The
original idea was to only lend out digital copies that are backed by a physical copy, so if challenged the Internet Archive could reasonably argue that they're protected under the same laws that physical libraries are, but when the pandemic kicked off IA launched an "emergency library" which waived the lending limits so any number of copies could be lent out regardless of how many physical copies they have.
My assumption is that publishers probably weren't happy about the original model but it was legally murky enough that they didn't pursue it for risk of losing and setting the wrong (from their perspective) precedent, but the emergency library made for an extremely easy case against IA.