I recall when SL first bought out ‘sculpties’ (yes, I’m that old!) and had a competition for the best sculpts, promising to put the winners and runners-up into the public asset list. One of the chosen winners was a (very good) rendition of a well known IP. For some reason it didn’t get into the public asset list.
(Not saying it was a copyright violation, as I assume the creator - very cleverly - made it from scratch, but definitely a trademark issue!)
Back on topic, I would be interested in where the line will be. I have no desire at all to parade around all the time in someone else’s identity/IP (licensed or not). But I have been known to dress up as an IP character in RL for a party or similar event. I’m pretty sure that is protected as ‘fair use’. Is there a VR equivalent for people who create their own version of an IP character (explicitly don’t rip the content, which I would expect to always be bad) for wear as a costume rather than a regular avatar? How would one tell, or prove, the difference?