I am not a lawyer. I am not directly affected, because I don't make art like that.
What caught me by surprise were the statements above that you cannot legally purchase a Mickey Mouse watch and then take it apart, remove the watch face with the copyrighted image of Mickey, and put it in a pen or other art object that you create. I assumed that the First Sale Doctrine applies and should allow you to do just that. I started by looking at the Wikipedia article on First Sale Doctrine.
The Limitations section of the Wikipedia article on First Sale Doctrine presents two conflicting US Court of Appeals opinions. One says yes, one says no. I read the two opinions that were mentioned. Even though I am not a lawyer, they are written in English and were understandable to me. I can't say which is right, although the (7th Circuit) Lee vs. A.R.T. came later and cites the (9th Circuit) MIRAGE vs. Albuquerque ART opinion.
Lee vs. A.R.T. (7th Circuit) says that it is not a copyright violation to buy a book, tear out pages from that book (which had artistic images), and then mount them on separate tiles to sell. Under First Sale Doctrine, the original copyright holder of the book did not prevail in their copyright infringement lawsuit.
-> If the court has ruled that it is permissible to tear pages from a copyrighted book and then mount them to separate tiles and sell the tiles, can someone explain to me why is it not permissible to "tear out" the Micky Mouse face from a watch and then mount it to a pen blank or the final result, a pen? In that case the image itself has not been modified, just as in the Lee vs. A.R.T. case. In other words, is the 7th Circuit opinion sufficient precedent and justification that allows people to take a Mickey Mouse watch and mount the watch face in a pen?
Are there any intellectual property lawyers here who can answer the question definitively?
Links:
Wikipedia on First Sale limitations:
https://en.wikipedia.org/wiki/First-sale_doctrine#Limitations
9th Circuit Court Opinion in MIRAGE vs. Albuquerque ART (1988):
https://scholar.google.com/scholar_case?case=1465323101896646559
Later 7th Circuit Court Opinion in Lee vs. A.R.T. (1997):
https://scholar.google.com/scholar_case?case=7811317241368435030