Eric Goldman has expanded his thoughts on whether Google Toolbar violates copyright law:
I'd be delighted to be wrong on the legal question. But we have to answer the positive question based on the law today, not as we wish it were.
He's right that the Google Toolbar--or rather, people using the toolbar, a point he addresses--creates a derivative work. He does not seem to address a problem I still have: how does what Google does constitute copying and redistribution? And if indeed it does constitute copying and redistribution, how much of that falls under fair use?
Those are legal questions I'd like answered. In fact, here's a way to get it answered by a court: somebody hire a lawyer and sue Google. Seriously. What better way can you think of to actually get a legal judgment on whether Google violates copyright law?