The bigger issue is how AP can charge for content it doesn't own. The statement doesn't address it, and Mr. Grimmelmann calls them out on it. Tip of the hat to him.
What defines fair use and what is and is not public domain have been taking a beating lately. First, fair use was thrown out as a defense in a Boston music downloading trial -- although I suspect this will be looked at again on appeal. Now this silliness from the AP.
I understand that record companies are looking at a dying business model and are lashing out with lawyers rather than innovation. I understand that the AP wants to make sure it doesn't get gypped. But how record companies are measuring their losses doesn't pass the laugh-test. And how AP is defining fair use of their content doesn't pass the smell test.
What this boils down to has been true since Bubble 1.0. Media companies (and I've worked at a LOT of them) are not software companies. When they build software, or new media products outside of their traditional scope, they fail more often than not. They fail to anticipate what their new audience will want. They fail to experiment aggressively to see what works and what does not. They tend to try to shovel their old approaches onto the new platform (just like in the early days of television).
Furthermore, this defensive posture about content that lives in a walled garden just won't work on the Internet. The understanding must be that the global Internet audience (and its hockey-sticking mobile component) wants what they want when they want it. DRM just turns everyone off. And they've turned a blind eye to the possibilities of the new platform as a marketing opportunity for their other (just fine thank you) products. And after nearly 15 years, the mossbacks in the boardrooms are showing few signs of waking up. The only solution I can foresee is a shareholder revolt, and some new management talent as a result. There's plenty of folks in Seattle, Silicon Valley, and New York who would love to take on the manifold challenges of bringing record labels, newspapers, radio conglomerates, and broadcast networks into the 21st Century. Lord knows I've tried. But invariably one encounters resistance at the topmost levels, products and platforms get nerfed, and the failure begins anew.
Which is sad for me, and a lot of other media guys who've bled to save these institutions.