Quoted from kbliznick:
Found a story on the lawsuit. You can sell/reproduce the public domain items. I.e. movie posters, lobby cards, trailers. You cannot take the images/characters from the public domain items and reuse them elsewhere as the characters are copyrighted.
There are two issues that are being confused in this discussion.
1) The Wonderful Wizard of Oz story by Frank Baum and original artwork done by WW Denslow are in the public domain and have been since 1956.
2) The movie, which is based on the book, is not in the public domain. The characters used in the lawsuit were based on the posters and characters from the movie. That's the problem. Yes the characters may be in the public domain, but the MOVIE characters are not. So if you are going to create or sell anything Wizard of Oz related and don't want grief from the studio, it had better be based solely on the books and not the movie.