For example, is it legal to use branded bottles to create a piece of furniture (with the brand labels still visible) and then to sell that furniture.
Interesting idea. Yes, it probably is not an infringement of the water company's trademark, even with their bottle labels showing. in this particular example. I'm guessing that a water bottle company would NOT own a trademark for class 20 furniture, and that consumers would not think that the water company is suddenly expanding their business into home funishings. But you should still check each product to be sure.
Now if you picked a product involving water that's closer to the original product, like water bottles turned into hose holders, or water bottle labels reproduced onto umbrellas, then I think you'd have some consumer confusion.
It always depends on the facts of the USERS and their USE, so don't think there are one-size-fits-all answers to general questions like yours.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.
Intellectual Property Law Attorney
The legality of "re-purposing" one product to make another is heavily fact dependent. Which means that under one set of facts it may be lawful but under another it may be unlawful.
In your case the relevant facts would include information about, at least:
(1) the bottle [is it's shape, for instance, protectable trade dress?],
(2) the brand that adopted the bottle to sell its product [is it a "famous" brand such as Coke or Pepsi for example],
(3) the material that comprises the product label [does it include copyrightable elements such as logos, designs, or other graphics for example],
(4) your marketing approach and material used to promote the furniture made from the bottles [do you reference the brand whose bottles you've used, for example].
IF the branded bottle does indeed include copyrightable elements on its product label then that's a SIGNIFICANT hurdle to overcome in order for you to lawfully re-purpose those bottles into furniture.
You should not sell -- or even advertise -- the furniture you make from the branded bottles w/o first discussing the matter with an intellectual property attorney.
Intellectual Property Law Attorney
As my colleagues have suggested, the answer to your inquiry is fact dependent. Your idea is creative and potentially valuable, but it is also filled with potential IP problems. Depending on what product you use and how you use it, you can face liabiltiy under patent, copyright, trademark and tradedress laws. On the other hand, if you create a "transformational" work and it is clear that there is no association between the work which you create and the company which created the original branded product, you might have viable defenses to claims of infringement. No IP lawyer can give you meaningful advice without knowing the details of what you plan to do, and what products you intend to use, and how you intend use such products.
Aside from legalities, let's be practical for a moment. No matter what you do, if you use someone else's product in this manner, there is a significant risk that if you are successful, you will get sued. You will likely be accused of diluting the value of the trademarks and other IP rights owned the company which producers the original product. You may also be accused of tainting the image and reputation of the company and its original product. Even if you have valid defenese to these claims, you will have to be prepared to fund the costs of defending such a suit.
Thus, as a practical matter, your best approach in this situation would be to obtain permission before using the branded product. If the work you are creating is attractive and valuable, it may turn out that you can obtain a license to use the original product for a minor fee or royalty, and/or for no fee at all in exchange for agreeing to a cross-promotion arrangement, If you obtain permission and/or a license up front, your legal exposure is reduced substantially. Thus, if you want to go forward, I suggest that you retain IP counsel to advise you in this matter, and instruct such counsel that you want to attempt to obtain permission to use the branded product in advance of doing so.