What's wrong with lenging digital copies over the Internet? It is actually better because it allows people from remote areas to access the books, it allows lending books at night, so it makes using the library more convenient, saves user's time and library's money.
Also, copying is ok in some cases; for example, the court found that Google scanning books for Google Books did it legally; 17 US Code 108 and 109 provide some exemptions from copyright.
It's good to want things. The contours of the Google case are discussed in this decision: Google Books scanning is "fair use" because books aren't made available in their entirety, and the IA's library feature is (unless SCOTUS disagrees, which seems extraordinarily unlikely) emphatically not.
Google Books case establishes that scanning a copyrighted work is not always illegal; you cannot use that solely to prove the infringement.
Regarding "books made available for free": libraries allow to read books for free.
It was never anybody's claim that scanning a copyrighted work is always illegal. This is an easy, straightforward decision to read; I think you'd be better off just reading it.
The decision is that lending of digital books causes "market harm for the publishers". It outweighs anything else. So the court only cares about profits of publishers and not right of the buyers, including "first-sale doctrine" and right to lend a legally obtained book. The court sees the case as merely making illegal copies and doesn't want to make analogies with libraries lending out books. It is obvious.
You can apply most of those arguments to a library lending out (distributing) physical books without authorization and causing same harm to the publisher.
No, that is not at all what the decision says. There's a 4-factor test for "fair use". Market harm is just one of them. The court found IA failed all 4 tests. That's the ballgame: if your copying is (1) unauthorized and (2) not fair use, it's infringing. There's no "library exception".
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