What is fair use?

In establishing copyright law, Congress recognized the tension between the rights of those who create and those who use information in our society.  In an effort to balance those rights and not restrict the free flow of information, §17 U.S.C. 107 established four general factors to be considered when evaluating whether a proposed use of a copyrighted work does not require permission from the copyright holder.  Uses covered by these factors are called "fair use."  The factors are:
(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.
Fair use tests are difficult, not because the factors are hard to understand, but because application of the factors is an inexact science and different people will draw different conclusions from the same set of facts.  The only certain answer to whether a particular use is a fair us it to have it judged in federal court.  In court, these factors are seen as guidelines and courts have a great deal of freedom when maknig a fair use determination.  For your use, consider how it relates to each factor.  Then make a judgement about whether the overall balance tips in favor of fair use of in favor of getting permission.

Factor 1:  The character of the use
Consider the following uses:
Non-profit
In a classroom
Research
Personal
 Criticism
Commentary
Newsreporting
Parody
Otherwise "transformative" use
 Commercial
Entertainment
Plagirism
For profit
If your use can be associated with one of the uses on the right of the table, it is probably not a fair use and you should seek permission of the copyright holder before proceeding.  If your use can be associated with a use on the left or in the center of the table, it probably passes the first factor of fair use.  In particular, uses in the center strongly favor fair use, even if your proposed use is also associated with uses on the right of the table.
Which of these probably does not pass the factor one test?
You are compiling a collection of performances of the opening bars of Beethoven's Ninth Symphony. 
a)  This collection is being made just for your own pleasure. 
b)  You are planning to produce a CD of the recordings to support a commentary on Beethoven performances.  A publisher paid you a nice advance for the project.
c)  You plan to sell the collection through i-Tunes.

Factor 2:  The nature of the work
Published
Factual
 Imaginative
Unpublished
Consumable (workbooks, exercises)
If the work matches the right side of the table, fair use options are more constrained.  A creator has the right to be the first to publish their work, so it is important to seek permission before publishing previously unpublished information.  In general you have greater scope when copying factual works than you would in copying works of imagination (such as movies, music, art or fiction).  Consumable materials are created to be used up.  Copying them in order not to use them up is not "fair."
Imagine this:  As reporter for the school paper, you cover a presentation by a visiting poet.  She reads a poem that she just finished this afternoon.  It is a beautiful, memorable gem that you know will inspire your fellow students to learn more about the poet.  Can you include the poem in your article without permission?

Factor 3:  How much will you use?
In general, the less you copy, the more likely your use will be regarded as a fair use.
Ask yourself:
Is copying one line from a short poem fairer than copying than one page from a novel?
Is copying one song from an album copying a whole work or part of a work?

Factor 4:  Effect on the market
Evaluation of first three factors suggests use is a fair use.
 Original work cannot be purchased
No established route to pay royalties
Can't identify/locate copyright owner
You own a legally acquired copy of the work
No significant effect on the market or potential market for the work
 Replaces sale of copyrighted work
Avoids payment of royalties/permission payments in established
Impairs market for the work
Lots of copies made
Accessible over the web
If you are copying to avoid buying the work, you are probably not contemplating a fair use.  Denying a copyright owner income for their work is more likely to trigger a lawsuit.  Uses on the right side of the chart are less likely to be fair.  Looking at the larger picture, if the use that you consider were widespread and not otherwise a fair use (by the first three factors), would the copyright owner be losing money? 
What if:  What if you buy a copy of the Cornhuskin' video that the Senior Class is selling for a fund-raiser.  If you make a copy for your sister who graduated two years ago, have you violated copyright?

Take time to read the excellent discussion of fair use at the University of Texas' copyright web site, here, or another thorough discussion of fair use from Stanford University Libraries, here.  These sources, along with the handy fair use worksheet from NCSU were the sources for this discussion on fair use.