The Strict Logic, or “Circular Reasoning” Argument
The fundamental point I am making here is that it is a mistake to think that one can win a fair use case merely on the strength of a logical, four factor analysis. That, simply put, is not how it works. The reality of how courts apply fair use renders another very old friend of nonprofit educational uses, the circularity argument, sadly ineffective. It is just too easy to get around it given the ease with which the factors can be manipulated.
Theoretically, even with a less than stellar first three factors, so long as at least two weigh in favor of fair use (in other words, the first three factors weigh at least marginally in favor of fair use), the circularity argument suggests that courts should ignore evidence of “lost” revenues, allowing only the social benefit of the use in question to tilt the fourth factor towards fair use, following the Williams & Wilkins Company v. United States case.
It is wrong to measure the detriment to plaintiff by loss of presumed royalty income -- a standard which necessarily assumes that plaintiff had a right to issue licenses. That would be true, of course, only if it were first decided that the defendant's practices did not constitute “fair use.” In determining whether the company has been sufficiently hurt to cause these practices to become “unfair,” one cannot assume at the start the merit of the plaintiff's position, i.e., that plaintiff had the right to license. That conclusion results only if it is first determined that the photocopying is “unfair.”
The argument is always made in contexts like Electronic Distribution (iterative uses), but thus far, without further success.
Wendy Gordon dealt summarily with the circularity argument in her 1984 Betamax article. She called it a “formalistic question” that should not be the focus of the inquiry. She began with the premise that a copyright owner is ordinarily entitled to revenue from all substantial uses of his work within the statutorily protected categories. She went on to say that, “both fairness to the copyright owner and economic efficiency demand that the assessment of his injury include the loss of revenues he would receive in the market were his entitlement to be enforced.” For her, the central question about whether copyright law could be adapted to new technologies was whether markets were likely to form around new uses. Fair use, thus, was only for cases of present, and likely continuing, substantial market failure or market dysfunction resulting in unacceptably high social costs.
The concept of market failure is part of microeconomics, the branch of economics that analyzes the market behavior of individual consumers and firms. The interaction of these individual decision-makers creates patterns of supply and demand that fix the prices of goods and factors of production and determine how resources will be allocated among competing uses.
The premise underlying this kind of economic analysis facilitates sidestepping the demands of strict logic: if a copyright owner is entitled to all he can possibly get, there is little need for line drawing and no place for a “formalistic question.” If, on the other hand, he is entitled to only what is needed to provide an incentive to create, where to draw the line is central, and avoiding circular reasoning could provide a basis for drawing it. A loss of some revenues not critical to creation might be acceptable.
The fair use test in use today for iterative uses functions much as Gordon described. Because of the way the test has been simplified, the conclusion is guaranteed when it is the same as the underlying premise. “A copyright owner is entitled to any revenues that he conceivably might be able to get. If there is a functioning market for the use at issue, in other words, no market failure, the copyright owner is entitled to payment for the use. If there is a market failure, but the copyright owner can show that he can remedy it (that is, find a way to charge for the use), he is entitled to these theoretical revenues and the court cannot find that the use is fair.” This is simple, elegant and seductive. In fact, one need hardly bother with lawsuits if the law is this clear and easy to understand. Judicial economy has much to recommend it.Should universities and libraries argue something just as simple, elegant and seductive on the other side based on the circularity argument? “If a use is nonprofit and educational, even if it uses the entirety of a creative work, courts must exclude all evidence of harm to markets. Thus, all nonprofit educational uses are fair uses all the time.” These two diametrically opposed, I would say extreme, arguments nicely illustrate the “values conflict” between the commercial for-profit sector and nonprofit higher education. 
 Williams & Wilkins Company v.
 Gordon, Fair Use as Market Failure, p. 1651 – 1652.
 Gordon, Fair Use as Market Failure, pp. 1620 – 1621.
 Bridgeport Music Inc. v. Dimension Films, 383 F.3d 390 6th Cir. (