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Most fan fiction are not freely licensed, but can a fan fiction/story be licensed under a free license, e.g. a CC BY license (or other Creative Commons license that allows commercial use)?

Does this also require the universe which this fiction is written to be freely licensed as well?

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If you do not have a license from the copyright owners of the original work, then you're not allowed to make derivative work (like fan fiction - even though it may be tolerated). So in that case it doesn't really matter how you license your fan fiction.

If you do have a license to create derivative works, then you can slap any license on the new content that is allowed within the restrictions of the original's license. (For example, there might be a condition that any downstream derivative works should be non-commercial, which would mean you need to incorporate that clause in your own license.)

So, in general, I think you're correct that to put a free license on your fan fiction, there has to be a free license on the use of the universe it's based on.

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