What is fair use?
The Copyright Act gives copyright holders the exclusive right to reproduce works for a limited time period. Fair use is a limitation on this right. Fair use allows people other than the copyright owner to copy part or, in some circumstances, all of a copyrighted work, even where the copyright holder has not given permission or objects.
How does fair use fit with copyright law?
Copyright law embodies a bargain. It gives copyright holders a set of exclusive rights for a limited time period as an incentive to create works that ultimately enrich society as a whole. In exchange for this limited monopoly, creators enrich society by, hopefully, contributing to the growth of science, education and the arts.
However, copyright law does not give copyright holders complete control of their works. Copyrighted works move into "the public domain" and are available for unlimited use by the public when the copyright term expires (see Public Domain FAQ). But even before works enter the public domain, the public is free to make "fair uses" of copyrighted works.
By carving out a space for creative uses of music, literature, movies, and so on, even while the works are protected by copyright, fair use helps to reduce a tension between copyright law and the First Amendment's guarantee of freedom of expression. The Supreme Court has described fair use as "the guarantee of breathing space for new expression within the confines of Copyright law."
How does the court know if a use is fair?
Whether a use is fair will depend on the specific facts of the use. Note that attribution has little to do with fair use; unlike plagiarism, copyright infringement (or non-infringement) doesn't depend on whether you give credit to the source from which you copied. Fair use is decided by courts on a case-by-case basis after balancing the four factors listed in section 107 of the Copyright Act. Those factors are:
1. The purpose and character of the use of copyrighted work
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
How much of the copyrighted work did you use in the new work? Copying nearly all of the original work, or copying its "heart," may weigh against fair use. But "how much is too much" depends on the purpose of the second use. Parodies, for example, may need to make extensive use of an original work to get the point across.
4. The effect of the use upon the potential market for or value of the copyrighted work
This factor applies even if the original is given away for free. If you use the copied work in a way that substitutes for the original in the market, that will weigh against fair use. Uses of copyrighted material that serve a different audience or purpose are more likely to be considered fair.
These factors are guidelines, and they are not exclusive. As a general matter, courts are often interested in whether or not the individual making use of a work has acted in good faith.
(Taken from Teaching Copyright site: https://www.teachingcopyright.org/handout/fair-use-faq)