Section 108 of the Copyright Act provides librarians with what some may call "superpowers" to lend and distribute works that are otherwise copyright protected. So, think of inter-library loan, for instance. This section of the Copyright Act allows librarians to make copies of works that are copyright protected to send to other libraries. It also permits library users to make copies of work for personal research use. Finally, it allows librarians working in the area of preservation to make copies of works that are deteriorating and could otherwise be lost.  

So, let's dive in and see what the law says in the first section, section (a)--which is the preliminary section explaining the requirements a library/archive must meet in order to take advantage of the exemptions provided in the rest of the section. Note that the University of Illinois library DOES meet these requirements, so you need not read the text of the law too carefully here, but if you come from a different library, you will first need to determine eligibility in section (a) below:

(a) Except as otherwise provided in this title and notwithstanding the provisions of section 106, it is not an infringement of copyright for a library or archives, or any of its employees acting within the scope of their employment, to reproduce no more than one copy or phonorecord of a work, except as provided in subsections (b) and (c), or to distribute such copy or phonorecord, under the conditions specified by this section, if:

(1) the reproduction or distribution is made without any purpose of direct or indirect commercial advantage;

(2) the collections of the library or archives are (i) open to the public, or (ii) available not only to researchers affiliated with the library or archives or with the institution of which it is a part, but also to other persons doing research in a specialized field; and

(3) the reproduction or distribution of the work includes a notice of copyright that appears on the copy or phonorecord that is reproduced under the provisions of this section, or includes a legend stating that the work may be protected by copyright if no such notice can be found on the copy or phonorecord that is reproduced under the provisions of this section.

Section (b) of 108 allows librarians engaged in preservation to make a limited number of copies of unpublished work.  Specifically, librarians can make up to three copies of an unpublished work solely for purposes of preservation or for deposit in another library or archives that is open to the public or available to people doing specialized research if:

(1)  the copy is currently in the collection for the library/archives; and

(2)  any copy reproduced in digital format is not distributed outside of the premises of the library/archive.

So, this boils down to a fairly broad right to make reproductions of unpublished work for preservation, but the digital copy cannot be sent (for instance) via e-mail.  Individuals wishing to view the digital copy must come to the physical location of the library/archive.

The exemption for preservation of a published work are a bit more restrictive.  In section (c) of 108, a library/archive may make up to three copies of a published work duplicated solely for the purpose of replacement of a copy that is damaged, deteriorating, lost or stolen, or if the existing format in which the work is stored has become obsolete if:

(1) the library/archives has, after a reasonable effort, determined that an unused replacement cannot be obtained at a fair price; and

(2) any copy that is reproduced in digital format cannot be made available to the public outside the premises of the library.

The law further notes that "a format shall be considered obsolete if the machine or device necessary to render perceptible a work stored in that format is no longer manufactured or is no longer reasonably available in the commercial marketplace."

Notes:

• Again note the restriction on viewing the digital copy.  
• There are many debates about what constitutes a "fair price" for an unused copy, but generally, librarians should use good judgment.

The superpower of inter-library loan for librarians comes from Section 108(d) and (e).

108(d) provides:

The rights of reproduction and distribution under this section apply to a copy, made from the collection of a library or archives where the user makes his or her request or from that of another library or archives, of no more than one article or other contribution to a copyrighted collection or periodical issue, or to a copy or phonorecord of a small part of any other copyrighted work, if:

(1) the copy or phonorecord becomes the property of the user, and the library or archives has had no notice that the copy of phonorecord would be used for any purpose other than private study, scholarship, or research; and

(2) the library or archives displays prominently, at the place where orders are accepted, and includes on its order form, a warning of copyright in accordance with requirements that the Register of Copyrights shall prescribe by regulation.

Note that:

• Only a small part of a portion of a book may be copied
• This should be for the private study, scholarship or research use by the user
• The request should come through a library user or another library or archives
• This applies to both published and unpublished works
• Copies may not be made of musical works; pictorial, graphic or sculptural works; or motion pictures (audio visual works)

108(e) provides:

The rights of reproduction and distribution under this section apply to the entire work, or to a substantial part of it, made from the collection of a library or archives, if the user makes his or her request or from that of another library or archives, if the library or archives has first determined, on the basis of a reasonably investigation, that a copy or phonorecord of the copyrighted work cannot be obtained at a fair price, if:

(1) the copy or phonorecord becomes the property of the user, and the library or archives has had no notice that the copy or phonorecord would be used for any purpose other than private study, scholarship or research; and

(2) the library or archives displays prominently, at the place where orders are accepted, and includes on its order form, a warning of copyright in accordance with the requirements that the Register of Copyrights shall prescribe by regulation.

• The entire work may only be provided if, after reasonable investigation, it appears that a copy of the work cannot be obtained at a fair price
• Similarly, this may be for both published and unpublished works and does not apply to musical works; pictorial, graphic or sculptural works; or motion pictures (audio visual works)