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American Apparel Settles with Woody Allen

It had a certain cinematic flourish. On the morning the big trial was to begin, movie star Woody Allen and American Apparel (APP), the fast-growing retail chain he had sued for unauthorized use of his image, announced a settlement. The Los Angeles chain agreed to pay Allen $5 million, half of what he was seeking in damages.

"I sued American Apparel because they calculatingly took my name, my likeness, and image and used them publicly to promote their business,"Allen said in a statement he read outside the Manhattan courthouse on May 18. He called the settlement "the largest ever paid under the New York right-to-privacy law" and said he hoped the amount would "discourage American Apparel or any one else from ever trying such a thing again."

American Apparel founder Dov Charney, meanwhile, said in a lengthy response posted on his company's Web site that he was forced to settle by his company's insurer, which paid the bulk of the claim. "I personally think we had a good case," Charney wrote, adding that he harbored "a sense of remorse and sadness for not arguing an important issue regarding the First Amendment."

Falsely Implying Allen's Endorsement

The case involved two billboards American Apparel put up in May 2007 in New York and Los Angeles. They featured Allen, dressed as an Orthodox Jew in a still photo taken from his 1977 movie Annie Hall. The billboards contained a single line of text in Yiddish declaring Allen "the High Rabbi." American Apparel took the billboards down within a week, after Allen objected. In March of last year, Allen sued the company for $10 million, claiming the billboards were put up "in total disregard of…his exclusive property rights" and that they falsely implied that he "sponsors, endorses and is associated" with American Apparel.

The trial looked as if it might get particularly contentious when American Apparel filed court documents in April that said it might call Allen's ex-girlfriend, the actress Mia Farrow, and his present wife, Soon-Yi Previn, as potential witnesses. Allen was involved in a high-profile child custody battle over his kids with Farrow in the early 1990s. The battle began after Allen became romantically involved with Previn, one of Farrow's adopted children. Charney said in a May posting on American Apparel's Web site that he never intended to call the pair or to make Allen's personal life a subject of the suit.

It's not the first time Charney has found himself in the center of controversy. The 40-year- old entrepreneur seems to relish tweaking the Establishment. Ads for the 260-store chain frequently feature scantily clad amateur models in sexually provocative poses. The company, which unlike many apparel retailers still makes the bulk of its goods in the U.S., has also taken out ads promoting immigration rights. Charney, meanwhile, has been the target of a several sexual harassment suits, which he has said were without merit.

In court filings and on American Apparel's Web site, Charney argued that the billboards were a salute to Allen, whose work he admires. Charney said Allen's previous court troubles, the subject of tabloid fodder, were similar to his own. "At the time of the billboards, my company and I were experiencing the media fallout resulting from a few sexual harassment lawsuits," Charney explains. "The billboards were designed to inspire dialogue. They were certainly never intended to sell clothes."

Shaky Legal Foundation

Attorneys BusinessWeek got in touch with, however, say Charney's legal argument was weak. "The law is pretty clear in this realm," says Jonathan Faber, an Indianapolis lawyer who runs a Web site called "You can't make associations with famous individuals without their permission. There's a value to it." Adds Eugene R. Quinn Jr., an intellectual-property attorney who runs the Web site "If you're taking someone's likeness to make a statement about something else, the law doesn't recognize that."

American Apparel has been running other ads with another person's likeness without their permission, however, and that person says he has decided not to sue. Since January the company has run full-page ads in the Los Angeles Weekly; the Los Angeles Business Journal; and the Daily Bruin, the newspaper for the University of California at Los Angeles, stating that attorney Keith Fink has been accused of malpractice, extortion, and illegal wiretapping. Fink, a Los Angeles lawyer, has filed four suits on behalf of former American Apparel employees, two for sexual harassment and two for wrongful termination. American Apparel has denied the charges. The company also appears to be sponsoring, a Web site that aims to be a "compendium of documents, fines, and frivolous lawsuits" about the attorney.

Fink maintains that American Apparel's claims against him are all false and says he considered suing the company for defamation but decided against it. "It's free advertisement," he says he concluded. "My mother doesn't like it, but my clients read it and think 'I'm a lawyer. I'm tough.'"

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.

Palmeri is a reporter for Bloomberg News and Bloomberg Businessweek in Los Angeles.

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