Fair Use is a flexible exception that allows the use of copyrighted materials without asking permission from the copyright owner(s). It can only be applied to certain situations (criticism, comment, news reporting, teaching [including multiple copies for classroom use], scholarship, or research), and it requires a separate analysis of each situation in accord with four factors: purpose, nature, amount & substantiality, and market effect.
Fair Use provides established criteria for judging whether it is fair to use someone else's work and, when applied in good faith, can limit liability in a court of law. It enables information sharing through new technologies where laws have yet to be developed. Because anyone can use it, Fair Use is one of the cornerstones of research and education.
Limitations on exclusive rights: Fair use
Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—
(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.
The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.
17 USC § 107
The purpose of the proposed use is the first factor to consider. Generally, the law distinguishes between non-profit uses and for-profit uses. A determination of fair use favors non-profit purposes, like education, while a use performed for commerical purposes weighs against fair use.
One further, but essential thing to consider is the possibility of "transformative use." Transformative use takes copyrighted material intended for one purpose and produces something entirely new with it. This approach is highly favored. Eric Faden's video, A Fair(y) Use Tale, is an excellent example of transformative use.
The second factor to consider is the nature of the work. The more creative the work, the more protection the law affords it. Using works that are largely factual tend to favor a finding of fair use. For example, fictional works like motion pictures and novels won't favor fair use, but a scholarly article or a documentary will. Remember that there is no protection for facts or ideas in copyright.
It also matters if the work has been previously published or not. The use of unpublished works are less favored than works that have been previously published. This is because Congress intends the right of first publication to remain with the author.
The third factor measures two things: how much of the original work is used and the significance of what is used. The less of the work that is used, the better. It is best to use the least amount of the work necessary to fulfill the intended educational purpose. There are times, however, when there is no way to fulfill the favored educational purpose without using the entire work. In those cases, for purposes of judging whether the use is fair, this factor will weigh against fair use. The significance of the portion used, though it may be small, is also judged under this factor. In certain circumstance, using the "heart of the work," can weigh against a finding of fair use.
The effect on the potential market for the work is the final factor to consider in a fair use evaluation. Where there are clearly established markets, the use of a work that could act as a direct substitute for a purchase of the original is generally not considered fair. But there are also uses, especially in an academic context, that will have little or no effect on the market for the original. This can be especially true of transformative uses that take the original work and repurpose or remix it in a way that creates something new intended for an entirely different audience. Ultimately, the less the effect on the market for the original, the stronger this factor will favor fair use.