As far as I know, Content ID has no information about public domain content, nor does it understand fair use in any way other than by allowed match percentages

As far as I know, Content ID has no information about public domain content, nor does it understand fair use in any way other than by allowed match percentages that you configure (as a content owner). Content owners are under agreement to only claim content that they have the rights to. If you abuse the privilege Google gives you, which is an approval system, ostensibly Google would remove your access to use the system. (Basically no chance that would happen to Disney) You are totally right that it should do these things, but I contend that an extralegal process that grants more rights to content owners (especially big ones) at the expense of fair use shouldn't be improved to the level of acceptability, I think it shouldn't be allowed.