Character names,
without more, are not a problem under any current legal theory (or, for that matter, under any of the hypothetical systems that don't rely on a hypothetical statute). The problem is the "without more."
Copyright is not the issue; names
per se are not copyrightable. A passing reference does not infringe either trademark or broader unfair competition rights. Thus, one can write
Frederick Fanboy wondered whether his Absolute Write avatar should be Harry Potter or Captain Kirk, but eventually settled on James Bond (from the Connery era, of course).
without running into any problems (well, one can never discount the ability of overenthusiastic and inexperienced Hollywood lawyers to create "problems," but there's no tenable case).
The difficulty comes when adding more to an allusion, whether it is an actual quality of the object (e.g., an exquisitely detailed, however paraphrased, description of Harry Potter's bedroom) or an assertion that reflects on the quality of the object (that description veers toward an exquisitely detailed — "graphic," in all senses — summary of the wizard-produced French postcards cunningly hidden in Hedwig's cage). I purposely chose those two examples to fall within specific exceptions to infringement theories. However, I also need to add one of those car-commercial disclaimers ("Professional stunt writer on closed paper. Do not attempt at home.") here: If you are not intimately familiar with both the legal doctrine involved in the particular use and the litigiousness of the object's rightsholder(s), you'd be ill-advised to try this.
The hard part is determining "how much more than mere allusion creates infringement." The only rational answer to that is "compare how much the lawyers on each side get paid."
Of course, none of this applies to material for which the copyright has expired. Thus, one can freely write about Peter Pan, and the raunchy details of how he maintains control over the Lost Boys (complete with NC-17-and-above illustrations), in the US, without any real risk of action. (Contrary to what some corporations would assert, their trademarks in copyrightable materials won't survive the copyright term under
Dastar.) Don't do it in the UK, though (or at least not yet), because the copyright term on Peter Pan has not yet expired there.
Turning to the example upstream in this thread, one can use Heathcliff (from the book, not the comic strip) as one wishes — no matter how disparaging or damaging that use might be — but cannot do the same with James Bond. Unless, that is, one is a professional stunt writer using closed paper.
