This is where are you are confusing "legally allowed” with “owns the rights”.

By drawing some Pokémon, an artist creates additional, new work not covered by any existing rights: the drawing itself. The Pokémon are inextricably linked with the drawing, yes, but the art is a new creation that didn’t exist before, and it belongs to the artist.

An image of a Pokémon is not automatically copyright to PCI; that’s ludicrous. Consider: if PCI had granted permission for an artist to draw Pokémon fan art, would PCI then still own the copyright of the drawing? By your reasoning they would; after all, they’d still own the rights to Pokémon.

Also, if PCI granted permission to Poprageous to print and sell Pokémon clothes, Poprageous would still not be allowed to sell someone else’s art.

Incidentally, as Pokémon are designs rather than single works, the status of copyright over them is somewhat fuzzy (which is why PCI holds a lot of Pokémon trademarks as well). A small handful of court cases have handwaved characters as having some sort of copyright protection, but these are species, not even characters. I wouldn’t suggest anyone actually fight them over it, but it’s slightly grayer than, say, adding a chapter to someone else’s book and selling it.

I am basing this on US law. I am well aware a lot of fanartists like to just, you know, IGNORE the law, and get their legal information from other people who are also ignoring the law…. but if you actually read the laws, you’ll find that people creating deritivative works have zero rights.

OK, let’s ditch the back-and-forth and go with the law, then. I’ve been giving Chapter 2 (about copyright ownership, which pretty clearly states it goes to the author) and Chapter 5 (about copyright infringement and remedies, which fails to mention anything you’ve said) a reading through, and I’ve found no mention of what you’re saying.

For reference, here are some mentions of derivative works in Chapter 1:

A work consisting of editorial revisions, annotations, elaborations, or other modifications, which, as a whole, represent an original work of authorship, is a “derivative work”.

…

The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material.

So even mere edits to existing material are covered by copyright — the author just doesn’t own all the existing parts.

Now, we do also have this:

The subject matter of copyright as specified by section 102 includes compilations and derivative works, but protection for a work employing preexisting material in which copyright subsists does not extend to any part of the work in which such material has been used unlawfully.

This is the only mention I’ve found of how copyright interacts with unauthorized derivative works.

My reading of it is that the part you create is still covered by copyright, but there is one court case that would seem to indicate you just don’t get any copyright protection at all: Anderson v. Stallone, in which a scriptwriter sued Sylvester Stallone after the plot to Rocky IV turned out to be eerily similar to an unauthorized fan script the writer had come up with. The judge admitted that there was nothing solid to go on here and that the law and prior cases and even Congressional reports about the law were a bit murky, but ultimately erred on the side of Stallone, in the interest of not setting the precedent that the infringer could come back and hit the infringee with a copyright lawsuit. (See section IV.A.4 of the opinion.)

Incidentally, I did find an article about fan works on io9 which mentions this case, and claims that the court said Stallone owned the copyright to the “fan” script. But the court opinion, as far as I can tell, says absolutely no such thing.

I observe a few things here.

For one, this case doesn’t exactly have a nice tidy ending: the court also found that Rocky IV wasn’t actually all that similar to the fan script in the first place, and it was appealed and then ultimately settled out of court.

Now, at worst, this ruling sets the precedent that you don’t have copyright protection on fan work at all, period. Notice that both 103(a) and the judge’s opinion talk about copyright protection of derived work, rather than copyright. I take this to mean that you still own the copyright, but you can’t expect to take someone else to court over it. (The alternative is ludicrous: you wouldn’t know whether you owned the copyright over your own work until you went to court and tried to demonstrate fair use.)

But this is still fuzzy for what’s happening here. Consider that you can own copyright even over arrangements: if you take a bunch of public domain poems and put them in a book and sell it, you own the copyright to that particular arrangement of poems. The opinion even mentions this explicit case as a hypothetical: if one of those poems were still covered by someone else’s copyright, it shouldn’t invalidate your protection for the arrangement as a whole.

What does this mean for Pokémon, which are only covered by the copyright of their designs and lore? A drawing of all of them still produces brand new art of each one, and that art is arranged in a unique composition. The part that infringes PCI’s copyrights is something ethereal: the ability for them to be recognized as Pokémon. Is that more like the Stallone case, or the poem anthology?

Of course the real answer is: it doesn’t matter! Because these questions only matter in court — everywhere else it’s just so much hot air. Part of why this is all pretty murky is that as far as I’ve been able to find, there has never been a single case of a creator taking a fan artist to court. Not once. Anderson v. Stallone is the closest I could find, and that was the other way around!

It’s obvious why this might be the case: fictional universes thrive on fan work — it’s the fucking lifeblood of Tumblr — and to start suing your own fans in the days of the Internet and social whatnots would be utter suicide. Plus it’s basically free advertising, and keeps your thing in people’s minds for far longer than the source material would alone, with absolutely zero cost to you! Why mess with a good thing?

There’s the occasional cease and desist, of course, but those are very few and far between, and usually target fan work that’s getting a little too similar to something the creator has done or would like to do in the future. Which is why it tends to happen to, say, entire polished free derivative games, and not so much to artwork. It’s not like Nintendo is bleeding cash from all the people buying Pokémon prints from Mel; what else are those people going to do, buy Mel’s art from Nintendo?

So! Does Mel have copyright protection over Every Single Pokémon?

That doesn’t matter either!

Do I even need to spell this out? Look what’s happened here: the clothes were gone in a matter of hours, and thirteen thousand people are incensed over this story. There were no courts involved here. Nobody called a judge or a lawyer. Nobody sent a DMCA takedown notice. Nobody even wrote the phrase “To Whom It May Concern”.

Because as it turns out, people care about respecting the ownership of others’ work, and most of us have the same general understanding that fan work is just as deserving of respect as the material it’s based on. If you were trying to get a fledgling Internet business off the ground, which would you be more immediately concerned about? Going to court, or having tens of thousands of people pissed off at you?