The photo appeared in print once, in an issue of Allure Magazine. Koons painted* a set of big panels called "Easyfun-Ethereal" that were installed at the Guggenheim in Berlin. All of the paintings in the series were "fragmentary images collaged against a landscape"; Niagara depicted "four pairs of women's feet and lower legs dangling prominently over images of confections . . . with a grassy field and Niagara Falls in the background." One of the sets of feet was a scanned image of Blanch's photo.
Koons ends up winning on his "fair use" argument because of the transformative nature of his copying. That aspect of the "purpose and character" element seemed (in my view) to overwhelm the remaining factors set forth in 17 USC § 107. He takes Blanch's work and the works of others; copies portions of them; and puts them into a different medium. It's like a visual artist's equivalent of music sampling.
But how do you determine that there's a transformation at work? One way, I suppose, is to ask the viewer of the Koons work what the viewer perceives, since that would be a fair test of whether Koons succeeded in turning the original work into something different. That's not what happened, though. Instead, Koons offers his own affidavit as to his purpose in copying, written in Artspeak:
"Although the legs in the Allure Magazine photograph might seem prosaic, I considered them to be necessary for inclusion in my painting rather than legs I might have photographed myself. ... Images almost identical to them can be found in almost any glossy magazine, as well as in other media. To me, the legs depicted in the Allure photograph are a fact in the world, something that everyone experiences constantly; they are not anyone's legs in particular. By using a fragment of the Allure photograph in my painting, I thus comment upon the culture and attitudes promoted and embodied in Allure Magazine. By using an existing image, I also ensure a certain authenticity or veracity that enhances my commentary -- it is the difference between quoting and paraphrasing -- and ensure that the viewer will understand what I am referring to."
(Let me add here that Judge Sack noted that the ramblings were "without contradiction", as though one could ever begin to contradict what flowed through the artist's mind, filtered through a lawyer's word processor.)
The judge added, "We have been given no reason to question his statement that the use of an existing image advanced his artistic purposes." Now, you need to know a little bit of inside baseball: Jeff Koons had been to the Second Circuit before, in a case called Rogers v. Koons. There, the court decided that his sculpture "String of Puppies" infringed Art Rogers' copyrighted photo of "Puppies". Koons had taken a notecard with a black and white copy of the photo, and instructed his assitants on how to take the photo and render its subject matter as a 3-D colored sculpture.
The panel in the Rogers case downplayed Koons' creative process, and played up Rogers'. Koons sees the photo; he thinks,"hey, this is 'typical, commonplace and familiar' and 'part of the mass culture'"; he concludes that its subject matter is appropriate for his "Banality Show"; he builds the sculpture. Rogers, on the other hand, is much more of a serious artist. Having been engaged by his patron to render a portrait of a litter of German Shepherd puppies (read, "Art, could you come over to my place and take some pictures of my new puppies"), Rogers had the brilliant artistic insight to conclude that it would be best if someone held the puppies (read, "The puppies are running around too much. Could you hold the puppies?") Koons explains that in his copying he is commenting on the commonplace (the images were "typical, commonplace and familiar") and part of the mass culture "resting in the collective sub-consciousness of people regardless of whether the card had actually ever been seen by such people." Here's the key, though: the implication of Koons' affidavit is that he is commenting on mass culture at large, rather than on this particular expression of mass culture. Rogers wins, Koons loses.
So what's a bigshot artist to do when it's time to defend the Easyfun-Ethereal murals? The real artistry was in drafting the affidavit. The explanation assures that where Koons takes a bit of Allure, then he explains it as a comment on Allure and not as a comment on materialism in general. But does anyone seriously believe that anyone viewing Niagara at the Guggenheim in Berlin has any clue at all that this snippet was a comment on Allure? By putting the emphasis on factors -- the artist's internal justifications -- that are objectively unverifiable, the decision substantially decreases the value of the copyright.
* Actually, he had his assistants paint it. From what I gleaned in the opinion, when you get to be a bigshot artist, you don't actually have to paint or sculpt things; you get some inspiration and your staff does the messy work.