A derivative work refers to a work of authorship that draws ideas from a copyrighted work but that makes some changes to the copyrighted material. Derivative works provide an exception to copyright protection. They temper copyright laws in order to guarantee free speech and the free exchange of ideas.
Copyright protection exists within most developed countries. Under copyright protection, original works of authorship or original artistic works are declared to be the property of the author who creates them. Copyrights can apply only to works that serve no practical function other than being artistic; for example, a person cannot copyright an invention — he would have to patent it instead.
If a work of art or a book is copyrighted, only the author can reproduce, print, sell or make money off the work of art. Copyright protections are important because they encourage creativity and they reward intellectual effort. If a person wrote a wonderful book or painted a beautiful painting and everyone else could come along and copy the book word-for-word and sell it as their own, then the original author would have little or no incentive to keep producing works of art since he would be unable to profit from them.
Although copyright protection is thus important to protect the author's rights, the government recognizes that the grant of a copyright can impinge upon the right to free speech, which is a fundamentally important protected right. As such, exceptions to copyright exist if the copyrighted material is used for a legitimate purpose. This is referred to as fair use.
A derivative work is an example of fair use. When a derivative work is created, the new work draws ideas or perhaps even copies certain concepts or words directly from the copyrighted work. The new work, however, does not copy simply for the sake of copying but instead copies to alter, change or comment upon the original work.
For example, a popular book about vampires could not be copied directly, as that would be a violation of copyright laws. Although it couldn't be directly copied, a person could take the names of the characters and the general plot line and use it as a basis for a parody or mockery of the book. This would be considered a derivative work since the copyrighted piece is being used, but new material and information is being added. A derivative work must add something significantly different to the original work to be considered fair use.