From Legal Minimum:
Here’s three steps to consider if you want to take a real person and use them as the basis for a character in your fictional universe:
Step 1: Think of what needs to remain and what can change. If you are going to use an exact clone of a real person, you need to get their permission to do this through a name, image, and likeness release (I’ll write about these in a future post). But you can often adapt a real person into a fictional character if you do it right.
This shouldn’t be surprising. There are very few truly impossible-to-replicate character descriptions you can write outside of a sci-fi or fantasy setting. So nearly all of us could find many of our personality traits mirrored in someone’s fictional characters. If just having a character who resembles a real person was enough to cost you a lawsuit then every author would be breaking the law.
. . . .
Step 2: Make sure that you don’t just make negative changes. You need to make sure that you don’t just make changes that, if you said them about a real person, would be libel.
In Muzikowski v. Paramount Pictures, Paramount made a film based on the story told by Muzikowski in a book he wrote about his experiences coaching baseball in the inner city. It wasn’t presented as an adaptation of his book, just based upon it. Muzikowski sued, claiming that he was defamed by the character in the movie that was based upon him.
The court disagreed. Looking at the movie-Muzikowski and comparing him to the real person, the court found all sorts of non-defamatory distinctions between the two characters. For example the character in the movie had children of his own, while Muzikowski didn’t. The court held that distinctions like these meant that the adaptation was permissible, because the adaptation wouldn’t cast Muzikowski in a negative light.
. . . .
The legal test isn’t whether the person on whom you’ve based the character would recognize themselves, or whether their friends would. It’s whether a reasonable person hearing the descriptions of each group of people would think the characters are based on the real people. That’s a big difference and so the court held that the portrayal of the Tamkins in the CSI episode wasn’t libel.
Link to the rest at Legal Minimum