By Terry Baynes 

Nov 9 (Reuters) - An Ohio lawyer who created sexually explicit images of children as part of a legal defense in child pornography trials must pay the children's parents $300,000, a federal appeals court ruled on Friday.

Dean Boland, the lawyer at the center of the case, did not respond to requests for comment.

In 2004, Boland was hired as an expert witness by criminal defense lawyers to testify at three separate criminal proceedings for defendants on trial for possessing child pornography.

In an effort to argue that pornography laws were too broad because defendants had no way of knowing whether photos were real or fake, Boland downloaded images of two children from a stock photo website and digitally manipulated them so the minors appeared to be engaged in sexual acts, according to court documents. In one, a child was eating a doughnut, which Boland replaced with a penis. In another, he transposed a child's face onto the body of a nude woman performing sexual acts with two men.

He then used the before-and-after pictures at trial to demonstrate the difficulty of telling the difference between real and digitally morphed images.

Federal child pornography law bans the possession of images "created, adapted or modified" to show an identifiable minor engaging in sexually-explicit conduct. However, it does not ban entirely computer-generated child pornography.

After the Federal Bureau of Investigation learned about Boland's testimony, federal agents searched Boland's home and seized his files. To avoid being criminally prosecuted, Boland entered a diversion agreement in which he admitted to creating and possessing child pornography in violation of federal law. He also published an apology in the Cleveland Bar Journal.

Despite his admission, he defended his right to use the images in court, even filing a lawsuit against the federal government, which was ultimately dismissed.

In 2007, the parents of the two children in the original stock photos sued Boland under federal child pornography laws that allow the minor victims of child pornography to recover damages.

A federal judge initially dismissed the lawsuit, finding that the law shielded expert witnesses from liability. But the 6th U.S. Circuit Court of Appeals in Cincinnati last year disagreed, sending the case back to the district judge, who awarded $150,000 to each child.

On appeal for the second time, Boland argued that the children did not suffer any injury because he never displayed the images outside a courtroom and never transmitted them electronically. He also said the law violated his First Amendment rights to create and use the images to defend clients in court.

A unanimous, three-judge panel of the 6th Circuit rejected those arguments on Friday, affirming the damages award.

"When he created morphed images, he intended to help criminal defendants, not harm innocent children," Judge Jeffrey Sutton wrote. "Yet his actions did harm children, and Congress has shown that it means business in addressing this problem by creating sizeable damages awards for victims of this conduct."

The existence of the images hurt the children's reputation and emotional wellbeing, the court found.

The court also noted that Boland could have made his point another way, by manipulating the photos of real adults or by using pictures of children generated entirely by computer. Instead, he chose the option Congress prohibited: He displayed images of real children modified to look like they were engaged in sexual activity.

A lawyer for the parents, Jonathan Rosenbaum, did not respond to a request for comment.

Boland has also been in the news recently because for a time he represented Paul Ceglia, a former wood-pellet salesman who sued Facebook Inc for a 50 percent cut of the company, claiming he signed a contract with founder Mark Zuckerberg. Federal prosecutors in October charged Ceglia with forging documents central to the suit. Days later, Boland asked to withdraw from the case, citing "personal reasons."

The child pornography case is Doe et al v. Boland, 6th U.S. Circuit Court of Appeals, No. 11-4237.

For Doe et al: Jonathan Rosenbaum.

For Boland: Pro se.

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