Groklaw has a good analysis of the recent Harry Potter Lexicon smackdown. Fair use good, too much verbatim copying bad.

The fact is, Rowling and her editor led the defendant on with praise of his website work, such that there was a suggestion by him that he might be the editor of the official encyclopedia, a suggestion that was turned down. Her prior praise of his fan site weighed against her. But she did tell him he had no role as her editor, and he went ahead with his own book anyway, with some marketing that the judge found misleading. So the question was, is it fair use? It certainly could have been, since a copyright owner can’t control transformative derivative works totally, but where the defendant failed was in the how of it, how he went about it.

The impression I get from the Order is that if he’d been less of a fan and copied less and written more of his own words instead, it would have worked out better for him. The court, despite finding against fair use, found the defendant at the time had a reasonable belief that it was fair, and that shows me how close the call was, but in analyzing the four factors courts use for fair use determinations case by case, this judge decided it didn’t pass ultimately.

But he managed to do so without, in my view, damaging the field for transformative fair use works. Let me show you what I mean. You’ll see how carefully the judge annotates his ruling with prior case law, and if you wish to understand his decision, you really would have to read all the citations, because that is where the judge tells you why he decided each element.