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(This story has been updated to include OverDrive’s email to its partners.)

In a stunning development, Penguin Group has extricated itself from its contract with OverDrive, the primary supplier of ebooks to public libraries.

Starting February 10, Penguin, which had recently instituted limitations on library lending for ebooks and audiobooks, will now no longer offer any ebooks or audiobooks through OverDrive.

“Looking ahead, we are continuing to talk about our future plans for ebook and digital audiobook availability for library lending with a number of partners providing these services,” said Erica Glass, in a prepared statement.

Penguin is negotiating a “continuance agreement” with OverDrive, which will allow libraries that have Penguin ebooks in their catalog to continue to have access to those titles.

But since the company does not have a contract with 3M, the still fledgling but growing competitor to OverDrive, the practical effect of the decision will be to shut down public library access to additional Penguin ebook titles (not physical titles) for the immediate future.

OverDrive could not be reached for comment, but an email sent to its partners has been posted at InfoDocket. It reads:

Starting tomorrow (February 10, 2012), Penguin will no longer offer additional copies of eBooks and download audiobooks for library purchase. Additionally, Penguin eBooks loaned for reading on Kindle devices will need to be downloaded to a computer then transferred to the device over USB. For library patrons, this means Penguin eBooks will no longer be available for over-the-air delivery to Kindle devices or to Kindle apps. We are continuing to talk to Penguin about their future plans for eBook and digital audiobook availability for library lending.

Penguin thus joins Simon & Schuster, Macmillan, and Hachette among the Big Six publishers in search of an ebook library lending model.

In its November decision to not allow library lending of its new titles (via any vendor), Penguin had initially also targeted OverDrive’s relationship with Amazon as a particular concern, which led the company to demand that OverDrive disable the “Get for Kindle” functionality for all Penguin ebooks.

The company backed away from that demand, but the security concerns have likely never been allayed. When borrowing with a Kindle via OverDrive, the transaction essentially is removed from the public library and takes place under the terms that Amazon has worked out with OverDrive.

This “disintermediation” of the public library has also left some publishers feeling a bit left out in the cold, since the supply chain that has grown up around library lending of ebooks has evolved among other third-party commercial entities without much input from the publishers.

Penguin said it is not getting out of the library business, and that it was encouraged by the recent talks it had with the leadership of the American Library Association in New York City.

“In these ever changing times, it is vital that we forge relationships with libraries and build a future together. We care about preserving the value of our authors’ work as well as helping libraries continue to serve their communities,” Penguin’s statement reads. “Our ongoing partnership with the ALA is more important than ever, and our recent talks with ALA leadership helped bring everything into focus.”

However, one upshot of those talks, as LJ reported, was publishers’ concerns that if library loans become too “frictionless,” in other words, do not involve a physical trip to the library to borrow and return a book, that it will eat into their sales.

The desire to increase this friction may lead the recalcitrant publishers to demand a business model in which they will only make their ebooks available to public libraries if they are used in the library or if a patron is required to bring their device to the library and load the title onto the device in the library, then bring it home.

This would essentially eliminate all the convenience of borrowing ebooks from a home computer or device.