Page 10 - Fashion Law

S10 | MONDAY, SEPTEMBER 12, 2016 | Fashion Law
| NYLJ.COM
SPONSORED CONTENT
LICENSING AT LUNCH
CARLO GLAMOROSO LUNCHES WITH IRWIN SMOOTHTALK:
A WHIMSICAL LOOK AT THE SERIOUS ISSUES POSED BY FASHION LICENSE AGREEMENTS
By Charles Klein, Esq.
Introduction
Licensing continues to occupy an important place in the fashion landscape. Brand owners wish to monetize their time and money investments and to expand their product, brand, and territorial reach. Wholesalers are anxious to attach their products to brands that will maximize their pro table sales at wholesale and online.
What is a license? The grant by an intellectual property owner (the “Licensor”) to a third party (the “Licensee”) of the right to use that intellectual property (in fashion deals, typically a trademark (the “Licensed Mark”), for a speci ed territory (the “Territory”), for a speci ed term (the “Term”), for speci ed product categories (the “Licensed Products”) in consideration for monetary payments (“Royalties”).
Please consider the following ctional discussion and the very real issues it poses when you negotiate a licensing deal.
The Scenario - Carlo Glamoroso, a world- renowned Italian designer of upscale ladies’ apparel, is considering granting a trademark license in the United States to Too Hot Jeans, a long-standing Seventh Avenue wholesaler of ladies’ jeans. Irwin Smoothtalk is Too Hot’s President and owner. Both Glamoroso and Smoothtalk wish to take advantage of each other’s assets to make a killing in the lucrative, up-scale jeans market: Glamoroso wants to bene t from Too Hot’s production capability, sales force, and knowledge of the American market, while Smoothtalk believes that Glamoroso’s name and cachet will catapult him to the top of the designer jeans market.
Before our protagonists sit down for lunch, they should have each done their “due diligence”. Glamoroso needs to con rm that Smoothtalk can make an excellent product that re ects the “DNA” of the Glamoroso brand, can ship it timely to the desired customers and has the money to nance and grow the business. Glamoroso may also want to know if Smoothtalk is licensing the trademark of any competitor. Smoothtalk wants to make sure that retail store customers, and online consumers will want to buy Glamoroso jeans at a price which will permit him to make a good pro t and pay Glamoroso the speci ed royalties.
Glamoroso, the great man himself, meets with Smoothtalk at Arno’s, Smoothtalk’s favorite garment center Italian restaurant. The discussion goes something like this.
The Glamoroso Trademark - Smoothtalk, having been advised by a good lawyer, asks Glamoroso over a glass of Pinot Grigio, “Do you own a trademark in the United States covering jeans?” This is not a dumb question. Trademark owners, anxious to garner royalties, sometimes enter into discussions with potential licensees for territories in which they have no trademark rights (e.g., Glamoroso may own trademark registrations in Italy, but none in the U.S.) or for a goods category for which they have no trademark. Both Glamoroso and Smoothtalk have a strong interest in making sure that Glamoroso has clear trademark rights in the U.S. covering the Licensed Products.
The Grant - The waiter brings a caesar salad for Smoothtalk and an arugula salad for Glamoroso. “Is Too Hot getting an ‘exclusive’ license from Glamoroso?” Smoothtalk wants to know. Too Hot had better be getting an “exclusive” for womens jeans, or else it could be making a large investment only to nd a competitor using the same trademark. Assuming it is getting an exclusive license from Glamoroso, what categories does that exclusive cover? “Too Hot” wants the license to cover as many denim categories as possible e.g., skirts, shorts, jackets, and perhaps even casual pants in other fabrics. Although it is in Glamoroso’s interest that Too Hot have a full denim line to sell, it must balance that interest with the opportunity cost of putting too many eggs in Too Hot’s basket, thereby limiting the potential for another license in a related category.
The Term of the License - Savoring his second glass of Pinot Grigio, Smoothtalk tells Glamoroso “I want a license that gives me enough time to get back my investment!” If our deal were to follow the most typical arrangement, Too Hot would receive a license for three years (with a six-month start-up), with the right to extend the license for a three-year renewal term. But Smoothtalk wants a second three-year renewal term.
Smoothtalk and Glamoroso don’t know each other very well. Glamoroso is more than a little concerned about whether he is going to work well with Smoothtalk. And Smoothtalk is not sure how the market will receive Glamoroso jeans. Glamoroso makes a suggestion: “You can have two renewals if you are doing at least $5 million of annual sales by the end of the original term and at least $10 million of annual sales by the end of the rst renewal term.” Smoothtalk accepts.
Charles Klein, Esq.
Fashion Chair at Davidoff Hutcher & Citron LLP
Design and Production Control - The main course arrives, veal piccata for Glamoroso and chicken scapariello for Smoothtalk. Glamoroso tells Smoothtalk, “My company must approve every design and every production sample of every item you sell under the license.”
Glamoroso’s position is reasonable. But if Smoothtalk doesn’t make sure that the approval and rejection process is rapid,he could nd himself missing production dates and losing orders needed to cover his minimum royalties.
Distribution Channels - After another glass of wine, Glamoroso tells Smoothtalk “I want to make sure that you only sell products with my name at upscale stores.” Smoothtalk says “that’s ne, but I also need to be able to sell end of season closeouts at discounters such as Century 21.” Glamoroso will want to cap those off-price sales.
More important, in today’s increasingly digital world, Smoothtalk wants internet rights. Glamoroso agrees to give him that right but only for sales of Licensed Products to U.S. customers, on a website Glamoroso approves.
Royalties and Advertising - Not wishing to upset their gastronomical pleasures, Glamoroso