A three-minute clip is probably pushing the limits of fair use, and may well be over the line, depending on the context and how necessary it was to show that much footage. What's interesting to me is a separate issue, one that I don't believe has ever been litigated in the web-video context. In determining whether a use is fair, court will usually look at the context in which the allegedly infringing use appears. To take one good example, in the Bill Graham Archives v. Kindersley case, the Second Circuit gave great weight to the context that surrounded the display of Grateful Dead concert posters, namely a biographical work about the band, in determining that the uses were fair. The court surely would have gone the other way (i.e., would have rejected the fair use defense) had the simply reprinted the posters without the textual biographical context.
The problems began a few years back, when Lee uploaded some short (1-3 minutes), but unedited film clips. He tells Ars that he was using them "to illustrate points I was making in my blog entries on those films," but the clips themselves were simply copied from the films in question. They attracted DMCA takedown notices, which Lee did not contest, apparently on the belief that the brief but unedited clips might in fact be infringing.
Now consider how this would play out in the case of a YouTube video. If a court were looking at the use of film clips embedded into a movie review, it would likely pay great attention to the text of the review, and consider whether the use of the clips served the statutory purposes of commentary and critique. The fact that the clip was surrounded by the text of the movie review would make a determination of fair use much more likely.
But that's not the only way the YouTube video will appear. It will also appear on the regular "watch page" (e.g., here) -- basically standing alone, usually unsurrounded by commentary or criticism. And, importantly, this is likely the context in which the copyright owner will have found the video and demanded its takedown. When a copyright owner searches YouTube for copies of its works, whether through basic text searches or automated means, all it knows is that the video is on YouTube, and therefore on a "watch page." It has no idea -- and, as far as I'm aware, no systematic way of knowing -- whether that video is also embedded on other web pages or blogs, in what may be part of a review or other form of commentary. (I don't believe that YouTube provides a way for a video to appear only embedded, and not on a watch page.)
I'm not exactly sure how a court would evaluate fair use in this situation. The "embedded" context might suggest fair use, while the "watch page" context would not. Would a court say, "Well, one use (embedded) is fair, but there's still an infringing use (watch page), so the copyright owner wins."? Seems plausible to me. Does defendant's fair use in one context absolve an infringing act in another? I tend to doubt it, but I know of no clear precedent in this area.
One lesson from this is not to rush out and automatically blame the copyright owner for being reckless or for failing to respect fair use when a video embedded as part of what seems to be a fair use gets taken down. All the copyright owner is likely to know is that the clip is on YouTube; it can't be expected to search every corner of the Internet for embedded uses may arguably be fair. The copyright owner has every right to demand removal of infringing works, and can't be faulted if YouTube, because of the way it is configured, also removes fair uses.
One last point: Ars Technica says:
Under the DMCA, the mere filing of a counternotice would be enough to get the work reposted. If a rightsholder continued to feel that the work was infringing, the case would have to go before a judge.This is wrong. YouTube does not automatically repost the video upon receipt of a counternotice. Rather, it keeps the video down for 10-14 business days and only then reposts it -- unless the copyright owner files a lawsuit during that window. As YouTube explains:
There is no time limit on filing a counternotice; Lee can still submit one (or more) should he so choose.
After we receive your counter-notification, we will forward it to the party who submitted the original claim of copyright infringement. Please note that when we forward the counter-notification, it includes your personal information. By submitting a counter-notification, you consent to having your information revealed in this way. We will not forward the counter-notification to any party other than the original claimant.
After we send out the counter-notification, the claimant must then notify us within 10 days that he or she has filed an action seeking a court order to restrain you from engaging in infringing activity relating to the material on YouTube. If we receive such notification we will be unable to restore the material. If we do not receive such notification, we may reinstate the material.