Their argument towards fair use wasn’t ignored. It was inapplicable.

It's ridiculous to assume that an organization whose main purpose is data archival would knowingly and blatantly ignore copyright law

Except that’s exactly what they did. They knowingly and blatantly violated copyright law. They had a system in place to ensure fair use compliance. They intentionally disabled that system, in violation of fair use, to allow unlimited free downloads of the books they had archived.

IA’s entire argument was basically “but we’re a library” and totally missed the part where even public libraries need to comply with copyright law. Even with ebooks, they can’t simply distribute an unlimited number of copies; They have licensing agreements in place, for a specific number of specific ebooks to be checked out at any one time. And they have to use time-locked DRM to ensure compliance, by automatically revoking users’ reading ability when their check-out time is up. IA did precisely none of that.