First off, I'm by far no lawyer, but it was covered in a couple classes.

According to law as I know it, question 1 yes if there is no encryption, and question 2 no.

In reality, if you keep it for personal use, artists don't care. A library however, isn't personal use and they have to jump through more hoops than a circus especially when it comes to digital media.

But you raise a great point! I'd love to see a law library train AI for in-house use and test the system!