Board Thread:General Discussion/@comment-1038387-20131226232148/@comment-11733175-20131228161327

Avatars are likely to fall within the rules of fair use given their size/resolution and lack of use throughout the site. They generally only appear on Oasis user, user talk, contributions pages and chat. There are other uses, such as admins on WAM or if they're used in a script such as the spanish pokemon wiki has done on their monobook userpages.

Enforcement of fair use on avatars is essentially relying on the copyright holder being interested enough to enforce it. Whilst this is going to be a massive undertaking on wikia to prevent images being used, remember avatars are used on hundreds, if not thousands of site. Enforcing it on all of them is going to take a huge amount of resources, and probably money the copyright holder isn't willing to spend.

This isn't to say avatars are permitted under fair use, and until a case arises with that specific usage in mind it's likely to be a grey area (I'm not sure if one has already happened), but it's unlikely a copyright holder is going to pursue the case much given how widespread the idea of an avatar is.