There is a difference between people using Capcom/Udon (or any other copyright holder’s) artwork on their personal stick, and a custom stick builder using said artwork and then selling those sticks to others. The former is about people using it for their own personal use, and the latter is about someone selling copyrighted artwork for commercial gain. In other words, stealing someone else’s hard work and sweat-equity and making money off it.
This issue came up in the Arcade-in-a-Box thread, and it got ugly. People (posters in the forum here) were up in arms and mad at Capcom for going after such a tiny operation that AIAB happens to be (in comparison to Capcom, may be not in comparison to other custom stick makers). The reason this is such a big deal, and why copyright holders go after even the “little” guy, is about protecting their property.
When it comes to intellectual property (actually, property in general), is that if the property owner does not defend his property then the courts will deem that property abandoned by the owner and rule it as public property, and in the case of intellectual property, courts will deem it as a “gift.” In other words, if an intellectual property (or copyright holder in the current case) does not defend his property at every infringement that he comes across (or should know about), and does it often enough, the courts will basically say - “one man’s trash is another man’s treasure” - because the copyright holders does not value it enough to defend himself against those who infringe must mean he does not care for it and has abandoned it, but because others using it, see value in it, and are exploiting it, it is better for society overall if we the courts allow everyone to use it as public property. There is a personal,private use exception on copyrights - what you do in the confines of your home is your business, as long as you are not making money off it by selling to others.
Now imagine if Capcom did not defend its copyrights in Street Fighter, and the court deemed it as being “gifted” to society. Great for all the custom stick builders. Fine. But it also opens the door for shoddy Chinese knock offs. Not that copyrights and intellectual property protections ever stopped cheap Chinese knock offs - but that is a discussion for another thread on international rule of law and enforcement. The problem is, if the Street Fighter copyright is deemed abandoned by the courts, it opens the door for numerous third rate game developers to put out Street Fighter clones that are near indistinguishable from the original at the time of purchase. People will only find out after the purchase, after they pop the disc in to their console, and by then it will be too late. It cheapens the brand, and makes it forever associated with a bad user experience. Over time, with enough such experiences and bad word-of-mouth, consumers will stop purchasing Street Fighter and move on to something that represents a better, more consistent experience.
Of course, by then all the custom stick builders and users personally customizing their sticks will no longer want to put Street Fighter artwork since it will have such negative reputation for poor quality. And this forum and community will be dead. And Capcom certainly won’t be putting in the time, effort and money in developing Street Fighter 5. May be then they will move on to King of Fighters and hope they can freely use that artwork.
The best thing for custom stick makers to do is to get permission from the copyright holder. If you don’t get permission from the holder (it is their right to give or not give permission), move on and create your own artwork or hire some talented artist and pay him/her for their hard work to create some for you.