Think the last few posters are right that Firestone's case is less than clear cut. The Brand Geek blog articles linked above list the mixed factors going one way or the other and think it's a weak case, meaning that it will settle, probably by Waldo having to cease and desist with Firestone; it's not like the other companies he parodies will care unless he gets damages.

And triple damages on a few gross of hats at $6 gross margin pop -- embroidered ball caps like those on the Phish.net store are relatively expensive, even if you can get $25 for them -- isn't going to cover even Firestone's legal costs.

(Google "Righthaven" for an analogy to a company formed to go after copyright infringement by people who copy their newspaper articles and photos in web blogs, the Denver Post being one such newspaper).

Everyone posting should check out the blog articles on fan merch, especially parodies. Parodies are really more tricky than people think.

The safe harbor is that you actually have to poke fun at a mark, there has to be humor. Parody is defined as "A literary or artistic work that imitates the characteristic style of an author or a work for comic effect or ridicule".

To be a "parody", the use can't just nonsensically substitute an obscure (to the general public) song title or word for the original mark. And even then, it might still not be protected on that free speech basis, there may still be elements of infringement that will protect the rightsholder (see Lara's blog post on Jesuit priests getting slapped down by Nike's trademark attorneys on an ostensible parody: Just Jesu It.)

The safest harbor is IMO to realize that trademarks, unlike copyrights, are not "free floating" rights...trademarks are registered for specific classes of goods and services (like clothing, general merchandise items) and that there is an elaborate filing system where trademarks can be registered and searched. So lot merchants doing "parody" items should find companies who are less likely to respond with infringement with their lawyers.