All evening I've been racking my brain to come up with a good comparison of a derivative work of a pattern.
Say, for instance, you took a cross stitch pattern and, instead of using evenweave/linen and floss, you used quilting fabric. And instead of each square on the grid being an X, you made each square on the grid a small piece of regular quilting fabric. And then you put all the little quilt fabric pieces together and made an actual quilt out of what was intended to be a cross stitch pattern. And then you threw it on your bed to keep you cozy warm at night.
That seems pretty okay to me. At least, I would think that was cool if someone did that with one of my patterns.
What would NOT be okay is if you then published a pattern/instruction booklet on how to do that with that particular design you did it with, up to and possibly including the chart itself. I would call that a derivative work of the original PATTERN and is clearly a copyright violation without proper licensing fees being paid and all the legal mumbojumbo being attended to.