If no one was profiting from it, I still don't understand why it doesn't fall into "fair-use" catagory.
Unfortunately it doesn't matter whether or not someone profits from it.
If someone else could profit from it and/or the copyright owner could have lost revenue because of it then it is treated as a violation.
I don't like this application of copyright law. I think you should have to prove that revenue was, in fact, lost before you can take action.
It's kind of like copying DVDs. Copying a DVD, in and of itself, should not be a copyright violation and doesn't create revenue for the copier or reduce revenue for the movie maker. Now, if I were to copy that movie and sell the copy (or the original, keeping the copy) then I have gained monetarily. However, under this application, making a copy and giving it to my friend may or may not actually reduce revenue for the movie maker and could, in theory, increase their future revenue.
Let's say that I have a movie and I think it's cool. I make a copy and give it to my friend John. Now I know John could have rented the movie or I could have loaned it to him. Let's take the loaning out of the equation - he lives out of state and I don't want to give him my copy since I might not get it back.

So, he might go home and rent it, and he might not. If he doesn't (or maybe even if he does), he's not going to go out and buy the movie, so the movie maker hasn't lost any revenue whether I copy it for him or not. Regardless, he takes the copy home and watches it, and he likes it. He likes it so much, in fact, that he goes to the theater and watches the sequel when it comes out. Had he never watched the first one, he wouldn't have gone to see the sequel. In this case, my making an illegal copy of the movie and giving it to my friend actually made the movie maker more revenue than they would have gotten had I not made the coffee. In this instance, in theory, it doesn't make sense to restrict this as a copyright violation and threaten a lawsuit. For that matter, John might like it so much that he goes out and buys the first movie as well or a box set or something. Now that copy I made is useless (and technically legal) since he now owns an official copy. I say it's technically legal because you can legally have a backup copy of any movie you own.
While this instance, which might be rare I know but not as rare as some might think, is technically a copyright violation, it actually is a good thing for the movie maker. It's a bit of a paradox, yes, but it's true.
The movie industry, though, would prefer it to be impossible to copy a dvd for any use. This is absurd, and stupid on their part.
Take my setup at home, for example. I take every movie I buy (and have done this with almost every dvd I own) and rip it to my home server. BTW, rip it means that I make a digital copy of it and store it on a hard drive, instead of on a physical DVD disk. Why do I do this? For safety, yes, but mainly for convenience. If the only thing I have is a physical DVD, then whenever I want to watch the movie I have to look for the disk and put it in the drive. Since I have the disk ripped to my server, I can watch the movie wherever I want to in my house. I can watch it on my desktop, my laptop, my netbook, my media center PC in the bedroom, or my xbox360 in the living room. I can watch it on any TV or Computer in my house without having to locate and insert the DVD. If I had to use the physical disk every time I (or my wife) wanted to watch a movie two things would happen: 1) we would watch fewer movies and 2) I would buy fewer DVDs. Between hulu and netflix, I can find something to watch.
If the music and movie industry is allowed to take things as far as they would like in order to "protect" their revenue, I'm afraid they would find that they would be shooting themselves in the foot and reducing their revenues enev more.