Shepard Fairey takes a copyrighted photo fromthe Associated Press and modifies it by changing the background and adding colors. Because he is using the photo in a different way and has changed it, he:

Is free to do so without permission granted by the owner since he made something new out of the older image.

Will not be held liable because it was a de minimus use.

Infringed the work, but might avoid liability by asserting a defense of laches.

Infringed the work, but might avoid liability by asserting a defense of fair use.