Nobody's saying we have the right to do stuff counter to the TOS. We've been requesting, for MONTHS, clarifications on the TOS. The owner of the community where the two pieces of artwork were, had asked for more details about the TOS.
But if I had any of my fiction published and someone wrote any kind of fanfic about it that was not in keeping with my own sense of the story and characters, I would feel raped.
Matel does not get to tell people "you may only dress Barbie in our outfits, and you may not show her in suggestive poses with Ken. Certainly, you may not pose her naked with G.I. Joe or shave her head and make a mini-crackpipe for her." (They've tried. They're unhappy with the results.) Whatever you intend for the work to inspire, once you release it into the world, it's other people's choice how to react to it.
JKR does not like the erotic stories based on her works--but all her comments have sounded like "Oh, I wish they wouldn't do that," not "those perverts! How dare they!"--possibly because she understands, on some level, that when you create a work for other people to react to and be inspired by, you don't get to choose the reaction.
Here's the relevant passage in the TOS:
"You acknowledge that LiveJournal does not pre-screen Content, but that LiveJournal and its designees shall have the right (but not the obligation) in their sole discretion to remove or refuse to remove any Content that is available through the Service. Without limiting the foregoing, LiveJournal and its designates shall have the right, but not the obligation, to remove any content that violates the TOS or is otherwise objectionable, or that infringes or is alleged to infringe intellectual property rights. You agree that you must evaluate, and bear all risks associated with, the use of any content, including any reliance on the accuracy, completeness, or usefulness of such content. Furthermore, LiveJournal reserves the right to limit access to your journal, if found in violation of the TOS, including without limitation the Member Conduct described below, by removing the journal and related user information from the member directory, search engine, and all other methods used in conjunction with finding LiveJournal's users."
Publishing unauthorized fiction using copyrighted characters is a violation of American and international copyright laws. That's an infringement of intellectual property rights, and thus a direct violation of the TOS.
Also, bluntly, if you sign an agreement indicating that you know LJ can shut you down at their sole discretion, without you having any recourse, as the TOS clearly states they reserve the right to do, then you're not in a good position to complain when they act as they've warned you they may act.
"Whatever you intend for the work to inspire, once you release it into the world, it's other people's choice how to react to it."
I didn't deny that other people have the choice of how to react to what I write. I merely discussed my personal feelings about my own fiction. However, I do deny that anyone has the right to publish without prior permission a work written using characters, worlds, and special languages taken from another author. Write all you like, but once you publish it (and posting on the internet constitutes a form of publication) you've passed out of the realm of your choice to react and into the realm of theft.
I don't comprehend the common current belief that intellectual property theft is perfectly legitimate and anyone who objects to it is a fascist. It's part of the modern denial of intellectual honor. Intellectual property is viewed as fair game for anyone who wants to take it and use it or mutilate it according to their own personal whims. I'm with Dorothy Sayers on this one: "But if it ever occurs to people to value the honor of the mind equally with the honor of the body, we shall get a social revolution of a quite unparalleled sort --- and very different from the kind that is being made at the moment." (Gaudy Night, chapter XVII.)
There's a difference between "technically, we reserve the right to refuse service to anyone at any time with no warning" and deliberately misleading people about how their rules will be applied. Bait and switch
is illegal, regardless of what the TOS says. If they've enforced their rules in a particular way in the past, and made statements about how they intend to enforce it in the future, and do something else--that's against the law.
If they didn't technically break the law, it's still psychotically bad business practice to do so.
I don't believe fanfic is intellectual property theft--and it's a matter the courts have been unclear on. At a minimum, fan fiction falls into a middle ground between a film of a book and a "musical composition inspired by a novel."
Certainly if the fic in question is parody, it falls under fair use. (It is my belief that all HP slash is parody, as it mocks the "children's novels can't have erotic content" concept.)
Since affect on sales of the original, and commercial gain of the derivative work, are both part of the consideration in copyright infringement cases, fanfic has a heavy push in the "legal" direction--I don't believe any original works have been financially damaged by fanfic; quite the opposite. (I'm aware that's not the only consideration. But two of the four considerations are "money.")
Every one of the couple-hundred slash fans on my f'list bought at least one copy of Harry Potter 7. Some Americans bought one for every member of their family, plus the British edition.
However, I don't know any Anita Blake fanficcers. The author doesn't "allow" fanfic. (Whether that would hold up in court is unknown; currently, no large fanarchive site is willing to host content that the author actively objects to.) Don't know any Anne Rice fanficcers; same issue.
I do know that none of those couple-hundred slash fans buy their books. The general attitude is, "if you don't want people to play in the world you created--if you want your universe to be a diorama that sits untouched on the shelf--we'll play somewhere else."
Fanfic is no different from a review or essay about the original work... it's another form of exploration of the ideas in, and commentary on the meaning of, the original.