The law of copyright is a modern innovation. Copyright protection was developed for an important reason — to enable creative people to earn a living by doing creative work. Before the law assumed its present form, authors and composers routinely saw their popular works pirated. Unless an artist was fortunate enough to have a wealthy patron, the artist’s income was precarious.
As valuable as this legal framework has been to thousands of artists, there’s a downside. Works that captivate the public (and also, for that matter, works that remain little-known) remain exclusively owned and controlled for a number of years by the owner of the copyright. During the term of the copyright, nobody else can make use of the materials in a creative work.
Here’s a neat example of why this is a bad thing. In 1562, a long-forgotten author named Arthur Brooke published an English translation, in verse, of an Italian love story. He called it “The Tragical History of Romeus and Juliet.” Only 30 years later, Shakespeare recast the story in a play, Romeo and Juliet. If modern copyright law had been in existence in England in the 16th century, we would not be able to enjoy that play today, because Shakespeare wouldn’t have written it. Just as likely, Brooke couldn’t have published his translation either, so Shakespeare would never have been inspired by it.
Technically, Shakespeare could have written the play — and then put it away in a drawer for 50 or 75 years, until Brooke’s copyright expired. But why would he have written it if he couldn’t publish it or have it performed?
Culture is not a private act. It’s a shared public experience, a shared human experience. Culture should not be kept locked away in tight little boxes that nobody is allowed to open unless they’ve checked out an authorized key from the Official Keeper of the Authorized Keys.
The law of copyright turns culture into a commodity. It turns the recipients and beneficiaries of culture (that is, all of us) into passive consumers. We’re allowed to enjoy the hallowed works of culture, but we’re not allowed to participate in them in any significant creative way.
Unless, of course, the copyright holder gives permission, either tacitly or overtly. The world of fanfic (fan fiction) is apparently quite healthy. People write their own Harry Potter stories, their own Star Wars and Star Trek stories. Some authors (such as J. K. Rowling) allow it. Others (such as George R. R. Martin) don’t. It’s up to the author — or, if the author has died or sold the rights, to the current owner of the copyright.
I’m sure most fanfic is dreadful, but that’s neither here nor there. The people who write fanfic are actively participating in their own culture, and that’s a wonderful thing.
Eventually, after the passage of years (and the law differs from one nation to another with respect to how many years have to pass) a copyrighted work passes into the public domain. When that happens, anybody can exercise their own creativity by freely adapting the material. Anybody can write Sherlock Holmes stories or Wizard of Oz stories, because those books are in the public domain.
To be more specific, the L. Frank Baum Oz books are in the public domain. Ruth Plumly Thompson’s Oz books aren’t, so you can use the Tin Woodman and the Cowardly Lion, but you can’t use any characters that Thompson created.
As that caveat suggests, you have to be careful. Want to write a sequel to The Maltese Falcon? It was published in 1930. The legal situation in the United States is murky, but many novels published since 1923 are still protected by copyright. You might have the makings of a terrific mystery starring Sam Spade rattling around in your head, but unless the copyright owner (whoever that happens to be) is feeling charitably disposed, you could be in for a world of hurt.
This is not how culture and creativity are supposed to work. I don’t have a solution to offer, but there is damn well a problem here.
Jim Aikin's Oblong Blob 
I think the problem, as you suggest, is the length of time that copyright holds. When we were in high school, it worked this way: You could registered a claim to copyright, and it would be good for 28 years; you could renew the copyright once, for another 28 years (for a total of 56 years), after which time the work entered the public domain. That has changed (retroactively in many cases) a number of times, and now we have a situation where copyright holds for 75 years (I think) after the death of the original copyright holder. That goes completely against the original idea of copyright, and – as you say – turns the work into a commodity that generates income for the estate of the author of the work….
Another way to handle it (not that our legal system is ever going to handle anything in a rational manner ever again…) would be with some version of a compulsory license. In music, once a piece has been recorded and the recording released, anybody else can do their own new recording of the piece, simply by paying a fee that is fixed by law. The composer (or copyright holder) can’t stop the new recording. If the piece is significantly transformed, the composer gains some leverage — and I’m not sure how this works in practice, because ALL jazz recordings of standard tunes transform the piece, sometimes very significantly.
It’s not easy to see how compulsory licensing would work with respect to literary work or graphic images, but the precedent is there.
Your Romeo and Juliet example seems pessimistic. An alternative scenario, had modern copyright laws existed, would be as follows.
Arthur Brooke could have acquired the rights to translate the Italian original, in exchange for paying a percentage of his earnings as royalties to the original author who was, after all, the real original creator of the story.
Shakespeare, in turn, could have acquired the rights to create and produce an adaptation of the story as a play. If he had used Brooke’s translation as the basis, he would need to agree royalty payments with both Brooke and the original Italian author. If he had wanted to go back to the source for his own translation and adaptation, he might have needed to deal only with the original author.
Since the play was, in the end, the most successful adaptation, this arrangement brings benefits to all. Including, importantly, the true original author of the story. In your version, Shakespeare gets to take what he wants from the work of others, put it on as a play, and keep all the profits for himself. Now that’s hardly fair, is it? And the fact that 30 years had passed is not really an answer. Brooke and/or the original Italian author may still have been alive (unless they had already starved due to poor book sales). Quite probably their first-generation descendants would have been — whom Shakespeare had robbed of their inheritance! (Which is why copyright extends beyond the death of the author.)
Modern copyright laws mean that J K Rowling is much better off than the poor Italian chump in your story! Which means that she can afford to feel benevolent towards writers of Harry Potter fan fiction.
But bear in mind, Mark — it would have been up to Brooke (and to the Italian author before him) whether to allow the later usage. You seem to be assuming that Shakespeare would, as a matter of course, been granted permission. That’s not a good assumption. Maybe he would have been granted permission, or maybe not.
The absolute ownership of intellectual property, which is what copyright law is designed to insure, turns culture into a commodity. The notion of copyright has many benefits for individual authors (and thereby encourages them to engage in creative work), but it also has drawbacks in terms of the advancement of human culture, in that it may also prevent some authors from engaging in creative work. It’s a two-edged sword, that’s all I’m saying.
With respect to Rowling, George R. R. Martin is also much better off than the Italian author — but he doesn’t feel benevolent toward fanfic authors, and there is no legal mechanism by which anyone can force him to be benevolent.