The insurers of American Apparel have settled a dispute between the US clothing retailer and actor and director, Woody Allen, by agreeing to pay Allen $5 million for the unauthorised use of his image in an advertising campaign.

The adverts in question used an image of Allen dressed as a Hassidic Jew, taken from the film Annie Hall, above the American Apparel logo and were displayed on billboards in New York and Los Angeles. Allen originally sought $10 million in damages for the use of the image without his consent, and claimed that this was contrary to his decade-long policy of refusing to lend his image for advertising purposes in the US.

One of the more interesting elements of this case was the defence proposed by American Apparel that Allen's relationship with, and later marriage to, his step-daughter Soon-Yi Previn had already damaged his image in the US to such an extent that he had no good reputation left for American Apparel to damage.

The settlement was announced on the morning that the trial was due to start in Manhattan and is seen by many as a chance for both Allen and American Apparel's president Dov Charney to avoid lengthy and potentially embarrassing court proceedings. Charney has himself been subject to a number of high profile, but unproven, sexual harassment suits brought by former employees. Indeed, Charney has claimed that his use of Allen's image was intended to be an amusing representation of the discomfort endured by him and his company during the tabloid campaign surrounding the lawsuits. The picture used is from an iconic scene from Annie Hall in which Allen's character, Alvy Singer, feels particularly uncomfortable at a dinner party.

New York was the first US state to recognise any form of image or publicity right and enacted legislation at the beginning of the 20th century prohibiting the commercial use of the image, or name, of a living person without their consent. Image rights have been considered by the New York courts to be specific property rights (as opposed to merely personal rights) since the 1950s. Today, approximately 20 US states have image rights legislation, with many more recognising some form of image or publicity right at common law.

In the UK, there is no codified law of image rights as such and protection in this area is widely considered to be patchy and unsatisfactory. An individual seeking to prevent unauthorised use of his or her image generally needs to rely on the law of privacy, (either as a breach of the Human Rights Act 1998 right of respect for private or family life or by raising an action for breach of confidence), data protection legislation or advertising standards codes. Increasingly, well known individuals are also seeking to register their images as trade marks to enforce the protection of their image.

In one of the seminal cases relating to image rights in the UK, racing driver Eddie Irvine was awarded £25,000 by the Court of Appeal for the use of Irvine's image, without his permission, in an advert by radio station Talksport. At the original hearing, Irvine was only awarded £2,000 but argued successfully that his minimum fee for advertisements was £25,000 and was therefore awarded the higher amount.

Parallels can be drawn between the facts of that case and American Apparel's use of Woody Allen's image despite the differences in the values at stake. Mr Allen's lawyers told the press that the $5million dollar settlement was the largest ever reached in respect of court cases under New York's privacy laws.

One of American Apparel's lawyers, however, gave a quote to the press association that by demanding $10million dollars for appearing in a poster campaign that was up and down within a week "Woody Allen overestimates the value of his image."