[kevingadd]

They have a partial DMCA exemption (from the US Library of Congress) and are legally recognized as a library by the state of California. Since (until now) they functioned like a library - you had to "check out" books and then return them - they've probably skated by without much trouble. They have taken down content in response to DMCA claims before.

This current measure is beyond that, my guess is they're just willing to take the risk that somebody will sue them.