I received a reply from the Chicago Public Library's "Ask a Librarian" service:
Libraries are legally allowed to loan or rent DVD or Video recordings. Here is a description of this right from the American Library Association website: The Copyright Act of 1976 governs the rights of reproduction, adaptation, distribution, and public performance and display. Several sections of this act have implications for videocassettes, DVDs and computer file formats. When libraries purchase a videocassette or a DVD, or make a video file accessible to patrons for a specific rental period, they own the physical object but not the copyright. Copyright law, therefore, determines what libraries can and cannot do with the videotapes/DVDs/video files they own without infringing upon the copyright they do not own. However, the law also includes exceptions and limitations to the exclusive rights of the rights holder that allow libraries to lend, preserve and replace videos and allow non-profit educational institutions the right to publicly perform videos in the face-to-face classroom, and under certain conditions, in the distance educational classroom via digital networks. When libraries want to use a videotape/DVD/video file in such a way that would infringe upon the copyright, permission must be sought from rights holder in the form of a license agreement. Permission fees are likely. (See #4 below.) 1. Loan/Rental of Video
Libraries may loan/rent videos, in whatever available format, to patrons for their personal use. This is true even if the video is labeled "For Home Use Only." The first sale exception (§109) copyright allows an owner of a work to lend, rent or other depose of the work. Because of this, libraries can lend, people can sell videos or books at their garage sale, Amazon call sell new and used books, and second hand book stores are a legitimate business.. http://www.ala.org/tools/libfactsheets/alalibraryfactsheet07 The only mention in the Fact Sheet about the movie industry concerns performance rights. 4. Motion Picture Licensing Corporation (MPLC) and Movie Licensing USA Unless a library purchases a video that comes with public performance rights, it is a copyright infringement for the library to use that video for in-house viewing or programs. Typically, the videos and DVDs purchased through normal retail channels or from video rental stores do not carry the necessary public performance rights, and it will be necessary to obtain those rights in writing from the copyright holder or from a licensing agent. If your library or school plans to show videos frequently, you may wish to consider a site license. I hope this answers some of your questions about movies that libraries loan. Reference Librarian, Visual & Performing Arts, Chicago Public Library.