Read about this court case:
Google was sued by Perfect 10 for its use of Perfect 10's images as THUMBNAILS in google image search results.
Perfect 10 won, then lost on appeal.
The appeals court basically said that turning an image into a thumbnail was transformative and thus fell under fair use.
I agree with the thumbnail fair use argument. You had to click on the small thumbnail to see the FULL SIZE image which was on the webmasters site, not googles commercial site.
*HOWEVER*, now that google image search changed early this year and shows the FULL SIZE images, not thumbnails anymore, and many people lost over 90% of their image search traffic, how is google not directly in violation again?
[edited by: aakk9999 at 9:27 am (utc) on Oct 28, 2013]
[edit reason] ToS [/edit]