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My first job in the movie business was as a PA on War of the Roses.  Before we shot the movie, the lawyers at Fox went over the script with a fine tooth comb and not only did they ask the book's author and the screenwriter if any fictionalized characer bore any resemblance to any known person, they actually went through local phone books to find out if anyone in the area had a similar name and profession.  The Michael Douglas character in the book was actually called "Jonathan Rose," but when the E&O (Errors and Omissions) people went through the Washington, D.C. phone book they found there was a real attorney by that name, so to avoid any appearance that they might be disparaging him (or invading his privacy) by having him played in a major motion picture by Michael Douglas at the height of his career they made the filmmakers change the name to Oliver.  (And IIRC, they also made them change the name of Kaizer Soze in Usual Suspects because of some too-close-for-comfort moment, but like "Jonathan Rose" there was no similarity either known or intended by the authors.)

Which is all by way of saying that there are laws against these things and major publishers and those who deal with Intellectual Property know that having a fictional character who bears too much resemblance to a living person makes them extremely vulnerable to unwanted lawsuits.  And IANAL, but Michael Crowley sounds like he's got a damn good case with regard to a "Mick Crowley" character in the new Michael Crichton novel:

Crowley comes and goes without affecting the plot. He is not a character so much as a voodoo doll. Knowing that Crichton had used prior books to attack very real-seeming people, I was suspicious. Who was this Mick Crowley? A Google search turned up an Irish Workers Party politician in Knocknaheeny, Ireland. But Crowley's tireless advocacy for County Cork's disabled seemed to make him an unlikely target of Crichton's ire. And that's when it dawned on me: I happen to be a Washington political journalist. And, yes, I did attend Yale University. And, come to think of it, I had recently written a critical 3,700-word cover story about Crichton. In lieu of a letter to the editor, Crichton had fictionalized me as a child rapist. And, perhaps worse, falsely branded me a pharmaceutical-industry profiteer.

It's possible Crichton is such a magilla in the publishing world that Harper Collins is simply willing to take risks with him that they would not take with an author who was not such a mega-seller, and they might just chalk up any lawsuit arising from such an incident as the cost of doing business.  It's also possible that Crichton was less than forthcoming with them, but if he's done it in the past as Crowley asserts then Harper-Collins would probably are aware of a pattern. At any rate, these kinds of tacit understandings have a way of crumbling when somebody starts filing lawsuits and nobody thinks they should have to write a settlement check.

One thing I can say — no lawyer would want to have to be in a position to defend Crichton and Harper-Collins in this thing.  Not a one.  I certainly can't speak to Crichton's intent, but the optics are horrible.  Crowley may well qualify as a public figure and hence invasion of privacy issues might well be moot, but most people would probably consider being characterized as a pedophile somewhat disparaging. It's not that there wouldn't be a lawyer willing to take the money, but they'd be damned pissed about being dealt such a poor hand from the get. "The Small Penis" rule Crowley talks about is not a rule at all, it's an insurance policy.  And an awfully shaky one at that.

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