Here is a link I created to the Colorado "CleanFlicks" decision. To recap, the case involves the unauthorized sale of DVDs and videocassettes that have been altered, without permission, by commercial "family friendly" companies to delete sex, nudity, profanity and gory violence. (I wonder how Mel Gibson's Christ movie fared).
The defendant companies begin with a lawfully made copy and then make unauthorized digital copies which are edited in the aforementioned manner. The case does not involve the sale of filters that are used during the viewing and which do not themselves alter the hard copy: that activity was the subject of the 2005 Family Movie Act, P.L. No. 109-9.
The studios sued for violation of Sections 106(1)-(3) and won summary judgment and a permanent injunction. The defendants asserted fair use. One interesting aspect of the fair use discussion is a perceived paradox on the transformative-derivative work issue. To be an unauthorized derivative work, there needs to be an alteration to the work; yet, to excuse that same conduct under fair use, defendant claimed the alteration was transformative. Haw! said the studios, you admit you are a dirty infringer (pun intended). The studios meanwhile were happy to assert there was an alteration, but then had the reverse paradox in claiming there was no alteration at the fair use stage. Haw! said the family friendly folks, you admit our use is transformative!
There really isn't a paradox, because altering something doesn't make it automatically transformative or fair use: if I crop off the edges of a fabric design to make it fit better for my textile machines, I have altered the original, but hardly "transformed it." The family friendly folks had a stronger case than that, but it can't be said that they provided any new insights or perspectives on the works and that is what Judge Leval meant by transformative.
Still, the case highlights once again, the square peg in the round hole problem that is rapidly overtaking fair use analysis.