I'm thinking more of starting with a source, any source really, and altering it so drastically as to not be recognizable as that source, say processing through Max or Kyma. Is it legitimate to then turn around and sell these "new" sounds as a library? Does anyone know the legal aspects of doing this? Thanks.
No. This would come under the heading of selling "derivatives," which most licenses specify that you may not do. If you want to sell sound effects, they have to be ones that you own the distribution rights to...from source to finish.
This doesn't preclude you from hiring someone to record or generate some source material for you, but it would have to be in the hiring contract that you then own the rights to all of the source recordings.
I've always believed that if you are going to process a borrowed source to the extent of being unrecognizable, why not just create it originally? The purpose of borrowing, sampling a source would be to utilize a characteristic of the source. If it's truly processed past that point then why did you use it?
If you can only get the result desired by using the borrowed source, then the source retains it's characteristic deemed unique to it.
Here is another perspective amongst some great posts already made. About 14 years ago I released an SFX library which was sold by all the usual suspects. It became very popular and sold well. A few years down the road one of the companies who was selling it released a library in the same genre. While working at my current and long-time gig I was auditioning SFX from this new library looking for specific stuff to pull and started to hear some very familiar SFX which caused me to sit up and take notice the more I listened. It turns out that on one specific disk of this multi-disk library there were a bunch of sounds that were definitely reprocessed from my library. I knew them all too well and even though they were highly manipulated I could still make out my specific sounds easily.
Needless to say I was angry and wanted justice. As I unfortunately found after speaking to an attorney, suing was just not worth the trouble for various reasons and I decided to let it go.
At the time, the policy of this publisher was to make all designers of all submitted material sign an agreement indemnifying them of any liability in regards to ownership of the submitted material. Meaning, the designers of the submitted material represent that they own it and have the right to sell it to the publisher. So, it was one of the 4-5 designers credited on the release who actually did the reprocessing and represented to the publisher that they created it from scratch.
Since I wasn't going to sue it really came down to letting it go and filing a mental note that the perpetrator is most likely one of the 4-5 people in the credits list. Done, life goes on.
So, how is this relevant to your question? I would ask, regardless of the aforementioned legalities, what kind of sound designer do you want to be? One who makes and sells SFX that are based on someone else's work, or one who is inspired everyday to dream up new techniques, tricks and ideas for SFX that are unique to you? To me the latter is what being a designer is all about. To ply my trade on the opposite of that premise would be a futile endeavor, not to mention a basis from which to build an entire company. The reality is that due to budget and time constraints many of us have to rely on library stuff on a routine basis as starting points to more processed and complex finished sound constructions that may also include original source. My expectation however for any new library that gets considered for purchase is that it would always have to be based on original work. At the same time I also concede that this last point is debatable. For me, its a very strong personal preference.
Just to add to the great comments already here.
@Shaun is indeed right about selling derivatives. It's not allowed, except in very special circumstances.
As @minion mentioned, I wrote about the "grey area" and that "nothing is created in a vacuum." That's mentioned in International law mostly because, if it wasn't, you could be sued for having inspiration or musical influences or whatever.
Of course, I'm not a lawyer. But, based on my research for those articles on Airborne Sound, the issue is how great the change is.
Take the example of the Obama Hope poster. It was based off an AP photo. One could say that it is a derivative, and should be allowed. However, it recently lost a court case. It's because it resembles the photo closely; the change is not great enough.
Sometimes derivatives are allowed if they are "culturally significant" or "a benefit to humanity."
The other issue is the sound library license. Most licenses from sound libraries allow you to use sounds only in "timed relation." This means you can use them paired with film picture, a Flash video, etc. If one was to sell a library sound blended with another, it's no longer in timed-relation (or syncrhonization), and therefore outside the license terms.
In a practical sense I'd echo everyone else here and say that you're better building your library from original works. I've actually seen clients (i.e., major libraries out there) approached because they have (usually unwittingly) used derivatives and copyright in library sounds. In each case things were patched up quickly. But just heads up. It does happen.
Building your own stuff is more fun, anyway.
Best of luck, and if you have any questions, PM me, I'm happy to share.