What's the First Sale Doctrine?
The first sale doctrine guarantees you the right "to sell or otherwise dispose" of your books, movies and music, etc. But in two California cases, (Mirage and Greenwich Workshop) federal courts ruled that ripping out images from a book and reselling them in frames is not permitted under the first sale doctrine because the seller has created derivative works. A New York court seemed to agree with the California rulings, although that case involved a company that bought posters and then resold them after making them appear like oil paintings on canvas.
The Trouble with the California Cases
The trouble with the California cases is their theory about derivative works. Copyright scholar Melville Nimmer disagreed with it and some courts do not seem to follow it. One court said that sticking something in a frame is a "mundane" act (don't tell that to these people) and doesn't demonstrate the minimum level of creativity required to create a derivative work. An Illinois case (Deck the Walls) held that the practice of cracking open a box of notecards and mounting them on tiles was permissible under the first sale doctrine (a ruling supported by a Texas case, C.M. Paula Co. v. Logan, cited by the Supreme Court).
What Should You Do?
In summary, you are likely to be headed for a problem if sued in California (or the 9th Circuit). In other parts of the country, it's murkier. Copyright owners may threaten a lawsuit but not file, concerned they could set a bad precedent. One thing seems certain, you will always be more of a target if you are selling a lot of works by a particular artist -- for example, the collected works of Patrick Nagel vs. a collection of cubist art. And of course many works are in the public domain and you are free to reproduce those without any concerns about the pesky first sale doctrine.