if they used the LEGO term, even to say they were compatible with LEGO, even with all explicit trademark acknowledgements, it would be at LEGO's discretion to either issue a C&D or not to bar them from continuing to refer to them, unless they company were somehow able to show that they were not a competitor for LEGO in any way
Sigh. I'm getting tired of having to do your homework for you:
It is the wholesale prohibition of nominative use
... that would be unfair. It would be unfair to merchants seeking to communicate the nature of the service or product offered at their sites. And it would be unfair to consumers, who would be deprived of an increasingly important means of receiving such information. As noted, this would have serious First Amendment implications. The only winners would be companies like Toyota, which would acquire greater control over the markets for goods and services related to their trademarked brands, to the detriment of competition and consumers. The nominative fair use doctrine is designed to prevent this type of abuse of the rights granted by the Lanham Act. ...
Trademarks are part of our common language, and we all have some right to use them to communicate in truthful, non-misleading ways.
That's from Toyota Motor Sales, Inc. v. Tabari, 610 F.3d 1171 (9th Cir. 2010). Hint: Toyota's LEXUS mark was at issue, and had been used by a competitor, and the court did not come down on the side of Toyota.
Nominative use is a doctrine in US trademark law by which parties other than a trademark holder can use a trademark without permission if:
1) The product is not readily identifiable without using the mark. (LEGO bricks are not readily identifiable without using the LEGO mark to refer to them; otherwise you'd have to say something stupid like 'plastic toy bricks made by a well-known Danish plastic toy brick company')
2) The defendant does not use more of the mark than necessary. (The word LEGO in an ordinary typeface would be fine; the red, yellow, black and white square-shaped LEGO mark, with its distinctive balloonish typeface, on the other hand, would be too much merely to indicate compatibility)
3) The defendant cannot falsely suggest sponsorship or endorsement by the trademark holder. (This is typically done by not using the mark in a way that suggests a relationship, while also disclaiming any relationship. It doesn't require not using the mark at all, however; the public recognizes that not all uses of a mark indicate endorsement)
Note, there is no requirement that the defendant claiming nominative use not compete with Lego. That's perfectly fine. If I make toy bricks and I want to say that based on a survey, children prefer my bricks 10 to 1 over LEGO brand bricks, I'm totally free to do so. (Provided, of course, that I have got such a survey; I can't just make crap up)
The decision of whether advertising should directly refer to competitors (e.g. People who took the Pepsi challenge preferred Pepsi to Coke) or whether it should not (e.g. Our dishwashing liquid works better and faster than brand X) is entirely one of the advertiser's preference. There is no legal requirement compelling one over the other, provided that the ad is truthful and (to some extent) not misleading.
I am suggesting that Steamboat Willie describes the cartoon, and Mickey Mouse describes the character.
If the MICKEY MOUSE mark describes the character, and the copyright on the Mickey Mouse character lapses such that anyone can create works featuring the Mickey Mouse character (which is a copyright issue), the MICKEY MOUSE mark no longer is capable of indicating that all such marked goods originate from a common source, which is a fundamental requirement for a trademark. Thus, the MICKEY MOUSE trademark is lost with regard to such goods, e.g. DVDs, comic books, and the like.
So if one makes an unauthorized copy of Steamboat Willie, they are not actually using the trademark in Mickey Mouse without permission
Yes, they are. "Without permission" means the same thing as "unauthorized," genius. It's no different than if I make an unauthorized copy of a Louis Vuitton purse.
Copyright and Trademark protect different things
Yes, but different aspects of a single object can be protected by different sorts of rights.
Consider a humble glass bottle of refreshing Coca-Cola. The shape of the bottle is protected by a design patent. The COCA-COLA mark is protected as a trademark. The formula for the liquid inside is protected as a trade secret. If it's a decorative bottle with a picture of Santa or a bear, or Santa Bear, the artwork is likely copyrighted. If the artwork is of a particular real person, it may also be protected by that person's right of publicity. And if they make the bottle out of some new sort of safety glass, the formula for the glass itself may be an invention protected by a patent. All this wrapped up in a single item that you can get out of a vending machine with the change in your pocket.
The Mickey Mouse character is protected, in different capacities, even in the same work, by both copyright and trademark. This is not even slightly unusual.
As I said, even though their trademark continues to be respected, the copyright on their oldest cartoons have already expired in several first-world countries with IP laws quite similar to those in the USA, and that did not extend their copyright as the US did. I live in one such country. The character was never freely copyable here even though the cartoon itself was.
I have no idea what your country is or what its laws are like, and as I said before, I really don't care. I've been discussing US law this entire time, which is reasonable on a US-based website, like this one, and that's all I'm really interested in.