Do not engage them in discussion and do not settle. I have an entire website devoted to the issue with all the information and answers you want on this subject. It is www.extortionletterinfo.com (itis also linked below) and has been covered by the LA Times, The Seattle Times and many other media outlets. I have helped countless businesses and individuals on this and other "copyright trolling" matters. Please look at the site and the videos and forums on there and get educated on this topic.
The answers given are informational only and do not constitute legal advice. Please feel free to contact me if you want to obtain legal advice from me.
Mr. Michelin and many others are assisting clients in your exact situation. The bottom line is you need to either pay the proposed settlement, defend yourself, or ignore it.
If you choose to defend this yourself, you are taking a big risk, as everything you say can and will be used against you and you simply are not aware of the tactics for a proper legal defense.
Do some research, look up cases Getty Images and others have filed and won, and lost. What are the facts in your case? Where is Getty bringing these suits? (Will you have to go somewhere far away to defend yourself?) Can you have the case dismissed for lack of jurisdiction or moved to a court near you? All these things and many more are what an attorney will help you with, and after your research, I believe you will realize you are best to call an attorney.
My disclaimer is simply that Avvo already has an adequate disclaimer.
Your research is leading you to error and your talking with the plaintiff attorney's team was definite error. You should get an attorney so there are no more errors. Attorney Michelen, who also answered, runs a top site for defending against Getty Image settlement letters. You would do well to call him up and join his defense program. If you are taken to court, the judgment will not be just $200 but more like $3500, so you need to budget more than $200 and get an attorney to hold the amount down to a minimum.
I am not your lawyer and you are not my client. Free advice here is without recourse and any reliance thereupon is at your sole risk. This is done without compensation as a free public service. I am licensed in IL, MO, TX and I am a Reg. Pat. Atty. so advice in any other jurisdiction is strictly general advice and should be confirmed with an attorney licensed in that jurisdiction.
I certainly agree that Attorney Michelin is an expert in all things Getty copyright and that his website provides very useful information. There are other perspectives on Getty's copyright enforcement efforts, however, and it would be wise for you to consider those as well. You can read many questions and answers on this topic via the link below. And then you should hire Attorney Michelin or someone from his team.
The above is general information ONLY and is not legal advice, does not form an attorney-client relationship, and should NOT be relied upon to take or refrain from taking any action. I am not your attorney. You should seek the advice of competent counsel before taking any action related to your inquiry.
If your use is noncommercial, you may be protected by the Fair Use exception to the copyright laws. But as the other lawyers have wisely noted, it could get expensive to defend your rights in court to use the photo without a license.
No attorney client relationship is created with this post and no legal advice has been rendered. This is for general informational purposes only and does not apply to any specific set of facts which have been reviewed by me. The information contained in this response has not been verified and is not necessarily accurate or reliable, or applicable to any particular jurisdiction. Always hire a licensed attorney to represent your legal interests.