This post was inspired by this thread, but bringing everything together in one post to save on reading (and hopefully will become a sticky)
What is Copyright?
Copyright is a set of exclusive rights regulating the use of a particular expression of an idea or information. In cake decorating, it refers to the use of an image, item, or character that is not the original creation of the decorator. More basic info on Copyright can be found at this article on Wikipedia
Does this mean I can't make a cake using any sort of character at all?
No, the creation of a character cake is perfectly legal, so long as you do not sell it for profit.
What kinds of cakes can I NOT make for sale?
---Cakes that recreate a character from any movie, tv, cartoon, video game, or media/musical act or property. (examples: Dora, SpongeBob, High School Musical, Super Mario)
---Cakes that copy an image from a napkin/plate/invitation that was purchased from a store. (examples: anything purchased from American Greetings, Party City, or Hallmark)
---Cakes which reproduce purses, shoes, or items from a designer (example, a handbag cake is ok to sell, but if it looks like a Louis Vuitton handbag and reproduces the LV logo, it would then be illegal)
---ANY property which has "©", (c), (C), or TM anywhere on the package or logo.
Is it ok to buy candles/toys from the grocery store or Michaels/JoAnns and put them on a cake for sale?
No, it's not. Almost all candles, toys, edible images, and toppers you can buy at retail stores are for home use only and can not be used for profit. This includes Barbie dolls for use in doll cakes, or an action figure being laid on top of a cake.
---There is an exception. If the customer purchases the item at the store then gives you the item to use on the cake, then it comes under home use and therefore is legal for you to use.
Can I reproduce a cake from the Wilton Yearbooks for sale?
Exact reproduction from a Wilton book or any other cake decor book is illegal for profit without express written permission from the publisher. They are meant for inspiration and home use. However, Wilton does publish some books which are meant for commercial use. There will be a disclaimer on the credits page with the publishing information which will say if it's ok to reproduce the cakes.
Is it ok to use the Wilton character pans for commercial use? Wilton already paid for the copyright so it's ok, right?
No, it is not ok. The pans are the same as the toys. They are for home use only and ownership of the pan is not the same as having permission for the copyright.
What if I charge nothing for the cake but bill my customer for delivery? I'm making no profit from the cake so am I safe?
NO! This is a very, very bad idea! Not only does it not protect you from copyright violation, but it's considered a form of extortion and price gouging. You could be in more trouble if you do this form of business practice.
Can I buy the Deco-Pac and Edible Images from my local grocery store/Wal-Mart and use those on a cake for sale? They sell cakes with those on them, so I can too.
No, only the store which originally bought the Deco-Pac and Edible Images have the right to use those items. They can sell them to you, but the copyright protection for sale does not come with. You can only sell cakes with Deco-Pac and Edible Images if you go through an approved wholesale distributor.
I've bought the Deco-Pac/Edible Image from the proper channels. Am I allowed to make the cake however I like, and is possesion of the item the same as having permission?
No. You can only use the Deco-Pacs and Edible Images as directed on the kits they come in. You may be allowed to change some of the colors, but that depends on the directions that came with the kit. Otherwise, altering the kit in any way is considered a violation.
I made my cake for free, but I took lots of pics of it. Can I show them off on my website?
You may show the pictures on a private, non-profit site or personal blog/myspace. You -cannot- post any of the images on your business site for promotional use at all.
I want to make a character cake for sale anyway! I'm just one independent baker doing this on the side and won't get in trouble, besides, what can they do?
Fines for copyright violation can go as high as $150,000. It does not matter if you are a private baker working out of your home part time or a giant commercial bakery, if you violate the law, you are vulnerable.
For more on cake decoration and copyrights, check out this site, or check your local book stores for books on copyright laws and small businesses.
---
Hope this helps out with a lot of questions. 
Is it ok to buy candles/toys from the grocery store or Michaels/JoAnns and put them on a cake for sale?[/b]
No, it's not. Almost all candles, toys, edible images, and toppers you can buy at retail stores are for home use only and can not be used for profit. This includes Barbie dolls for use in doll cakes, or an action figure being laid on top of a cake.
---There is an exception. If the customer purchases the item at the store then gives you the item to use on the cake, then it comes under home use and therefore is legal for you to use.
Can I buy the Deco-Pac and Edible Images from my local grocery store/Wal-Mart and use those on a cake for sale? They sell cakes with those on them, so I can too.
No, only the store which originally bought the Deco-Pac and Edible Images have the right to use those items. They can sell them to you, but the copyright protection for sale does not come with. You can only sell cakes with Deco-Pac and Edible Images if you go through an approved wholesale distributor.
I've bought the Deco-Pac/Edible Image from the proper channels. Am I allowed to make the cake however I like, and is possesion of the item the same as having permission?
No. You can only use the Deco-Pacs and Edible Images as directed on the kits they come in. You may be allowed to change some of the colors, but that depends on the directions that came with the kit. Otherwise, altering the kit in any way is considered a violation.
I'm a little confused about the edible image thing. If I cannot buy wholesale, but purchase an edible image from my cake decorating supplier retail, can I or can I not use this on a cake for resell?
I'm a little confused about the edible image thing. If I cannot buy wholesale, but purchase an edible image from my cake decorating supplier retail, can I or can I not use this on a cake for resell?
That is hard to say...If they are an authorized retail supplier/re-saler then it is legal to use the image. You have to be careful about this though, as buying from a retail store that caters to bakers and decorators does not protect you or mean everything is ok.
These places can also sale items for home use, so always check with the manager if you have doubts on wether it's ok to use for commercial purposes. Often the package will say if it's meant for home or commercial use. If the place you are buying from is not a commerical bakery as well, then you should be ok.
This also applies to online retail stores as well. Baker's Nook is an online shop dedicated to bakers, but all of their character goods are from Wilton, meaning you cannot use them on cakes for sale. But buying from sites like Lucks is ok because they are the manufacturer of Edible Images. A store or website is often upfront about if their items are ok for re-sale/commercial purposes or not.
Correct me if I am wrong CeeTee, but to my knowledge the only people that you can buy these kits from to resell them for your bakery is BakeryCrafts and DecoPac. And if you want to buy a licensed kit from them you MUST have a business and Tax ID number so everything is tracked.
So from my understanding unless you buy it from one of these two places then you can't resell it.
Another question that I have seen come up that can get into a gray area.
You stated that you can not purchase a toy and put it on a cake but the customer can purchase and bring to you and that is ok.
So my question, Can I purchase a toy from the store, list it as a line item on the invoice with the exact amount that I paid (Stapling the receipt from the store to my business copy of the invoice) so it shows that I did not make any profit on it?
I personally line item everything on my invoices so it matches my current price sheet and shows what everything cost. I am pretty sure I already know the answer, but this question has come up before also.
Thanks!
Another question that I have seen come up that can get into a gray area.
You stated that you can not purchase a toy and put it on a cake but the customer can purchase and bring to you and that is ok.
So my question, Can I purchase a toy from the store, list it as a line item on the invoice with the exact amount that I paid (Stapling the receipt from the store to my business copy of the invoice) so it shows that I did not make any profit on it?
I personally line item everything on my invoices so it matches my current price sheet and shows what everything cost. I am pretty sure I already know the answer, but this question has come up before also.
What I do for situations where a copyright is involved. I buy the toy and tell the child in a happy/friendly tone... "Oh I forgot to tell you _________, these are toys so be sure your friends don't try to eat them *points to the toys on the cake*. (usually a giggle erupts) When it's time to cut the cake be sure to set them all on a plate for mom to clean up and I want you to keep them as my gift to you, got it?"
They see the cake, they see the toys they were just given and are on top of the world.
I don't have to deal with keeping track of what extra amount they owe, I have the receipt to write it off, and everyone leaves happy.
Since I purchased it, and did not charge for it (gifted it) I can use them as a cake topper and still get the write off.
Quote by @%username% on %date%
%body%