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Bill Radke: This morning, American Apparel agreed to pay filmmaker Woody Allen $5 million to settle his lawsuit. Allen sued the clothier for using his image without permission. He called the company's ad campaigns "sexually gross and infantile." They attacked his reputation. Reporter Sally Herships wanted to know -- Is all this hurting American Apparel's business or helping it?
Sally Herships: American Apparel CEO Dov Charney is used to causing a stir with his provocative billboards. In 2007, he used a picture of Woody Allen eating dinner in full Hasidic garb.
Randy Freedberg is an intellectual property and entertainment lawyer. He doesn't represent American Apparel, but he says the company used the first amendment as a defense.
Randy Freedburg: Because we're doing it as satire and to make a statement, and it's almost artistic, it's not commercial speech, and therefore it's OK and we don't owe you money.
The company took the billboards down, but Allen still sued. Freedberg says American Apparel went out of its way to start this fight.
Freeburg: Hundred percent, no question. This is marketing for American Apparel. Like this, right now, this conversation. They're getting a lot of publicity for not a lot of money.
Allen demanded $10 million. But American Apparel said thanks to a number of sex scandals, Allen's image isn't worth that much. That drew media attention to the clothing company's own risque record.
Jonah Berger is a marketing professor at Wharton. I asked him how this could be good for business.
Jonah Berger: The way that consumers react to advertising is very different then the way that consumers react to regular news.
Berger says most consumers see an ad and know someone's trying to sell them something, but when they read news, their defenses aren't up. So a negative piece can be effective, as long as the company is small. Big, well-known firms risk having their reputations tarnished. But small company's brand awareness can get a lift.
Berger says consumers won't remember the details of this lawsuit, but they will remember American Apparel.
Berger: Next time some of those people are walking by an American Apparel store whereas before they might never have thought about stopping in, now they might say, oh yeah, maybe I should go check them out.
American Apparel and Woody Allen may find some common ground in their dispute today. But lawyer Randy Freedberg says American Apparel doesn't want the case to end.
Freedberg: They've already milked it, they've milked it for a long time.
Herships: But they want to keep milking it.
Freedberg: They want to keep milking it as long as they can.
Freedberg says even if American Apparel ends up paying $10 million, it's still cheap advertising. So the company wins either way.
In New York, I'm Sally Herships for Marketplace.