Fair use allows you to use a copyrighted work without prior permission from the copyright holder, under certain circumstances.
In order to determine whether your use of copyrighted material is fair, you have to weigh four factors. As you’re conducting the fair use analysis, keep in mind that not all of the factors have to favor fair use in order for your use to be fair, and that different people may come to different conclusions about the same set of facts. The important thing is to conduct a good-faith, reasoned analysis that considers all four factors.
The first fair use factor looks at the purpose and character of the use, including whether the use is of a commercial nature, or for nonprofit educational purposes.
This factor generally weighs in favor of fair use for the nonprofit educational uses we make of copyrighted materials in the university setting, but educational use alone does not automatically result in a finding of fair use, because all four factors must be considered.
This factor is also more likely to weigh in favor of fair use if your use is transformative, rather than verbatim copying. Recent court decisions have emphasized that when a use is substantially transformative, the other factors are less significant. The relevant question is whether your use "merely supercede[s] the objects of the original creation,” or does it “add something new, with a further purpose of different character, altering the first with new expression, meaning, or message.”
Factor two looks at the nature of the original, copyrighted work.
This factor generally weighs in favor of fair use if the work being used is factual (scholarly, technical, or scientific) rather than a work involving creative expression such as plays, poems, fictional works, photographs, or paintings.
Factor three looks at the amount and substantiality of the portion used in relation to the copyrighted work as a whole.
The larger the amount of the work you use, the less likely it will be considered a fair use. However, there are no strict quantitative rules about how much of the original may be used, and in some situations using the entire original may still qualify as a fair use. Consider whether you are using no more than is necessary to make your pedagogical point.
Substantiality looks at whether the portion used constitutes the "heart of the work.” This is a very fact-specific determination.
The final factor looks at the effect of the use on the market for or value of the original work.
If the proposed use were to become widespread and would negatively affect the market for or value of the original copyrighted work, this factor likely weighs against a finding of fair use.
Lost permission fees do not necessarily amount to a negative impact on the market for the work. The purpose of the fair use analysis is to decide whether a permission fee is required, so the existence of a permissions market is not conclusive.