Why does the OTW believe that transformative works are legal?
Copyright is intended to protect the creator's right to profit from her work for a period of time to encourage creative endeavor and the widespread sharing of knowledge. But this does not preclude the right of others to respond to the original work, either with critical commentary, parody, or, we believe, transformative works.
In the United States, copyright is limited by the fair use doctrine. The legal case of Campbell v. Acuff-Rose held that transformative uses receive special consideration in fair use analysis. For those interested in reading in-depth legal analysis, more information can be found on the Fanlore Legal Analysis page.