Copyright & Trademark in Costuming

This is something I've followed for a while and these are my own, personal conclusions on the issue from my 20+ years of professional experience as a costumer and research on the issue.

I could write a lengthy post giving you the legal definitions of copyright, trademark, and derivative work - but you can look those up yourself. As it pertains to my line of work, there are two common issues:

1. Selling merchandise made from licensed fabric.
2. Creating merchandise that looks like a trademarked character.

Both of these issues are do-able, but your wording and presentation are very critical (in person and online). And even if your method is completely legal it still can't protect you from receiving a threatening letter or even being sued. The headache is up to you.

Licensed fabric is just that.  It's fabric that the manufacturer has been given the right to produce with copyrighted/licensed images. Buying that fabric does not extend the license's permission to you (you can't copy the fabric), but once you have bought it you can do almost whatever you want with it. What you can't do is misrepresent the products you make from it in any way that could be mistaken for licensed merchandise.

Basically, I can buy a licensed fabric - let's call it "Bronto Pop" - and make myself some pajamas. I can even sell these pajamas as long as I am clear that they are not officially licensed pajamas.  I can't call them "Bronto Pop Pajamas" when I sell them, but I can say they are "Pajamas made with licensed Bronto Pop fabric".  See the distinction?  I can't confuse a buyer into believing they are made by Bronto Pop. However, if I'm selling this online, by merely using "Bronto Pop" in my listing title I'm likely to attract the attention of some people I don't want to.  Most auction/merchant sites would rather err on the side of caution even if I haven't broken any law.  Again, nothing prevents anyone (including the website I'm selling on) from being sued, regardless if the claim is legitimate.

And then we have trademarked characters. I have worked both in costume rental companies, and for costume characters that do kids parties, etc.  The rule is actually pretty simple. Never say "Bronto Pop" (or any other character's name).  Never, ever. 

So if someone calls and asks "Do you have Bronto Pop?"
I would reply "No, I'm sorry. But you might be interested in our Bruno Bip costume." 
Then you would likely ask "Does it look like Bronto Pop?"
And all I can tell you is "You'd have to determine for yourself if it suits your needs."

At no point can you ever say it looks like, or is intended to represent a licensed or trademarked character. I still giggle at the thought of "Dark Invader".

For me, as a costumer, the easiest way is just to take the work by commission. There is nothing illegal about someone paying me for the labor to create something based on an image they supply me. The existence of the costume isn't illegal.

A lot of websites you can sell on will dance around these issues in their forums.  Again, because nothing prevents anyone from being sued.  Most lawsuits of this nature are settled leaving few useful verdicts. This is not a coincidence.