The Diana, Princess of Wales Memorial Fund has lost the latest round of a court battle to prevent an American company selling commemorative dolls.

A Californian court has upheld a previous decision by a district court that Franklin Mint was not violating the US Rights of Publicity law by selling products using the Princess's image.

In its original lawsuit, the fund had argued that the company was commercially exploiting the identity of the Princess, and falsely implying the products would benefit her estate.

After the hearing, Franklin Mint accused the fund for wasting money in pursuing the battle.

So far, the action has cost the fund �1m in legal fees - for which it has been much-criticised - and the final bill could be much higher.

However, a spokeswoman said the trust would continue the action, citing a new Californian law which gives the heirs to dead celebrities greater control over their image.

Dr Andrew Purkis, the fund's chief executive, said: "We are determined to assert our legal rights for the sake of vulnerable people who depend on the fund's efforts to continue the Princess's humanitarian work round the world.

"Those who profit from the Princess's memory commercially should respect the wishes of her estate and make a portion of the profits available for charity, as of right, through her memorial fund."

A spokesman for Franklin Mint, which produces mementoes of famous figures, said the company had already donated �2.5m to some of Diana's favourite charities.

"We would never do anything to harm Princess Diana's image nor the respect that we know the British people have for her memory," he said.

The Diana dolls, dressed in a sparkling white dress and jacket, cost �145 in the UK. The limited edition Diana commemorative plate is no longer produced.