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You state the “Letter of the Law” and your interpretation of it quite well. But it is an interpretation.
I tend to believe the IP lawyer that I was having lunch with who says that he thinks it’s defensible to put music from a bride’s CD on her wedding video under Fair Use.
And this is coming from a lawyer whose job is to pursue copyright and patent cases for copyright and patent owners.
The fact is that it will not be settled until one of three things happen:
1) Congress changes the Copyright Law to explicitly allow such use under “Fair Use”. This is the most unlikely, but you never know.
2) The Record Industry finally discovers that there’s a segment of consumers who *want* to give them money and they develop a system similar to the one in Austrailia.
3) A Wedding Videographer is sued for using unlicensed music in a wedding video. This is also unlikely for the reasons stated before, but a decision, while not binding on all jurisdictions, would offer some clarity on which way a judge would lean on the issue.
Until one of these things happens, the correct reply to the original question (is it legal…) is: “Probably not”.
To this date, no one knows of any Wedding Videographer in the US who has been sued by a copyright owner over the unlicensed use of their property in a wedding video.