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There seem to be multiple posts over the past years about issues with Libraries. I have been really frustrated trying to use them and have pretty much given up. But, making this post in HOPES that Adobe will do something to fix these issues.
I really hope Adobe addresses these things, because items 1 and 2 make this Libraries feature pretty much unusable for me. It has functioned like this since this feature was introduced and has not been fixed. Even after brand new installs of the software and brand new Macs. There is no reason why a native Illustrator graphic placed into the cloud should be put into a clipping mask when it's dragged back into the software that created it. I am assuming it's because it's being converted into a PDF when it's placed in the Library, but it's completely ridiculous.
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So, after digging around more, I finally found a solution to #1. I had to switch the Library panel display option, because that is not synced, and had to switch it to sort by Custom Group. The named groups now display properly.
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Really annoying that 2 has not been addressed. It drives me crazy!!!
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If they haven't fixed it by now, they will not ever. I can only assume that by dragging the Illustrator art into the library it is automatically being converted into a PDF and so you are dragging a PDF back into Illustrator instead of the actual Illustrator file. Not sure why they would ever program something like this. Completely ridiculous and a waste of time. I might as well just keep all the Illustrator files I need on my computer and open them directly to get the art that I need. The Library is useless to me.
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I have found a work around to your second issue. Dragging or importing a graphic from the libraries panel and choosing "embed" seems to bring in the pdf converted version of it. It is extremely annoying when the groups are messed up and every individual element seems to be in a clipping mask, but I have found that instead of choosing to "embed" the graphic/illustration choosing "edit original" will open the artwork in a new tab which will allow you to copy and paste your work from that new tab into your current document. A needlessly complicated process for what should be an integrated function.
TLDR: Instead of choosing to "embed" the graphic from the adobe Libraries panel, choose to "edit the original"; copy your artwork from there and paste it back into the document you are trying to add it to.
(I know this thread is from 2021, and may no longer serve the OP, but I hope it will help those seeking answers to this issue in 2024+ (3 years later and adobe still hasn't fixed it) like myself.
-a.c.
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Yes, just dragging an Illustrator element from the library drags a (linked) PDF version. Embedding this linked version gives clipping masks and loss of editability.
Dragging an Illustrator element from the library with the Alt key pressed (or selecting Place copy from the Lbraries menu) will give you fully editable Illustrator objects.
Unfortunately this does not preserve the Layer hierarchy, even when Paste Remembers Layers is checked in the Layers panel. To keep the layer structure you need, as you mentioned, double click the library item to open the original and do a copy/paste.
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Some UserVoice posts:
Keep layers when placing from Libraries
Place .ai instead of PDF