning in the 1800s. In 1976 Congress codified the doctrine in Section 107 of the Copyright Act, which provides that “the fair use of a copyrighted work . . . for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research is not copyright infringement.” Those examples are “illustrative and not limitative” however. To apply the doctrine, Congress identified four non-exclusive factors that courts and users should consider:

“(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.”

Those four statutory factors must not be “treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright.”  Ultimately, the fair use inquiry asks, “whether the copyright law’s goal of promoting the Progress of Science and useful Arts would be better served by allowing the use than by preventing it.” The next section examines how this flexible doctrine of fair use, together with first sale, supports CDL.

III. Controlled Digital Lending as Fair Use

The basic concept of applying first sale principles to digital transactions is not new, either as justified under the first sale doctrine alone, as fair use, or through some combination of the two together. The U.S. Copyright Office, in 2001, studied the issue of “digital first sale,” soliciting comments that exhibited a range of views about whether the first sale doctrine does or should be made to apply to digital transactions. In part because the use of digital technology was so new at the time, and despite hearing strong arguments and evidence from advocates on both sides of the issue, the Office concluded that it does not and should not apply to digital transactions, mostly because the technology in 2001 was unable to sufficiently guarantee the “owned to loaned” ratio. Instead, it was simply a good faith effort to “forward and delete” copies on a case-by-case basis. More recently, the United States Department of Commerce studied the issue itself and released a white paper in 2016 expressing its own conclusion: the technology and licensing markets were not yet adequately developed, leading it to adopt a “wait and see approach.” Scholarship on “digital first sale” and related concepts has flourished in recent years. And most recently Capitol Records v. ReDigi, LLC, has raised the question of how these doctrines apply to a commercial, digital resale market for mp3s.

Again, the literature on digital first sale recognizes that library most likely will require special treatment. Other use scenarios are possible, and, as detailed below, we view library lending uses as special. And we also believe that these library uses, of all the varying digital uses, are among the most likely to be justified under a fair use rationale. Several libraries have already engaged in limited CDL for years without issue. It can be inferred that this fact indicates a tacit acknowledgement of the strength of their legal position. Our focus is on these narrow and specialized use by libraries. Again, we limit our analysis to non-commercial, controlled, digital lending by U.S. libraries of digitized copies of print books held in their collections.

In applying fair use, not every factor in the analysis will be highly relevant in every situation. As we will show, for CDL, the first factor, “purpose and character of the use,” and the fourth factor “effect on the potential market” are the most significant.

A. The Purpose and Character of the Use

Under the first fair use factor, “purpose and character of the use,” two characteristics of CDL stand out, weighing this factor in favor of fair use: 1) CDL’s purpose aligns closely with the statutory purpose of the first sale doctrine, and 2) the noncommercial, temporary, character of the use to fulfill research and learning purposes are aligned with the statutory examples of fair use as well as the underlying purposes of the copyright system to disseminate knowledge.

1. CDL’s Alignment with the Statutory Purpose of First Sale

The core concept with CDL is that it closely mimics the economic transaction that Congress has already provided for through the first sale doctrine under Section 109. The purpose of the use with CDL is to fulfill the statutory objectives and balance of rights already identified by Congress in Section 109, effectuating that balance considering a new technological use not contemplated at the time Section 109 was enacted. The crux of the proposition is that the purpose and intent of Section 109 should positively influence the “purpose and character” assessment in the fair use analysis.

The Copyright Act does not address how fair use should interact with other provisions of the law. In fact, rightsholders have in some cases argued that if a specific statutory exception exists, that specific exception should preclude application of the more general doctrine of fair use. When raised, courts have largely rejected that argument. For example, in Sega Enterprises Ltd. v. Accolade, Inc., Sega argued that the presence of a specific statutory exception regarding computer programs (Section 117) precluded Accolade from asserting a fair use defense for copying and disassembling Sega’s computer program. The Ninth Circuit found Sega’s argument “verges on the frivolous.” The court instead construed Section 117 and fair use together, the former defining a “a narrow category of copying that is lawful per se” and the latter establishing a broader “defense to an otherwise valid claim of copyright infringement.” “The fact that Congress has not chosen to provide a per se exemption to section 106 for disassembly does not mean that particular instances of disassembly may not constitute fair use.”

As a matter of copyright policy, the presence of a specific copyright exception (or, in some cases, other provisions of federal law) provides persuasive evidence of the kinds of purposes that should be favored in the fair use assessment. What better evidence of the types of uses that align with the goals of the copyright than those most similar to ones Congress has specifically authorized? While not extensively litigated, a number of cases indicate that this is the right approach, which we review here to give a sense of the strength of this position.

 In Authors Guild v. HathiTrust, for example, one of the uses that the Authors Guild claimed was infringing was HathiTrust’s digitization and full-text access to millions of volumes of in-copyright books for print-disabled users. In assessing HathiTrust’s fair use defense, the Second Circuit looked closely at legislative history as well as other provisions of the law that spoke to access for the disabled. The Court cited the Americans with Disabilities Act as evidence of “Congress reaffirm[ing] its commitment to ameliorating the hardships faced by the blind and print disabled.” The court also relied on Section 121 of the Copyright Act, which permits “authorized entities” to make accessible copies for the print disabled, as illustrating “Congress’s intent that copyright law make appropriate accommodations for the blind and print disabled.”

Some courts have pointed to broader policy objectives, both within and outside of the copyright act, as influencing the purpose and character analysis. For example, in Swatch Group Management Services Ltd. v. Bloomberg, L.P., Swatch argued that Bloomberg infringed its rights when it recorded and distributed a private conference call reporting earnings information from a foreign company. Ultimately concluding that the use was fair, the Second Circuit cited Securities and Exchange Commission (“SEC”) public disclosure regulations as significant in assessing the purpose and character of Bloomberg’s use. The court found that Bloomberg’s purpose in obtaining and disseminating the recording at issue was to make important financial information about Swatch Group available to investors and analysts. “That kind of information is of critical importance to securities markets. Indeed, as Bloomberg points out, the SEC has mandated that when American companies disclose this kind of material nonpublic information, they must make it available to the public immediately. See Regulation FD, 17 C.F.R. § 243.100.”

The U.S. Copyright Office has also cited specific copyright exceptions as positively influencing the fair use assessment. Under Section 1201 of the copyright act, every three years the Office is required to make recommendations about proposed exceptions to Section 1201’s prohibition on circumvention of technological protection measures. Under that provision, the Office must assess for each proposed exception whether users of the class of works are likely to be adversely affected by the anti-circumvention provision in their “ability to make noninfringing uses.” The Office has traditionally provided in-depth analysis of the lawfulness of the proposed uses. In its 2015 recommendations, the Office pointed to the basic purpose of other provisions as favorably affecting the purpose and character assessment under the first fair use factor.  Those include looking to Section 1201 exceptions for interoperability, Section 110 exceptions for nonprofit public performances and teaching, and Section 117 exceptions for computer program adaptation.

For CDL, the purpose of the use is one that intends to mirror the basic purpose of first sale as embodied in Section 109. In Kirtsaeng v. John Wiley & Sons, Inc., the Supreme Court recognized, “for at least a century the “first sale” doctrine has played an important role in American copyright law.” It has a “common-law doctrine with an impeccable historic pedigree,” that limits a rightsholders ability to restrain subsequent dispositions, facilitating competition “to the advantage of the consumer” and freeing the courts “from the administrative burden of trying to enforce restrictions upon difficult-to-trace, readily movable goods.”

As technology and markets have shifted, libraries employing CDL seek to use technology to hold up that same balance of rights while allowing users to access materials in formats that are most meaningful to them today. CDL promotes consumer choice in formats and platforms, while avoiding dragging courts into the thicket of restrictions and rights conflicts that would require extensive litigation to resolve. CDL also preserves the balance of rights carved out by Congress through Section 109 by requiring libraries to have legitimately acquired their own copies and limiting access to digital surrogate copies on terms consistent with ownership of the physical copy. Under CDL, if one copy is purchased, a library can only lend one copy—either print or physical—out to a user at a time.

As appealing as the pure application of the principles of first sale to digital distribution may be, we recognize that standing alone, such uses may not tilt the “purpose and character” analysis in favor of the use in all circumstances. There are no cases on point directly addressing the interaction between Section 109 and fair use. There are a few cases in the commercial context that come close, however. Those cases are primarily negative, though as we explain below we believe they are distinguishable from CDL applications, and one case is currently on appeal. First, Capitol Records, LLC v. ReDigi Inc., a district court decision currently on appeal. Capitol sued for copyright infringement over ReDigi’s online service that facilitated resale of used digital music files. ReDigi’s MediaManager software would allow an owner of a music file to upload their files to a “Cloud Locker,” deleting the copy from the user’s device and saving a copy to the cloud. Upon sale through the ReDigi marketplace, the file would be downloaded to the purchaser and simultaneously deleted from the Cloud Locker. The district court in that case assessed both ReDigi’s fair use defense and a defense based on Section 109. It did not, however, assess the two provisions together. On Section 109’s direct applicability, the court noted that the provision “by its own terms [is] limited to assertions of the public distribution right.  . .  ReDigi’s service violates Capitol’s reproduction right [and so] the first sale doctrine does not apply. . . .”

For fair use, the ReDigi court was fairly dismissive of the purpose factor, focusing almost exclusive on the commerciality of the program. The analysis was brief and considered almost none of the arguments laid out above. In honing in