An industry decision by DC Comics executives to keep certain DC characters, specifically Batman-related characters, exclusive to certain shows across the television and film medium to avoid brand confusion. The embargo was implemented in 2005, but lifted a couple years later.
Who decided on it? When?
It's DC Comics President Paul Levitz who decides which characters can and cannot be used and where, not Warner Bros. Even though the publisher itself is owned by Warner Bros., these characters belong to DC Comics, so it's their choice as to who gets to use who and where.
The 'Bat-Embargo' took effect during the production of season two for Justice League Unlimited (JLU), specficially around the time-frame between the production of episodes "The Doomsday Sanction" and "Question Authority."
Why do this?
Essentially, DC Comics didn't want multiple animated versions of Batman being produced, believing it could confuse audiences and dilute the brand, and wanted to limit use of the characters outside of comics. With Batman appearing in both movies (the Batman Begins/The Dark Knight movies) and on television, Levitz was concerned children (their target demographic) would be confused by seeing so many different versions of the same characters at the same time and become disinterested. While producing a new cartoon as a tie-in to a big-screen blockbuster is nothing new, having multiple versions of the same character on the small screen appearing regularly at the same time is not so common. DC Comics saw this as potentially harmful to their brand.
Here's a little Business 101. As a company (in this case, DC Comics), you don't want to oversaturate your market. In comics, you have a little more leeway, but due to the nature of television and film being more expensive and time consumung to product, and being more in the public eye compared to comics, liberties such as multiple titles with the same character aren't entirely possible or practical. The New Batman Adventures finished years back. To coincide with Batman Begins, The Batman was commissioned. This was a similar manuever in how Bruce Timm's Batman: The Animated Series was commissioned to coincide with Batman Returns.
Since The Batman was the new Batman animated series, DC Comics decided that series would get exclusive use of Batman supporting characters, with exceptions. With The Batman creating a new Batman world, understandably it should be able to do so with as little conflict from any previous (animated) versions of the character as possible. DC Comics didn't want two versions of Batman and his supporting cast running around in animation, basically, so the focus was put on The Batman. While the DCAU Batman was established and well-known enough (and still very popular) to continue to appear in Justice League Unlimited, his supporting cast was not given the same luxury. DC wanted this new version of Batman to fly, and gave it the keys to the Bat-universe. The less conflict, the easier it is for a show to establish roots.
The two major exceptions were Robin and Batman, as both had vital, key roles in Justice League Unlimited and Teen Titans. When Teen Titans finished, it looks as if the rights for the character of Robin were freed up and allowed to move over to The Batman as of season four.
This is nothing new. It happens in all entertainment industries. Rights are complicated. To make sure you support products effectively, rights holders have to be selective as to whom gets options. What made it more evident in this situation was the fact that it was unique; Batman had found popularity and relevance beyond the old Batman animated series in Justice League Unlimited as well as in a new show. He was needed in two fields. This made the shift of rights glaringly apparent to audiences of these animated shows.
Doesn't the embargo hinder cartoons like Justice League Unlimited?
It's a tough standpoint to argue. Justice League Unlimited - as with its comic source - isn't about Gotham City and had a wealth of characters and stories of it's own. The creative team still had Batman and a host of their own "Bat"-established characters (or ones close to the Batman universes such as The Huntress and Static Shock) to draw on. Characters exclusive to previous DCAU shows such as Phantasm, the Joker gang from Return Of The Joker, Warhawk, Terry McGinnis, and future Bruce Wayne all made a reappearance. They'd also used many Gotham characters in the Justice League series, so when it revamped to Justice League Unlimited, it didn't feel the show was too deprived of Batman to start with. The finale for the last full season, "Epilogue," was devoted to Batman, so it's hardly fair to say the Batman embargo caused much trouble for the production.
And if you look carefully as Black Canary enters Bludhaven in Justice League Unlimited's Grudge Match, you can make out a certain Gotham character lurking on the rooftops...
What does the Justice League Unlimited production team think?
Apparently it's considered no more than a minor inconvienence and it hasn't really impacted any tales the creative team wanted to tell. Bruce Timm said right here at WF "We had no plans to use BTAS characters in JLU...there aren't any BTAS-centric stories we were dying to tell that we couldn't because of the embargo...."
Is it over?
The embargo was never "officially" lifted, publicly, but with both the new Batman: The Brave and The Bold cartoon coupled with new DCAU-related products and releases suggest it was lifted in 2007/2008.
Adapted from site FAQ and expanded upon by by Zach Demeter, Jim Harvey. Previous updates: 2006, 2007, 2009.