State Sen. Brad Hoylman, whose district includes Times Square, said the companies that created the characters needed to "step up to the plate" and use copyright laws to assist in thwarting the undesirable presence of copyrighted characters. "They can do something to enforce their copyright and I'm convinced that that should be another route we should be taking," he said.Unsurprisingly, the article mushes together copyright and trademark. But this wouldn't make a bad exam question. Assume the character costumes such as Spiderman were purchased from a licensed source. First sale kicks in, but the performers seek payment for posing in photos with people. Is there then a reproduction that they've induced? What about the unfixed public performance of being the character (or being out of character)?
As for trademark, I'm hard pressed to see likely confusion, but given how expansive the doctrine has become, you might not even need dilution, unless a court sees this as a Rogers v. Grimaldi-type situation where the "product" being sold is a performance. As for dilution, is performing for money commercial speech? First Amendment doctrine says no, but trademark cases routinely ignore First Amendment doctrine.
However, this is all a (literal?) sideshow: the problem that the article discusses is that there are too many people asking for money in Times Square (in the view of other people whose livelihood is earned in other ways, some of them competing). The costumes are neither necessary nor sufficient to cause this problem, as the article notes when discussing "other peddlers" and referring to the problematic people as "panhandlers." The real trick would be to explain why that has anything to do with the policies justifying copyright and trademark law. I'm not in favor of using intellectual property laws to solve non-IP problems, however much fun it is to discuss the theoretical underpinnings of such claims.