By Jonathan Stempel

NEW YORK (Reuters) - A U.S. appeals court sided with four major book publishers that accused the nonprofit Internet Archive of illegally scanning copyrighted works and lending them to the public online for free and without permission.

The 2nd U.S. Circuit Court of Appeals in Manhattan agreed with Hachette Book Group, HarperCollins Publishers, John Wiley & Sons and Penguin Random House that the archive's "large scale" copying and distribution of entire books did not amount to "fair use."

Publishers accused the nonprofit of infringing copyrights in 127 books from authors like Malcolm Gladwell, C.S. Lewis, Toni Morrison, J.D. Salinger and Elie Wiesel, by making the books freely available through its Free Digital Library.

The archive, which hosts more than 3.2 million copies of copyrighted books on its website, contended that the library was transformative because it made lending more convenient and served the public interest by promoting "access to knowledge."

But in a 59-page decision on Wednesday, Circuit Judge Beth Robinson said the archive merely supplanted the original books rather than transform them into "something new."

She said making books available for free harmed publishers and would "undoubtedly negatively impact the public," by taking away the incentive for many consumers and libraries to pay for books and for many authors to produce new works.

Robinson quoted a declaration from Sandra Cisneros, who wrote the best-selling novel "The House on Mango Street," that finding her works available for free online "was like I had gone to a pawn shop and seen my stolen possessions on sale."

The Internet Archive was appealing a March 2023 ruling from U.S. District Judge John Koeltl in Manhattan.

"We are reviewing the court's opinion and will continue to defend the rights of libraries to own, lend and preserve books," said Chris Freeland, the archive's director of library services.

Maria Pallante, president of the Association of American Publishers, said the decision "reinforced the indispensable role of authors and publishers in society" and was a major victory for authors, publishers and readers.

The Internet Archive limits lending from its Free Digital Library to one "checkout" for each physical book in storage.

It temporarily expanded lending in 2020, allowing checkouts by up to 10,000 users at a time, when the COVID-19 pandemic caused mass closures of schools, libraries and bookstores.

The expansion ended on June 16, 2020, two weeks after the publishers sued.

The case is Hachette Book Group Inc et al v. Internet Archive, 2nd U.S. Circuit Court of Appeals, No. 23-1260.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)