I think the judge was just reaching for an excuse to kill the lawsuit.
The reason why Fair Use exists is because we have a copyright law, a First Amendment, and common-law courts that are empowered to legislate from the bench[0]. That last bit is important: everything the courts rule can potentially become new law that binds the hands of future courts. This means the court needs to be careful when issuing their ruling.
They can't rule that the statute of limitations has passed, because the files were hosted continuously on a web server. If they did rule this way, then any online infringement can become unprosecutable so long as you keep the website up for 3 years before anyone notices.
They can't rule that it's de minimus. The whole photo was used.
They can't rule innocent infringement[1] because that requires specific facts that are not present in this case.
Normally in this sort of case, the courts would rule that a crime had been committed but not award any damages. Unfortunately, Congress decided that if you register your copyright, you are automatically entitled to an insane damage award. Otherwise, it would never be financially profitable to sue for copyright infringement in all but the most airtight cases, and copyright would be unenforceable.
The next available legal tool to dismiss the case is Fair Use, and that is so fact-intensive that you can get particularly arbitrary with what is and isn't binding precedent. In particular, the market usurpation factor (part C) can be adjusted to emphasize or de-emphasize the harm done to the original work. If a blogger uses a photo for a blog post with 43 views, there is no potential of market harm. If that same blogger gets a million views, then suddenly there IS a market harm and the courts will be more favorable to you.
My personal opinion is that the statutory damage award for registered copyright was a really fucking stupid idea. People who do not have a constructive[2] revenue stream should not be on the hook for damages they can't pay. If you want your photo off the blog post, that's one thing; but you shouldn't be able to demand life-ruining sums of money from legally careless bloggers.
Why? Because that's the basis of a very long-running extortion scheme that has been enabled by our copyright system. It started with the RIAA suing grandmas whose kids downloaded KaZaA, and only got worse from there, involving criminal enterprises started by lawyers who would upload fake porn to The Pirate Bay and then extort people who downloaded it. Really, there needs to be some kind of legal cutoff to immunize the ordinary man on the street from this bullshit while still allowing lawsuits against people actually involved in creative industry. But Congress hasn't bothered doing that. So the courts have to make it up as they go.
[0] You may have heard that certain other countries "don't have Fair Use". This is facially true because they aren't common-law countries, not because they don't have free speech. In civil-law countries the role of Fair Use is instead taken up by legislatively-granted exceptions to copyright.
[1] There is a specific defense to infringement called innocent infringement that the defense can use if they have evidence that they attempted to license the work in question.
[2] "Had or should have had", "known or should have known", etc. In law, a judge can coercively impute all sorts of things "constructively". You can have constructive knowledge, owe a constructive debt, etc.