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Fanworks are a legally gray area because some use of other people's works without permission is allowed. This includes using pieces for reviews and commentary, and transformative uses of the original work. The trouble is figuring out what's "transformative."

"Derivative"  works are a copyright violation (in the US) IF the copyright owner complains. But if they don't care, it's fine, and they can decide what's worth their effort; it's not like trademark where they have to do something about infringing works. They can decide "that fangame is derivative, but I don't mind it; I'm not going to have it removed" and they can still go after other copyright violations.

"Transformative" works, including "parody" (which is a legal term; doesn't mean it has to be funny), are legal uses of someone else's material, even without permission, even if they hate it.

The line between "derivative" and "transformative" is decided in court, for individual cases, and is inconsistent as hell. People write dissertations on this. People get PhDs trying to describe the differences.

But the key part is: Only the rights-owner can complain about copyright infringement. If it's not your IP, it's not your problem if someone else made a game from it.

If you want to make fan games, your best way to make sure you're in the clear, is knowing that the IP holder doesn't mind them. (Actually best is formal written permission, but nobody is expecting that. But knowing that the original rights holder is cool with fan games is pretty close.)

Japan has a much different culture about derivative/transformative uses of copyrighted material, which is why you see a lot of anime/manga zines and doujinshi and fangames.

(IANAL; TINLA)

Deleted post

If you don't want to worry about copyright issues, then yes, use only material you have made. But that's not what's required. People are allowed to use some aspects of other people's copyrighted material legally. How much, and in what way... that gets complicated.

A lot of us want to build in what other people have made - want to show it in a new way, or have a different perspective on it, or use existing characters with different game mechanics. 

I tend to think this is transformative use, not derivative - but I am not a video game developer and not a lawyer; it's not my opinion that matters.

I can say that the most common reaction to a big company deciding something is derivative/infringing, is to demand it get removed; there is almost never any other penalty. (Going to court takes money. Even if they would win the court case - there's no point in suing a small indie developer; they won't get that money back because most indie devs don't have it to give.)

You're also not likely to put yourself in trouble. Normally, they send you a cease and desist letter and you have to stop distributing the game. It is almost impossible to get sued or go to court.

As they recommend, look for information about the company that owns the rights and see what they think about the projects created by Fan.

For example, Harmony Gold is a very aggressive company and a project that finds, a project that closes.

At the other extreme, you have Capcom, which tends to be very permissive with fan projects.

Well said.

Also many people confuse copyright with trademarks and vice versa. And some "fan" works do violate copyright. Or trademarks. And in some cases even patents, where the broken law allowed patents on software.

And both copyright and trademarks do have their fair use cases, wich means that there are situations where the right holder can do nothing legally to stop you from doing it. Oh, they can do some non legal things that appear legal. Like frivolously suing you and hoping you are in a situation where you will not go to court. I did mention the broken law systems, did I.

As a rule of thumb, there should be no way in hell anyone can be confused about the creation as coming from the trademark owner. It also helps, if you are not competing in the same market. Those laws are made to protect. If you create brand x and someone makes a cheap knock off brand called k cashing in on similarity, brand owner x can sue copy cat brand k.

Now to put out a hypothetical scenario. You make a parody game of Superman doing homework. Since I do not think that there are any such games out there by the IP owner, I guess there will not be any copyright violations possible, as there is nothing to copy from. Should you trace some comics however, or use screencaptures, you are in fair use territory of copyright and have to figure out, if you are still doing fair use or not. And of course, is there trademark issues ? Is DC in the market of indie parody games? Will the game hurt sales of their own games? Does it damage the brand? Typically I would say no to all three and even claim the contrary for all three. It is free advertisement for them. It increases brand recognition. No one will buy a fan game instead of the real AAA title. This is not some motor oil or softdrink. But, alas, this is legal territory and there is a reason why lawyers and big companies have a bad reputation. So I am stealing that one: (IANAL; TINLA)

Still, I think it is an explanation why there are so many "fan" games out there not taken down. Not only because they do not care, but because in many cases, because the game actually does not violate either copyright, nor trademark.