Can I Sell Clothing Made From Copyrighted Fabric?" (1) You indicate that crafters may freely use licensed fabric to make new creations under the first sale doctrine. But, it was my understanding that the first sale doctrine only applied to unaltered or substantially unaltered items. So, if I buy a Mickey Mouse fabric, decide to make a children's dress out of it, how does the first sale cover such an alteration? (2) Your post states that selvage statements such as "for personal use only" are not binding on the end users due to lack of assent. Wouldn't purchasing the item even in light of the selvage statement be an indication of assent? Similarly, there are thousands of digital artists on Etsy who have licensing terms for their creations but there is no requirement of assent necessary before purchase - are those statement also not binding?
(1) How does the first sale affect alterations of copyrighted fabric designs? When you make clothing from a fabric design, you're not modifying the copyrighted design, you're modifying the shape and cut of the fabric. (It's true that cutting the fabric at certain angles may change how the design is perceived but that's not the same as modifying the design and reselling it.) Therefore, selling your clothing items is permitted under copyright law. When you use fabric containing trademarks (a different area of law than copyrights), courts will permit the resale of clothing provided that there is a prominent disclaimer that the finished goods are not associated with or endorsed by the trademark owner (see also this case). Alas, we're citing case law and precedents, legal niceties that some trademark owners may ignore when aggressively asserting rights at Etsy, etc. Therefore, unless you can afford to defend your rights in a courtroom, proceed with caution when selling clothing made from fabric that features trademarked characters or logos.
(2) Have you assented to a license if you see the "for personal use only" label before you purchase? No. A license requires mutual assent and without an affirmative indication of assent, no license is formed. For digital licenses, as you mention, "click to agree" assent is required. Otherwise, the "license" has no binding effect.