First of all, copyright infringement is not, in the usual sense "illegal". That is, it is not normally a crime. (It can be in extreme cases, but not the sort of thing described in the question.) What infringement is is a tort, that is, it provides grounds for the copyright owner to sue the infringer, and perhaps collect money damages and/or get an injunction (court order) preventing the infringer from continuing to infringe.
Beyond that, let's consider what is meant by "contains the intellectual property (IP) of the company", and what the consequences might be. Some of this will differ depending on the country. Since no country is stated in the question, I will mostly use US law in this answer, with mentions of where it is likely to be different in other countries.
The image of Deadpool, or any other comic character, will be protected by copyright. If a fan artist copies this image (or any of the many such images published by Marvel) or closely imitates it, that will be copyright infringement. Marvel could sue and likely win. Damages can be sizable. In the US statutory damages can be as high as $150,000 per work infringed (or as low as $750, as the court thinks just). See 17 USC 504(c) Or the owner can instead get actual damages plus any profits that the infringer made. (17 USC 504(b)). The owner might also get an injunction under 17 USC 502, seizure or deconstruction of infringing works under 17 USC 503, and possibly costs and legal fees as well under 17 USC 505.
If the fan art is not a close copy, but is clearly based on the original art, then it may well constitute a derivative work US copyright law defines this in 17 USC 101 as:
A “derivative work” is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications, which, as a whole, represent an original work of authorship, is a “derivative work”.
The more "distinctive elements and details" of the original that are used, the more clearly the fan art would be a derivative work. Creating a derivative work without permission is infringement, an the same remedies (damages, injunction, etc.) are available as for a direct copy under 17 USC 502 thru 505.
However, there is a possible exception to copyright available, namely fair use. See Is this copyright infringement? Is it fair use? What if I don't make any money off it?.
If a use is found to be a fair use, it is not an infringement.
Fair use is defined in 17 USC 107](https://www.copyright.gov/title17/92chap1.html#107) which provides in pertinent part:
... In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—
(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.
Let's consider the fact pattern in the question in terms of these four factors:
The allegedly infringing work is commercial in that it is being sold, almost suely for significant profit. Beyond that, the use does not seem to be transformative. Rather it seems to be used for much the same purpose as the original, so that the purchaser can enjoy the image of the character. If the fan art were making a criticism of or a comment on the original that would be different. As it is, factor 1 leans toward infringement, not fair use.
The copyrighted work is creative and expressive, notr factual. This leans away from fair use.
The fan art is probably taking a whole image, even if not a whole comic. This probably leans away from fair use, but more details might be needed.
Selling individual images of the character is a market that the owner might well exploit, if it is not doing so already. The fan art might serve as a substitute or such an authorized image. Factor 4 leans away from fair use.
There doesn't seem much chance of this fan art being held to be a fair use of the original, so that defense will not work.
Note that when a work is a parody, it is often found to be a fair use. But in US copyright lay, a parody is a work that comments on or criticizes another work by means of retelling or reworking the source. A work that reworks or modifies a source merely for comic effect, or to criticize something other than the source work, such as to comment on society as a whole, or some social tend, is not ma parody in this sense. Such a work is sometimes described in copyright cases as a "satire". A satire in this sense will not normally be found to be a fair sue because of its satiric qualities, although in some cases it may be found to be a fair use for other reasons.
Consider the case of Suntrust Bank v. Houghton Mifflin Co. 268 F.3d 1257, 1259 (11th Cir. 2001). This case dealt with a novel called The Wind Done Gone. TWDG retold Gone With the Wind from the PoV of the enslaved characters. It reused many characters and plot incidents from the source work. It was clearly derivative. But the 11th circuit court held that a major purpose of TWDG was to comment on GWTW by retelling it in altered form, and thus it was held to be a fair use (after considering the other fair-use factors.)
Note that the fact that the fan use is perceived to be comedic does not, in and of itself, make the use a fair use. It might contribute to the fan art being found to be somewhat *transformative, but quite possibly, which in turn possibly helps tip factor 1 toward fair use, but quite likely not enough. And it doesn't really affect the other factors at all.Again teh details will matter.
This commetn asks:
... Let's say the exception is that it's a parody that mixes two different studios' IP to make one blended character, an amalgam. And would be perceived as a humorous caricature to many upon seeing it. Does this make it a fair use parody derivative work that is non-infringing?
Such a composite would be a derivative of two or more sources. If the was a suit for alleged infringement of any of these sources, there would need to be a fair use analysis in regard to the elements of the source work that it is claimed to infringe in that suit. How much of that source was used would be relevant, as would the effect on the market for that source. Only if it in some way commented on that source would it be considered to be a parody of that source.
The mere fact that such an allegedly infringing wok drew on two or more different sources would not, on its own, make it a fair use. Of course, if it drew on mny different sources it might not use enough of any one to be considered derivative..
The major current international copyright agreements are the Berne Copyright Conventionand the WTO TRIPS Agreement. Article 2, paragraph 3 of Berne provides:
Translations, adaptations, arrangements of music and other alterations of a literary or artistic work shall be protected as original works without prejudice to the copyright in the original work.
Article 9, paragraph 1 of TRIPS states:
- Members shall comply with Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto. However, Members shall not have rights or obligations under this Agreement in respect of the rights conferred under Article 6bis of that Convention or of the rights derived therefrom.
Thus the protection of derivative works under Berne and TRIPS is similar to that under US law.
In the UK and many members of the Commonwealth of nations, the key ewxception to copyright is known as Fair Dealing. The details vary by country, but the key areas covered are:
- Research and study For this defense to apply, the infringer must show that the dealing was for non-commercial research or private study, private study excludes any study directly or indirectly for any commercial purpose.
- Criticism or review For this to apply, the infringer must be able to show that the dealing was for criticism or review, that the infringed work was previously made available to the public, that the dealing was fair, and that the dealing was accompanied by an acknowledgement
- Reporting of current events
- Parody, caricature and pastiche This seems to be rather broader than the US treatment of parody under a fair use analysis.
None of these seem to apply to the situation describes in the question. "Parody, caricature or pastiche" might apply, but nothing in the question clearly indicates this.