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multiple publishers have told us that Overdrive's implementation of their Kindle library lending--in which library patrons are sent to a commercial, third-party retailer, in this case Amazon--is in their view a direct violation of Overdrive's contracts.
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Yet when Kindle library lending was announced as coming soon both OD and Amazon said they were still negotiating with publishers. So I'd think that pubs approved it being done. If they signed off without knowing the method that would be used that's dumb on their part. I have no problem with them not liking it, but you'd think they could do something less extreme then ending things all together, sounds to me like the Amazon stuff is either only part of it or an excuse.
Personally I always borrow ePubs as I don't want to be spammed by Amazon that I can buy the book, blah, blah, blah. I get enough email from them already.