A jury in the western state of Nevada in 2011 awarded more than $2 million in damages and legal fees to firms owned by Marley's children that said they had lost an order to sell T-shirts at Walmart as the unauthorized rival was distributing a similar product.
The defendants lodged an appeal that was rejected Friday by a federal court, which agreed that the non-family companies violated the 1946 Lanham Act, a key US law on copyright infringement. The court, which heard a survey of 509 customers at a shopping mall, agreed that the T-shirts could create an impression that Marley had endorsed them.
"This case presents a question that is familiar in our circuit: when does the use of a celebrity's likeness or persona in connection with a product constitute false endorsement that is actionable under the Lanham Act?" asked Judge N. Randy Smith of the US Court of Appeals for the Ninth Circuit, which is based in San Francisco with jurisdiction across the West Coast.
"We conclude that the evidence presented at trial was sufficient for a jury to find defendants violated the Lanham Act by using Marley's likeness."
The accused company, A.V.E.L.A., had said that recognizing such an argument for a dead person would essentially create a federal right of publicity -- how a person can be used for commercial purposes.
Individual US states have established a right to publicity but, despite longstanding debate, there is no law at a federal level.
- Enduring icon -
Marley, who would have turned 70 this month, died in 1981 but his music and advocacy of social justice still carry wide appeal.
"Even now -- more than 30 years after his death -- Marley's influence continues to resonate, and his iconic image to command millions of dollars each year in merchandising revenue," the court ruling said.
The finding is consistent with a ruling last month by a London court that agreed with pop singer Rihanna, who accused major British retailer Topshop of selling a T-shirt bearing her image without her permission.
Marley presents a different legal dilemma, as he is dead.
He is hardly the only deceased celebrity whose image remains widely marketed, with Kurt Cobain, Jimi Hendrix and Jim Morrison among late stars whose T-shirts are still hot-sellers.
In 2002, the Ninth Circuit court ruled against the estate of Princess Diana, which had sued The Franklin Mint company for producing jewelry and other merchandise with the late royal's image.
In the latest ruling, the federal court drew a distinction, saying that Diana, unlike Marley, had done little to prevent commercial use of her image when she was alive.
The court heard testimony by Roberto Rabanne, a photographer whose picture of Marley was the basis for the T-shirt.
He said that the chief executive of A.V.E.L.A. pressed him to write an email that falsely said that Rabanne used pictures of Marley on merchandise when the musician was alive.