Please note a derivative work does not have to be of the same medium, nor does a derivative require the original to be a story of some sort. The story use is perhaps the easiest to understand.
In the Copyright act at Section 103(b), Congress has stated that “[t]he copyright in a compilation or derivative work extends only to the material by the author of such work, as distinguished from the preexisting material.” As such, what a derivative work is can be viewed as one of two things. The first is a transposition of medium, as already noted. The second is the sequel or fan-made creation. It is in the second where the new work is creating an expansion off of the original work. Ideas are changed or developed, the “universe” of the first work is used as the basis for a second or additional work.
The reason a derivative work is tricky is because by its very nature there are two owners of the copyright for the derivative work. The creator of the original work has the sole and exclusive right “to prepare derivative works based upon the copyrighted work.” Of course there are exclusions to this exclusive right, however, it does by its very nature prohibit the conversion from one medium to another and it prohibits fan-made derivative works.
That does not mean the right to create a movie from a book is illegal as a matter of law. Instead, the exclusive rights are alienable. In other words, a person with an original work may permit derivative works by selling the rights to the original work. For example, if an author desires to sell the movie rights of an original work, then that author may so act. It is in the transaction where the license for use allows the creation of a derivative work.
If there is an unauthorized derivative work,the holder of the original work may seek the remedies for infringement. This means that it is up to the discretion of the original creator to determine the best course of action.
While it may be legal to seek to shut down the creation of unauthorized derivative works, it is a decision that must be made by the original creator. After all, it may not be in the creator’s best interest to alienate fans by seeking to prohibit derivative works.
As to the licenses, if an individual is seeking to utilize a work subject to copyright, it is best to get permission to create a derivative work. Especially if the derivative work will be designed to make money. While it is within the right of the original creator to enforce their rights, remedies include the profits made by the person who violated the copyright and actual costs along with reasonable attorney’s fees. That can be a substantial sum. While a license may be expensive, a reasonable agreement should be able to be created. For many situations, the license will be the safest and most effective way forward in creating a derivative work.