Can fair use issues be adjudicated in state courts even though state copyright claims are preempted by 17 USC 301? Two cases show how. In Mitcham v. Board of Regents, University of Texas Systems, 670 S.W.2d 371 (Tex. App. Texarkana 1984) plaintiff sued defendant in state court for libel, the libel being that the defendant had accused the plaintiff of committing copyright infringement. The plaintiff admitted the unauthorized copying (of a third party's work) but asserted its use was a fair use, excused under 17 U.S.C.A. § 107. If the plaintiff was correct that its use was a fair use, the defendant was guilty of libel. If the plaintiff was wrong that its use was a fair use, the plaintiff's claim for libel failed. The fair use claim was rejected due to wholesale copying, a dubious decision under the facts (student protests).
Another, quite recent case, is Zellner v. Cedarburg School District, 83 USPQ2d 1085 (Wisconsin Supreme Court 2007), available here. In Zellner, plaintiff was a high school science teacher who was fired for allegedly viewing on his school computer adult pornographic images, obtained off the web. At a subsequent meeting to discuss his termination, he was presented with a CD containing the images he had viewed. The Milwaukee Journal Sentinel newspaper requested a copy of the CD under the state Open Records Law. (Wisc. Stat. sec. 19.32(2)). That law contains an exception for the release of "materials to which access is limited by copyright... ." Plaintiff opposed the release of the CD by relying on the exception.
A threshold issue was whether a public employee fired for viewing adult pornography on his computer has standing to raise the exception, where the images are owned by third parties? Surprisingly to me, the Wisconsin Supreme Court said yes, he did have standing. The newspaper had sensibly argued that the purpose of the exception was to protect the rights of copyright owners, not shield public employees accused of misconduct from disclosure of information about their misconduct. The Court disagreed, holding that because the employee would be impacted adversely by the disclosure, he had standing. But his case fell on fair use grounds, the Court finding the use was a fair.