Before the internet copyright law mostly concerned businesses and professionals. The law was never designed or intended for the general population. It was supposed to keep businesses from stealing from each other.
Now copyright is everyone's concern, because everyone can copy just by typing CTRL-C and everyone can publish just by clicking "Upload". The current law is completely inadequate for the world we live in.
If anyone pays Suicide Girls (EFF) $90 for that image, it'll be because of the value added to it by Richard Prince - not the value added to it by Suicide Girls. So he ultimately did them a favor by appropriating their work and they're capitalizing on that rather than suing.
Even more new works might be created if everything were in the public domain and litigation free.
I don't see how a trademark here is encouraging anything here, and I'm ignoring the fact that the purpose of trademark is not to encourage the creation of new work but to protect consumers from brand confusion.
The estate has simply gotten used to big movie studios paying up to use Sherlock Holmes, and the studios don't question it because paying up for rights is simply how they do business. They can't imagine a world where everyone isn't paying up for the rights to everything ever created, which is why they can't fathom the internet.
But that's how it works. They let you know when your term is over they'll have a cushy job waiting. After that, they'll do whatever they need to do to please you and keep that opportunity open. You might even do the same if your job was always hanging on the next election.
Hollywood, radio, and television were largely in control of the nation's entertainment for more than 100 years before the internet, and that kind of control is not easily let go (not to mention the deep deep pockets of cash that it generated).
They are using their money and influence to stop something that gives everyone the same powers they have enjoyed for a century. The real problem is they didn't grab control of the internet from the start (and they could have through regulations) because the internet was thought of as a communications platform, not an entertainment platform.