Back in 2004, when the motion picture companies were waging an unsuccessful fight against what became the Family Movie Act -- an initiative to empower parents to filter out smut and other objectionable elements from smutty films they were voluntarily viewing with their children at home -- the issue was raised whether the derivative right was violated by altering the manner in which the motion picture was viewed. I found the argument a bit strange: the actual complaint was over an altered performance and since the performance in question was private, there could be no violation of Section 106(4). As to the separate derivative right, the complaint was really over the filtering software, which itself was not a derivative work of anything. In short, the argument was, for me at least, too clever by a half, which is to say not clever at all.
But it did get discussed, and in testimony by the Register of Copyrights before the House of Representatives' IP subcommittee on June 17, 2004. Here is a link to that testimony. One part of that testimony states: "The question is, can you have a derivative work when no copy (or "fixation") of the derivative work exists?" The Register answers that question negatively, but the statute is quite clear the answer is positive. Section 106(1) gives copyright owners the right to reproduce the work in copies. Section 106(2), however, gives the copyright owner the right to prepare derivative works based on the original. The lack of the limitation to "copy" in Section 106(2) supplies the intent the Register sought.
Nor does it rebut this position to point out that Section 106(2) refers to "works" and that to be protected "works" must be fixed. Section 106(2) concerns infringement, not protectibility, and assumes the existence of a protected (that is, a fixed work), that may be infringed by an unauthorized unfixed derivative work.
If there was any doubt from the plain language of the statute, it is dispelled by this discussion from the 1976 Act committee reports:
The exclusive right to prepare derivative works, specified separately
in clause (2) of section 106, overlaps the exclusive right of reproduction
in [section 106(1)] to some extent. It is broader than that right, hwoever,
in the sense that reproduction requires fixation in copies or phonorecords,
whereas the preparation of a derivative work, such as a ballet, pantomime,
or improvised performance, may be an infringement even though nothing is
ever fixed in tangible form.
H.R. Rep. No. 1476, 94th Cong., 2d Sess. 62 (1976); S. Rep. No. 473, 94th Cong., 1st Sess. 58 (1975).
This view is, moreover, based on an earlier view expressed by Register of Copyrights Abraham Kaminstein in his 1965 Supplementary Report, at p. 17.
There is a good reason there is no requirement that an infringing derivative work be fixed in a copy: as noted in the committee reports, if a musical work has been fixed, Congress wanted to provide a cause of action for someone who improvised an unauthorized version of it. Of course, as with all rights, there must be a substantial taking (so that aside from the fixation issue, the reproduction right and the derivative right are redundant - that is what the reports meant by "overlaps") and defenses such as fair use apply.