"When I took copyright law several years ago in law school, I learned that the purpose of copyright is to give the author an economic incentive to create the work. It does so by providing a limited monopoly over the work. As the author of this article says, the whole point of copyright law is to encourage creativity, not stifle it.
"The fair use doctrine grows out of this purpose. If I use another's work in my own work in such a way that my work does not become a substitute for the original work--thereby infringing on the original author's monopoly over the market created by his or her work--then my use is fair. For example, if I quote a couple of lines from somebody's book in writing a review of the book, no one is going to view those quotations in my review as a substitute for the book itself and not buy the book. (They may not buy the book if I give it a bad review, but that's another matter entirely.)
"The second, closely related fair use concept is whether the use is 'transformative,' meaning that it takes the original work and turns it into something else entirely. Again, the more transformative my work is, the less likely someone is to see it as a substitute for the original.
"These concepts are what led the Supreme Court to say that 2 Live Crew's parody of 'Pretty Woman' was fair use, despite the fact that it lifts musical and lyrical aspects of the song wholesale. The Court reasoned that no one was going to buy 2 Live Crew's filthy rhyme in place of Roy Orbison's classic--it was not a substitute for the original. Also, the Court found that the dirty lyrics, even if crude, were clearly a way of playing off the wholesomeness of the original--that is, the use was transformative.
"If these concepts are applied to Fairey's work, the conclusion that his work is fair use is inescapable. No one would view the campaign poster as a substitute for the news photo. The two have entirely different purposes and different markets. And it is clearly transformative--it turns a run-of-the-mill stock photo into a work of art with powerful political overtones. Whatever stupidity he may have engaged in with respect to misidentifying the photo he used, it doesn't matter--this is obviously fair use."