A friend just asked me a question, and I think the answer may be of general interest to this group:

So here's the situation: my sister is using photos, sketches and other media to create the images we are going to use. We want to know, can she use any images off the internet if she edits them? What kind of images can & can't she use and, to what percentage does she need to alter them if she uses them?
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Unfortunately, my best answer is a (somewhat) expensive one: consult with a lawyer who specializes in intellectual property.

The basic rule is that copyright attaches to any expression (but not to the idea behind it) as soon as that expression is reduced to a tangible medium -- and that includes images reproduced on the internet.

The copyright holder may prevent any reproduction of that expression, including derivative works, or collect damages for unauthorized copying.  So if I took the famous photo of Marilyn Monroe on the subway grate and made a charcoal drawing based on that picture, Iwould probably be quilty of infringement.

The exception is that one can copy part of a work for the purpose of "fair comment":  the use for some social purpose like criticism, satire, political comment, etc. and that does not interfere with the commercial use of the original. The key case is that the Supreme Court held that the Boyz2Men version of Roy Orbison's "Pretty woman".

If you use all or part of someone else's expression without permission, you run the risk of being sued (a very expensive undertaking, even if you win) and of being held liable -- or even criminally guiilty -- of infringement.

Additionally, if your work includes a recognizable image of a real person and if you have not received that person's permission to publish it, you may be liable for violating the rights of privacy or publicity.

Have I scared the shit out of you yet?  Good.

Two or three hundred dollars to consult with a good lawyer might be the best investment you ever make.  The Houston Bar Association  has a good referral service.