1) It's irrelevant because First Sale Doctrine (SCOTUS Bobbs-Merrill Co. v. Straus 1908 and 17 U.S.C. 109) extinguishes any distribution rights a copyright owner might have to a copy which has been (legally) sold.
2) The "principles" aren't my interpretation, they are derived from common-law and codified under "Fair Use" (17USC107). Additionally (108-112) adds specific cases which are automatically deemed Fair Use. More Fair Use cases may be determined by some administrative actions, including determinations by the US Library of Congress.
I'm merely arguing CleanFlicks falls under the principles general Fair Use (107) if not already covered by one of the specified use exemptions (108-112 et al).
>There has never been a precedent saying that you could modify a work as you see fit and redistribute it.
Sony Corp. v. Universal City Studios (464 U.S. 417) (1984) is the infamous betamax case, which legalized time-shifted viewing, even when the viewer had to make an "unauthorized copy" of up to and including 100% of the content in order to accomplish it, as it involved content freely broadcast over-the-air. As one of the codified principles of Fair Use takes into account the proportion of the work copied, this and their language in the case text implies a less than 100% copy would be permissible as well.
The CleanFlicks technology is simply an automated version of the betamax time-shifting.
>Yes that “process” is that the copyright holder edits the content. Not some random third party
Sometimes they might sell/license a censored version, but certainly not always. And not some random third party, but a party that has legally licensed use of the work (including broadcasters, DVD purchasers, or broadcast viewers).
For example, South Park refused to edit their Mohammed episode, but Comedy Central edited it themselves before broadcast. And I seriously doubt copyright owners edit their works for time-compression; it's TBS-TNT-etc that are trying to cram-in more commercials and have rigid scheduling to accommodate. Also, it's now standard practice for broadcasters to edit, time-compress, or completely re-create the credits of TV shows, which are certainly considered to be part of the copyrighted work, as they are typically overlaid earlier in the episode.