> Commissions are all well and good, but they don’t pay very well and there’s a physical limit on how many a single person can do.

> Which is precisely why it's not okay. You're not adding anything of your own, you're just profiting off of someone else's stuff.

Why should it be the original author's right to dictate whether certain forms of creativity can be expressed based on their work? The net effect cannot be anything other than to stifle creativity; this could be justified by ascribing to the author some inherent moral right to the integrity of their idea (as French law does, among others); but the sheer wealth of ideas and creativity - cultural richness - associated with many fan works makes it very hard for me to accept such a puritanical stance. Especially when the "author" is a giant corporation which doesn't actually care much about artistic integrity, but does care about money: as you mention, this is not the case for Undertale, but it is for the majority of culturally important works these days.

By the way, by "ideas and creativity" I don't mainly mean putting their picture on a button: I mean things like fan fiction, fan animation, fan games, all sorts of things you can find from dedicated communities on the internet. The original article mentioned Super Mario Bros. - there was recently a new speedrun record on that game. In case you haven't heard of it, there's a big community on the internet dedicated to speedrunning games, meaning completing them as fast as possible. Most do it in person, practicing the routes through the levels over and over like some sort of athletic routine; while some instead see value in painstakingly building a sequence of button inputs which beats the game when played back by an emulator or robot, thereby exploring the game's boundaries of possibility in a way humans can't quite attain, which is more like art. Well, guess what? While speedrunning itself isn't copyright infringement, streaming or uploading videos of your runs is. If game publishers enforced their rights, they could shut down the whole thing, never mind that most of the creative value created by speedrunning has little to do with the original developers. Now it turns out some people at Nintendo don't like emulators, which are required for the latter category (tool-assisted speedruns), so recently some TAS of Super Mario Bros. 3 was semi-randomly taken down from YouTube. Thankfully, the Internet is not so strictly regulated that the video can't be preserved elsewhere; but what if it was? Would it really be culturally positive to enforce the law in this case?

That said, even going back to the merch case - if I want to express my personality by putting a button with some character on my shirt - again, how exactly is this hurting the original author? Why should my ability to do so depend on whether they've gotten around to setting up some distribution arrangement yet?

Well, the above ignores the obvious money argument. If someone is going to profit from something whose value is mostly based on it containing person X's creative work (with some value added by the work of actually printing it onto buttons and arranging to transport it to a convention or whatnot, as well as the physical materials), shouldn't it be X?

In my opinion, yes. That's why I'd support having mandatory royalties instead of the absolute control imposed by current copyright laws. It's not exactly unprecedented - it's what we currently have for both radio stations playing original copies of songs and general distribution of covers. Why not apply it more broadly?