Fair use is a judicial doctrine that refers to a use of a copyrighted work that does not violate the exclusive rights of the copyright owner. Examples of fair use include the reproduction of original works for the purpose of criticism, comment, news reporting, teaching, scholarship, or research (see 17 U.S.C. § 107). Whether a particular use is “fair” depends on a court’s application of the following factors: (1) the purpose and character of the use, including whether the 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 the copyrighted work, including the extent to which the use diminishes the economic value of the work. Courts have ruled that the fair use doctrine allows individuals to use video cassette recorders (VCRs) to tape television shows and movies for home use without fear of being sued for copyright infringement.

However, in a case closely watched by the public, the U. S. Court of Appeals for the Ninth Circuit ruled that the fair use doctrine does not allow an Internet service to store digital audio files of copyrighted sound recordings for downloading by service subscribers who pay no fee to the copyright owners (see A&M Records, Inc. v. Napster, Inc., [9th Cir. 2001]). Recognizing that the individual subscribers were mostly high school and college students downloading the music for personal consumption, the court still found that the purpose and character of their use was commercial in nature. “Napster users get for free something they would ordinarily have to buy,” the court observed. The court said that Napster’s service reduced audio CD sales among those students, thereby diminishing both the size of the copyright owners market and the value of the copyrighted work.

The recording and movie industries won another victory in 2005 when the U.S. Supreme Court ruled that an Internet file-sharing service named Grokster committed copyright infringement by providing a service that allowed users to share files directly with one another. Grokster argued that it was not liable because, unlike Napster, it did not store files on its own servers but rather only served as a medium to allow users to share directly with one another. The Court, in a unanimous decision in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster (2005), disagreed, ruling that this type of file sharing violated copyright laws. In November 2005, Grokster agreed to shut down its services until it could provide a legal service.