Bdtyk

Here's the image in question:

Basically, the subject in the foreground is using a product that the company would like to advertise. The graffiti holder has argued that the image infringes on their copyright. My guess would be that this image does not infringe on the copyright, because it is novel and the graffiti is not the subject matter in the photo.

The applicable jurisdiction here would be the state of California.

You are in effect asking if this is a case of Fair use, an important US-specific legal concept in copyright law. Please review this question for an overview of fair use. See also This statement from the US copyright office

Deciding whether a use is a fair use is always a fact-driven, case-by-case, process. No one ever knows for sure if a use is a fair use unless that specific use is challenged in court as infringement, and the fair use defense is raised and sustained or not.

Courts evaluate fair use claims on a case-by-case basis, and the outcome of any given case depends on a fact-specific inquiry. This means that there is no formula to ensure that a predetermined percentage or amount of a work—or specific number of words, lines, pages, copies—may be used without permission. ("More Information on Fair Use" -US Copyright office)

Factors

Let's look at the fair-use factors in the case of this photo:

1. Purpose and character of the use, including whether the use is of a commercial nature or is for nonprofit educational purposes: The use is apparently for clearly commercial purpose. This tends to weigh against fair use, but does not rule it out. Then the is the question of whether the use is transformative. The background image apparently serves its original decorative purpose. Whether making it part of an ad is transformative might be debated.




2. Nature of the copyrighted work: The graffiti is an artistic and creative work, not a work of non-fiction or news reporting or factual information. This also tends to weigh against fair use.




3. Amount and substantiality of the portion used in relation to the copyrighted work as a whole: It seems that almost all of the work of graffiti, or at least a significant part of it, is being used. This tends to weigh against fair use to some degree. moreover, the work of graffiti is quite prominent in the background of the work, which ,means it makes a significant contribution to the final work, which also weighs against fair use.




4. Effect of the use upon the potential market for or value of the copyrighted work: If the work of graffiti is currently being marketed, the question does not say so, and i would suppose that it isn't. There could be a potential market: the artist could make photos or prints of the work and market them, for example. Even so, this image probably wouldn't affect such a market much. This factor probably inclines towards fair use, but it is hard to say just how a court would asses it.

Case law

• In Ringgold v. Black Entertainment Television, Inc., 126 F.3d 70 (2d Cir. 1997) A poster of a “church quilt” was used in the background of a television series for 27 seconds. This was held not to be fair use. The court was influenced by the prominence of the poster, its thematic importance for the set decoration of a church, and the fact that it was a conventional practice to license such works for use in television programs. This case seems particularly close to the one in the question.




• In Bill Graham Archives v. Dorling Kindersley Ltd. 448 F.3d 605 (2d Cir. 2006) posters of Grateful Dead concerts were reproduced in a book. This was held to be fair use. The reduced size of the images, and their appearance in the context of a timeline were considered significant.




• In Kienitz v. Sconnie Nation LLC, 766 F.3d 756 (7th Cir. 2014) A modified photo of a Wisconsin mayor was reproduced on a Tshirt and used to raise money for an event. the photo was posterized, background removed, text added, and a lime green outline featuring the mayor’s smile remained. The resulting image of the mayor, the court stated, “can’t be copyrighted.”




• In Kelly v. Arriba-Soft, 336 F.3d. 811 (9th Cir. 2003) use of thumbnail images in search engine results was held to be fair use. The reduced size and image quality were significant to the court. So was the transformative use of the images to help identify and index the pages.

Conclusion

This is not a clear-cut case, in my view, but the case for fair use does not seem strong to me.