THE CONGRESS SHALL HAVE THE POWER... to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. (United States Constitution, Article 1, Section 8) 

Fair use is the non-competitive right to use copyrighted material without giving the author the right to compensation or to take legal action for infringement of copyright. The exclusive rights of the copyright owner are not unlimited in scope. The current copyright law (Title 17, Section 107, U.S. Code) gives the owner of a copyright the exclusive right to reproduce and distribute a work, with very few exceptions. The most important exception to this exclusive right is usually referred to as "the fair use exception."

There's no one right answer as to what constitutes a "fair use" of a copyrighted work. The answer varies from situation to situation. The criteria as designated in the law for using copyrighted materials under the fair use exception are governed by four factors.

Deciding whether the use of a work is fair is not a science. There are no set guidelines that are universally accepted. Instead, the individual who wants to use a copyrighted work must weigh four factors.

The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes. Favoring factors include:

Nonprofit Educational Institute
Teaching
Criticism and comment
Research
News reporting
Parody

The nature of the copyrighted work. Favoring factors include:

Fact or nonfiction based
Dramatic or non-dramatic
Published work
Out of print work

The amount and substantiality of the portion used in relation to the copyrighted work as a whole. Favoring factors include:

Quantitative: a small portion
Qualitative: not the "heart of the work"

The effect upon the potential market for or value of the copyrighted work. Favoring factors include:

One or few copies made
User owns lawfully acquired or purchased copy of original work
No significant effect on the potential market or market for the copyrighted work
No similar product marketed
Licensing or permission method is absent

Do get permission when you intend to use another's work for commercial or non educational purposes. Sample permission letter.
Do remember there is a wider scope for using factual and representational works; less scope for using unreal and imaginative works, little scope for using unpublished works, and no magical percentage or number that is always, under all circumstances, OK.

Don’t steal manuscripts or use works you know are stolen or infringing.
Don’t breach agreements.
Don’t lie or deceive.
Fair use examples
Use on the left tips the scale in favor or fair use. Use on the right tips the scale to oppose fair use (obtaining permission) 
                                                       
                                                      Favoring Fair Use                                     Opposing Fair Use
                                                      Factor 1: Instructor using material in a       Factor 3: Using a large portion or entire work.

                                                      nonprofit educational institution.
                                                    

                                                       Opposing Fair                                           Use Favoring Fair Use
                                                      Factor 4: Making other’s work                    Factor 2: Instructor using published material. 
                                                       accessible on the Web.

One must consider at least two fair use factors to be in compliance with the law. True or False: Answer
It's copyrighted, so it can't be fair use. True or False: Answer
Acknowledgement of the source makes a use fair. True or False: Answer
If a profit is made from the use of another's work is this favoring or opposing fair use? Answer
Unpublished works are exempt from the fair use guidelines. True or False: Answer

Copyright Basics
Copyright Internet Resources
The Copyright Website
Computer Professionals for Social Responsibility
Fair Use Guidelines for Educational Multimedia
Sample Permission Letter to Reproduce Copyrighted Material
This article should not be deemed as legal advice. Always consult with your institution's legal counsel to make sure you are within fair use parameters and are adhering to your institution's own intellectual property guidelines.

Jean M. Dugo, EDTEC Graduate Student

Dugo, J. (2004). Understanding fair use. In B. Hoffman (Ed.), Encyclopedia of Educational Technology.