In American Geophysical Union v. Texaco Inc., publishers who owned copyrights in scientific articles published in journals sued Texaco for copyright infringement arising out of photocopying of articles by Texaco employees. The parties agreed to limit the facts to the photocopying of eight journal articles by one scientist at Texaco. Texaco claimed that the scientist's copying did not infringe the plaintiffs' copyrights because the copying, which was done as part of the scientist's research efforts, constituted fair use of the works. The Second Circuit employed the four-factor test set forth in Section 107 of the Copyright Act to affirm the district court's holding that the photocopying in issue was not fair use.

The first factor examines "the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes." The court deemed the scientist's use to be "archival" in nature, meaning that he created his own research library for future reference. Since the copies served the same purpose as the original, the first factor weighed against a finding of fair use. The court discounted Texaco's arguments that the copying was transformative (because it allowed the scientist to take notes from the journals and allowed him to bring the notes in a more usable format into his lab) and that photocopying for such research purposes is reasonable and customary.

The second factor examines the nature of the copyrighted work. The articles that were copied were essentially factual in nature, and, therefore, the scope of fair use is greater. Thus, the court held this factor to favor a finding of fair use.

On the other hand, the third factor, the amount and substantiality of the portion used in relation to the copyrighted work as a whole, was found to weigh against a finding of fair use. While the scientist copied the articles, which were only part of journal issues, the copyrights covered the individual articles. Since these articles were copied in their entireties, this factor weighed against the fair use defense.

Finally, the court determined that the fourth and "single most important" factor weighed against the defendant. This factor examines the "effect of the use upon the potential market for or value of the copyrighted work." Even though the facts indicated that the defendant would only have increased its subscriptions "somewhat" in the absence of such archival copying, the court found in favor of plaintiff on this factor because the copyright holders lost licensing revenues due to the photocopying.

On balance, the court held that the copying was not a fair use since three of the four factors, including the "important first and the critical fourth factor," favored the plaintiffs.

A sharp dissenting opinion cautioned that, as a result of the court's decision, corporations now need "an intellectual property lawyer posted at each copy machine" in order to determine whether a fee should be paid. In contrast to the majority, the dissent concluded that the first and fourth factors also weighed in favor of fair use. According to the dissent, the scientist's use for research purposes dominated the first factor analysis, and the photocopying at issue was non-commercial, technologically-assisted note-taking, a customarily fair use. Under the fourth factor, the dissent discounted the licensing schemes as neither traditional nor reasonable and thus concluded that this factor weighed in favor of fair use.

Following the denial of its petition to the Second Circuit for rehearing, Texaco has petitioned to the United States Supreme Court for review of the Second Circuit's decision.