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The Last Question by Isaac Asimov, is freely available on the web, albeit not being a free work. This is not unusual, as piracy is quite rampant on the web. What I find unusual is the sources that are offering an apparent pirated copy of the book. For example, the Princeton physics website is a source.

According to a website claiming to represent Isaac Asimov's estate:

As a result, none of Asimov's fiction is legally available for free download on the net without the permission of his estate.

Source

How can Princeton University legally distribute the book?

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As the quote in your question notes (albeit in contrapositive form), Asimov's fiction may be made legally available for free download on the net with the permission of his estate.

It is either that case that

  • Princeton University's physics department (or whatever individual person or agency put up the story online) has obtained permission from Asimov's estate to distribute the story on their website, or
  • they simply distribute it without legal permission, and Asimov's estate has not taken legal action to have it removed, which they may or may not choose to do in the future.

Consider also that the Princeton distribution does not appear to have been meant to be in any way public: looking one directory level up (Princeton University Physics 115A and B: Physics for Future Leaders) shows a course overview with syllabus and lecture notes, without any apparent link to the story. Probably, it was put online for use exclusively by students taking that particular class, and the professor(s) just didn't put any controls to stop it from being accessible to anyone who knew the URL. This doesn't really change that fact that its public accessibility is, strictly speaking, copyright infringement, but it may be a favorable factor toward a finding that distribution outside of the class was innocent infringement, which can lessen (or, rarely, nullify) the penalty. (And it may be quite possible that distribution within the class was defensible under fair use/dealing, which considers educational context as a favorable factor.)

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This appears to be in instance of legal whack-a-mole. It is not legal, but there is a culture of "alternative law" whereby copyright law doesn't apply to stuff given away for free, or doesn't apply to educational institutions. Also, the instructors may be unaware that their link has "leaked". It is legal to make a protected work available through a "closed access" system, and that does not absolutely have to be the university library. Actual password protection is really necessary, not just "security by obscurity" (not putting the URL in the syllabus). One could generously assume that the instructors are unaware of their leak.

The rights holder would have to chase after the violator, which can be tiring.

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