{First, a minor correction: Recalling only the comment about blue balls, I incorrectly lumped the Perfesser's request in with slash fan fiction, rather than the semisubspecies snuff (involving death of that character, albeit often after sexual misadventures). My error—not that it makes any difference to the IP aspects!}
Before one goes into alternative theories to manage fan fiction, though, there's another beast that needs to be discounted: parody and fair use. Frankly, I think the Ninth Circuit has gotten this wrong. It is responsible for the two "anti-parody" decisions that remain the most cited justifications for finding parodic (or arguably parodic) works to be infringements of copyrights: the relatively recent Dr Seuss matter (No. 96–55619) and the notorious Air Pirates (581 F.2d 751 (1978)). Of these two, Air Pirates is probably no longer good law, even though it is frequently cited for restrictions on fan-fiction-style parodies. Air Pirates has a number of problems without getting into its questionable analysis of substance. First of all, it was decided under the 1909 Act, which treated fair use rather differently than does the 1978 Act. Second, the Supreme Court undercut a major part of the rationale actually stated in Air Pirates in Campbell (the case involving 2Live Crew, Roy Orbison, hairy women, and one of the most insipid love songs in the oldies arsenal).
The real problem with the parody-as-fair-use doctrine is that it is, in practice, a post hoc rationalization for a particular derivative work. That seems to be the Ninth Circuit's difficulty in Dr Seuss: Although the opinion never comes right out and so states, the rhetoric of the opinion implies that the court just didn't believe the rationale offered for the particular work. Judge O'Scannlain described the situation like this:
These stanzas and the illustrations simply retell the Simpson tale. Although The Cat NOT in the Hat! does broadly mimic Dr. Seuss' characteristic style, it does not hold his style up to ridicule. The stanzas have "no critical bearing on the substance or style of" The Cat in the Hat, Katz and Wrinn merely use the Cat's stove-pipe hat, the narrator ("Dr. Juice), and the title (The Cat NOT in the Hat!) "to get attention" or maybe even "to avoid the drudgery in working up something fresh." While Simpson is depicted 13 times in the Cat's distinctively scrunched and somewhat shabby red and white stove-pipe hat, the substance and content of The Cat in the Hat is not conjured up by the focus on the Brown-Goldman murders or the O.J. Simpson trial. Because there is no effort to create a transformative work with "new expression, meaning, or message," the infringing work's commercial use further cuts against the fair use defense.
(citations and footnote omitted). What this actually reflects, more than anything else, is some poor statutory drafting and misunderstanding of Campbell. The statute is drafted poorly because it puts first the nonobjective factor ("purpose and character"), and actually partially repeats itself in the fourth factor (effect on market). This usually causes the market niche of a work to have dominating effect on fair use analysis, even though Campbell explicitly denies that analysis, see 510 U.S. at 584–85. More disturbingly, Judge O'Scannlain's rhetoric betrays that he just didn't find Katz and Wrinn's work funny, a subtextual problem specifically warned against in Campbell, see 510 U.S. at 582–83. Air Pirates holds up even less well under the Campbell analysis.
This is not to say that parodies are always (or, on the other hand, never) fair uses. Instead, though, a wise jurist will give much greater emphasis to the second and third factors, or at least analyze them first, due to the conflation of issues in the first and fourth factors. Too often, opinions on "parody" actually come down to perceptions of "how good" the parody was, regardless of judicial protests to the contrary. "Nature of the work" has come to mean "market category" more than it has "is this work standing alone in the universe, or is it related in some fashion to the source work for its own meaning?" Analyses of parodies that emphasize its commercial nature actually undermine the terms of § 107 by making one of its four factors almost a subset of another. Under the hoary old theory that statutes are to be interpreted to give independent effect to every provision, this is untenable.
Where does that get us with fan fiction, then? One can easily rationalize a lot of fan fiction as parody; one can stretch and rationalize even more as parody; but an awful lot of fan fiction is mere homage and pastiche. My point here is that the parody doctrine is not terribly helpful (and, frankly, should be revisited by the Supreme Court), particularly when the parody operates upon a work that does not itself stand alone. Keep in mind that most fan fiction is based upon serial works (serial, that is, in the literary sense, not the commercial sense). Even when the "second installment" has not yet been released—there was a substantial body of fan fiction created between Star Wars and The Empire Strikes Back—that doesn't change the initial object work's character as a serial work.
Yes, there is a specific rhetorical purpose to using the simultaneously dry and ambiguous term "serial work." No, I'm not going to explain it yet. This constitutes a "cliffhanger" ending, although probably not one rising to the level of parody.