In the decade or so that I've been perusing crafting forums online, using licensed fabric in craft projects is easily the most frequent copyright question I have seen posed. The responses generally run the gamut from never illegal to always illegal and many points in between. Of course, the truth lies somewhere in the shades of gray so let's take a (semi) deep dive into the topic.
What is Licensed Fabric?
First things first, what are we talking about when we use the term "licensed fabric?" In a nutshell, licensed fabric is fabric that has copyrighted or trademarked imagery or designs on it. As the owner of the Minnie Mouse graphics shown above, only Disney has the right to create and distribute (subject to the first sale doctrine) any fabric bearing this image. So, If you buy this fabric at Joann, we can assume it was manufactured and is being sold under a license (a contractual agreement) since Joann does not own the Minnie Mouse imagery.
In the same way, if you or I were to purchase fabric off of Spoonflower, if it has copyrighted imagery on it, it is a licensed fabric. It does not have to be made by a big name company like Disney.
Additionally, although there is generally a license issued at some point in the production of most copyrighted fabric, for the purpose of the legal argument, there does not have to be. For instance, if I paint an original image on some fabric and sell it, there is no license involved in the production of that fabric but the legality of someone using the fabric in their crafts is treated the same way. So, it is the presence of copyrighted and/or trademarked imagery on the fabric that triggers the "licensed fabric" label. Plain fabric or fabric that has public domain images, shapes and graphics, like polka dots or stripes, is generally not considered licensed and can be used freely.
Is it Legal to Use Licensed Fabric in Craft Items for Sale?
I will start with a conclusion and work backwards - Most of the time using licensed fabrics in items for sale is not illegal if done correctly.
There is a case that is exactly on point here. This is very valuable precedent because, of all the legal issues we encounter as crafters, it is not often that we find a case that squarely addresses said issues. But the Precious Moments case does that. (See my Precious Moments Case Summary here).
In that case, the Defendant (La Infantil) was sued for copyright and trademark infringement by Precious Moments (PMI) because they used PMI's licensed fabrics to make and sell bedding and other baby decor items. The court preliminarily denied an injunction because PMI could not demonstrate the required likelihood that they would win the case. [1] This turned out to be correct because, after five years of litigation, the case was ultimately dismissed and PMI lost because the court determined that there was no copyright infringement.
The exact question at issue was whether using the fabric in the way La Infantil used it resulted in an infringing derivative work. If it was not a derivative then the first sale doctrine applied and the item was legal to sell. The Court determined that cutting, sewing or even adding complementary trim, lace or ruffles was not creative enough to result in a derivative work because copyright law does not prevent minor, non-creative alterations of copyrighted works. [2] Since no changes were actually made to the copyrighted pattern - it was exactly the same pattern even after it was sewed - there was no copyright infringement.
The same conclusions were reached by IP attorney and prolific author on IP, Richard Stim. He has written dozens of books on Intellectual Property and is as close to an expert on the issue as you will find. He addressed the exact issue of licensed fabric twice on his blog here and here.
So, This Seems Straight Forward, Where is the Gray Area?
The Precious Moments case seems cut and dry yet there does not seem to be a consensus out there on the legality of using copyrighted fabric in craft items. Despite the presence of case law exactly on point, there are still plenty of crafters who use licensed fabrics in items for sale and get their listings removed by the copyright or trademark owner. Why?
Precious Moments May Not be Applicable
The central issue in the Precious Moments case is whether the items that were made by the defendants qualified as infringing derivative works. Ultimately, the court said they did not because the changes made to the fabric were non-creative, mundane changes. However, Precious Moments was decided in a district court in Puerto Rico, which is in the 1st Circuit jurisdiction. Without belaboring the issue, not every decision from every court is applicable to everyone (see my post about circuits and binding precedent here).
For instance, I live in the 9th Circuit so cases decided in the 9th Circuit are binding law for me. Currently there is a "circuit split," or disagreement, between the 9th and the 7th Circuits (and the Circuits that have agreed with each of them) as to what sort of changes can be made to a copyrighted item before an infringing derivative work is created. The 9th Circuit has held that non-creative alterations, such as permanent mounting, can result in an infringing derivative work! Remember, whether the changes made created a derivative work was the central issue in Precious Moments. So, while it is a great case on this issue, it may not be equally applicable to everyone and there might be contradicting precedent in whatever circuit you live in. How's that for gray area?
Trademark Issues
Additionally, where people often run into trouble with their licensed fabric listings is when they use trademarks improperly. This was also an issue that was addressed in the Precious Moments case. When crafters write their listings in such a way that they imply sponsorship from or affiliation with the trademark owner - those listings are ripe for removal.
For instance, describing a set of pajamas made with licensed fabric as "Mickey Mouse Pajamas" or "Disney Pajamas" may imply that item is made by or affiliated with Disney. Whereas describing the pajamas as "Pajamas Made with Licensed Mickey Mouse Fabric" is much more accurate and may help with the potential consumer confusion. The use of a prominent disclaimer is also a best practice:
Disclaimer Example for Disney: This is not an official or licensed Disney product. All Disney trademarks (including logos and icons) remain the property of Disney. Use of Disney trademarks does not indicate any relationship, affiliation, sponsorship, or endorsement between Crafter and Disney.
"Personal Use Only"
Some licensed fabrics may also include a "For Personal Use Only" statement on the fabric selvedge. I go into detail about the contract law aspects of this statement in my book but the long and short of it is - these sort of unilateral statements that lack any mechanism for the purchaser to indicate they have viewed the restriction and agree to it are hard to enforce.
That being said, a decent argument can be made, and there is supportive case law out there, that if you know about the selvedge restriction and understand it, you cannot just ignore it, claim it is unenforceable and continue to benefit from using the fabric. It is a fairly standard contract law principle that if you accept the benefit of a transaction knowing it comes with restrictions, you are bound by the restrictions even if you never actually say “I agree to these restrictions.”
Good Faith Removals
Finally, for a copyright owner to get an item removed from being sold online, all they need is a good faith belief that the item is not authorized by law. [3] Good faith simply requires that the belief be sincere and non-malicious. There is certainly enough gray area in the law that a good faith belief can be formed that a particular listing utilizes licensed fabric in a way that the owner legitimately believes is infringing. So, even if you feel confident that your item is legally created and listed appropriately, there is enough grayness in the law that the item could be removed anyway.
Takeaway for Crafters
There are certainly several viable and reasonable arguments that are based both on law and common sense that using licensed fabric is not illegal and is not infringing. But, that does not mean that using licensed fabric is safe and without risk. Copyright owners can still have licensed fabric listings removed and with that comes the potential for additional negative consequences for crafters - such as shop closure. Personally, I would only use licensed fabric in listings if I was fully prepared to fight takedowns that are improper. This is truly a "create at your own risk" situation.
Of course, you can read more on this issue in Copyright for Crafters.
[1] Precious Moments, Inc. v. La Infantil, Inc., 971 F. Supp. 66, 67-68 (D.P.R. 1997).
[2] Precious Moments, Inc. v. La Infantil, Inc., No. 97-CV-1635(JAG) (D.P.R. June 3, 2002) (This portion of the case was not published but is attached below).
[3] 17 U.S.C. § 512(c)(3)(A).