I've found a lot about what is and what's not legal to sell in derivative works in the form of books and art; but almost nothing about what's legal in games. So I thought I'd bring this up for discussion about legal precedence, if anyone happens to know these things. The following is a list of 'cases' I could think of; please let me know what you think (or know) about each. For all game hypothetical examples, I'm using Sonic, because everyone knows Sonic.
Transformative Work. In the case of books, this is defined as showing the characters in a way different enough from their original depiction that it's considered legally distinct. "The Last Ringbearer" is a famous example; being a retelling of the "Lord of the Rings" from Sauron's perspective; recasting the villain of the original as the hero and completely changing the setting. In books these are legal without the permission of the copyright holder, because enough work was done by the author for it to be considered legally different. In the case of artwork; transformative can be as simple as drawing the character in a vastly different way than the style of the original work, instead of copying it. In the case of games, I know of no legal precedent; nor famous game work that attempted this. I'll shoot three different examples of games that would be within this:
An RTS focused on Robotnik's war with a group of aliens unique to this game. Additionally it vaguely paints the Sonic as a misguided rebel attempting to stop the very man trying to save the world. [This would share no mechanics with the original series. Additionally the personifications of the characters are changed drastically.]
A platformer with similar mechanics to the original Sonic, but a unique gimmick of most the platforming puzzles relying on a grappling hook. Additionally the tone is changed to a more serious stealth/platformer combo, rather than a pure 'go fast' affair. Focused on the minor character Espio the Chameleon, which is rarely used by Sonic games.
A game which tells a story different than the games; but with similar mechanics, focus and graphics. A 'fan-game' that could easily just be a level pack for the original; adding little new to the work outside of level designs and bosses.
Pastiche. A pastiche is when the style of the work is copied exactly, but none of the characters or names were used. In games these appear to be legal; they are referred to as 'clones'. But for an example:
A complete copy of Sonic, similar mechanics, similar characters, similar art and story arc. But the world is slightly different, the mechanics and specifics are slightly different and the whole thing is focused around your obvious ripoff OC, Larry the Porcupine.
Adaptation An adaptation is when you take something from one kind of media and adapt it into another. In some cases, this is legally enough to protect it; in others, it is not. This is a 'shaky' part of copyright law. Since I can't use Sonic here, I'll use Doctor Who:
The plot of an episode of Doctor Who adapted into a point and click adventure game. Only minor changes were made to the plot in order to fit the game genre.
A point and click adventure game which uses the iconic Tardis and Doctor characters; but tells a completely new story, unrelated to filmed stories.
An RTS that uses some of the races of Doctor Who in war with each other, but doesn't use any of the iconic main characters.
And actually a Sonic Example: Adapting the characters from one kind of game into a completely different kind of game MIGHT be an adaptation, there's no precedent for or against. So, a plane racing game, which uses the Sonic characters flying in biplanes through different skylines, avoiding buildings and sky racing.
A cameo This is when a copyrighted character, iconic scene or line of dialog appears briefly in another work, as a minor nod only. These actually used to be common in games (See: Duke3D); but aren't as much anymore. This might simply be a sign of people being more wary of copyright today than they were when games weren't a major industry. Example:
In one of the stages of an unrelated cart racing game; Sonic can be seen passing the cars in a hurry. He cannot be interacted with in any way.
A parody This is when a copyrighted character is used to make fun of a copyrighted character. These are most commonly used by comedy TV shows; but should be fair game for games. Since a 'parody game' or 'joke game' isn't a thing that exists (it would have to be a really short game to just be a joke altogether); I'll go for parody within a game examples.
An unrelated hedgehog curls into a ball, tries to roll forward and gets his spines stuck in the ground. Hedgehog comments "Why did I think that would work?"
A character cameo in which Sonic does an intentionally exaggerated 'Gotta go fast' meme as a joke.
Sorry. Marathon post.
EDIT: Formatting, maybe?