American Apparel Inc settled film director Woody Allen's lawsuit over the company's use of his image in advertising for $5 million, Allen said on Monday as the case was about to come to trial.

The American film director sued the clothing company more than a year ago after his image appeared on billboards in New York and Los Angeles. Allen says his reputation was damaged and the image from his film "Annie Hall," which showed him dressed as a Hasidic Jew, was used without his consent.

"Five million dollars is enough to discourage American Apparel or any one else from ever trying such a thing again," Allen said outside federal court in Manhattan.

But American Apparel founder Dov Charney had argued that the ads, which also appeared on the Internet, fell under free speech rights and were intended for comic satire and not commercial profit. "The billboards were designed to inspire dialogue. They were certainly never intended to sell clothes," Charney said in a statement on his Web site.