[syrrim]

Were I a lawyer I would argue that they are covered under points (1) and (4). For (1), even though they aren't nonprofit, they aren't using the work directly to gain profit. Rather, they are using it as a base on which to annotate. For (4), I would argue that the primary market for lyrics is not the lyrics themselves, but instead productions of those lyrics in song form. This can be seen by the fact that any number of websites reproduce them at little cost.

I don't know if this is sufficient grounds to argue fair use, but it is clear that the case is not cut-and-dry.

[soyiuz]

The four factors are ALL considered in determination of fair use. You are not "covered" under any one of them. It is the opposite: violating any one of them can be used as basis for challenging fair use exemption.

The gold standard for fair use is academic citation. Genius use of the lyrics was clearly commercial (because it benefited financially and is a for profit organization). The terms "direct" or "indirect" are not in the language of the guidelines. In (4), it would be enough for copyright holders to show potential for future harm.

A strong case of fair use needs to clear each of the four factors. For example, just posting the lyrics online (without profit) violates (2) in that it is not transformative, (3) in that the work is reproduced in its entirety, and (4) in that it harms the "existing or future" market for the product.

By contrast, an academic citation, a sentence of a novel, for example, is non-commercial, transformative, partial, and non-damaging. Incidentally, things get more complicated with poetry---scholars working on short-form lyrical poetry often need to clear the rights for publishing their research. Poems are short, it is therefore difficult to avoid reproducing them in full, which violates (3). Courts prefer partial reproduction for fair use.

[danso]

But if the effect of RapGenius's hosting of lyrics led to them being the first results for all searches of lyrics, whether the lyrics were significantly transformed or not, it could be argued that they are directly profiting from unfair use of those lyrics. Else, what would stop any site from copying and republishing any material wholesale and claiming that users come to the site to comment via Disqus?

[soyiuz]

Yes. Note that direct or indirect is not in the language of the guidelines. copyright.gov says:

"Purpose and character of the use, including whether the use is of a commercial nature or is for nonprofit educational purposes: Courts look at how the party claiming fair use is using the copyrighted work, and are more likely to find that nonprofit educational and noncommercial uses are fair. "