Page 19 - Fashion Law

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Fashion Law | MONDAY, SEPTEMBER 12, 2016 | S19
Private Label
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directly against the retailer who could be subject to signi cant damages. Retailers must carefully choose their private label partners who understand the dangers of using fab- ric prints of unknown origin, and have the nancial ability to defend these claims should they arise.
If you are the private label vendor, you have to know going into the relationship that you will not be able to negotiate most of the terms in any private label vendor agreement. This is just the reality of the relative size of the players. In fact, the agreements are likely to be form or standard agreements used for all the retailer’s vendors and are largely non-negotia- ble other than price and quantity. Therefore, it is important to read the agreements very carefully and consult with counsel so you understand what you are signing, even if you are not likely to be able to negotiate many of the terms. While you may not be able to negoti- ate the terms, you can “design” your private label business to account for the inherent risks associated with issues such as strict indemni- cation provisions and intellectual property pitfalls, as outlined below.
IP: What’s Mine Is Mine
And What’s Yours Is Mine Too?
In a private label arrangement, the retailer will come to the table with its own intellectual property, usually trademarks, but possibly also patents and copyrights. The private label vendor may also come into the relationship with certain intellectual property, previously made designs, patented technology or its own stable of copyrights. It is particularly important that both sides understand what the expectations are for the ownership of the intellectual property rights for the products being sold. Retailers will certainly want the
In uencer
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source.” Any future endorsement campaign requires the disclosure of “any unexpected material connection between itself and any in uencer or endorser,” and “prohibits the company from misrepresenting that any endorser is an independent or ordinary consumer.” Most signi cantly, it imposes a comprehensive “monitoring and review pro- gram” to oversee any future endorsement campaign. Lord & Taylor must provide each of its endorsers with “a clear statement of his or her responsibility to disclose, clearly and conspicuously,” and obtain from each such endorser a signed acknowledgment. Lord & Taylor must also establish “a system to moni- tor and review” its endorsers to ensure com- pliance with FTC Guidelines, and terminate any who fail to do so. Lastly, Lord & Taylor is required to maintain reports suf cient to show the results of its monitoring, which is likely to be a particularly burdensome task when considering the potential to engage in
ability to claim ownership for any trademarks, trade dress, trade secrets, designs, copyrights and any other intellectual property rights that compromise the end product that was exclu- sively designed and manufactured for them. They will likely want the vendor contractually obligated to assign all of the rights over to them. But what if your design team uses a previously fabricated outsole on a shoe or dusts off a fabric print that has belonged to the company for years? The answer is this should be discussed either during the agree- ment negotiations or prior to the product being made, at the time when the product is being sampled. At the negotiation stage, a rider can be employed to spell out any intellectual property with which the vendor comes to the relationship and that expressly states it is not being assigned. It is also very important for a vendor to alert its designers not to recycle ideas from other engagements or projects as that could invariably lead to problems.
Staying on Trend
Without Treading on Others
This is probably one of the most common issues faced by retailers using private label branding. The retailer entrusts the vendor to ensure that the end product does not violate any third-party intellectual prop- erty but at the same time requires that the end product be “on trend” and desired by its customers. It is a delicate balance that naturally requires some reference to what the national or designer brands are doing at that moment. For example, the Paris runway show of designer Baldwin Balthazar is full of silk dresses with colorful handstitched butter y appliqués. The fashion press goes wild and Balthazar is splashed and featured all over every magazine cover and celebrities are sud- denly all awash in butter ies. Retailer ABC wants to offer its customers a variety of on trend products so it arranges for Ryan Enter-
relationships with hundreds of in uencers, resulting in thousands of posts.25
There is still an aversion to identifying content as paid advertising over concerns of decreased consumer engagement, but in light of the decline in consumer trust in today’s advertising, it is essential to remain transparent to ensure brand loyalty.26 Despite rampant reports that today’s consumers are sure to be repelled by disclosures, they are far more likely to be alienated by outright dishonesty—never mind the legal implica- tions of failing to fall in line.27 The FTC has thus far chosen to focus its efforts on adver- tisers, yet it does reserve the right to take action against in uencers.28 “We compare it to a dandelion and a root,” said FTC assistant director, Richard Cleland. “The brand is the root. Our view here is that if we get at the
29 root, we take care of lots of dandelions.” It
is this strategy that should not be mistaken for leniency. As the monetary compensation at issue surpasses the tens, to hundreds of thousands of dollars, enforcement has already evolved from the consequence-free public shaming of offending brands, to formally
prises to manufacture a whole line of butter y appliqué dresses under the store’s private label brand. The lower priced private label brand will be sold side-by-side next to the higher priced Balthazar dresses. Shortly after the product is on the store shelves, Retailer ABC receives a cease and desist letter from Balthazar’s attorneys demanding that the private label products be removed from the store shelves and threatening to sue and go to the press. Retailer ABC hands the letter to Ryan Enterprises and says please handle. This scenario is endlessly frustrating for both the fashion designer, the retailer and the private label vendor, and certainly puts a strain on the private label relationship.
So how does one avoid the above scenario: the best defense in this case is a good offense. For the retailer, it should require that the ven- dor perform an intellectual property review of the line before the line is made. This can be as simple as a brief risk assessment from an experienced fashion attorney or as in-depth as seeking intellectual property protection before going to market. The retailer should also contemplate a situation where it is pur- chasing products from multiple private label vendors and several products are accused. It is not a good idea to leave it up to the private label vendors how to deal with this situation and sort out the indemni cation responsibili- ties amongst them. Clear guidance from the retailer will avoid a lot of uncertainty for each vendor and headache for the retailer.
For the vendor, it is strongly recommended that it proactively train its in-house design- ers about what is protectable intellectual property and what is not, and what is proper inspiration in order to stay “on-trend” versus improper “copying” and possible infringe- ment.
While there are many more business con- siderations for both retailer and vendor in entering into a private label arrangement, these arrangements can be profitable for all parties involved if the pitfalls are well understood.
charging them with violations of federal law in which they are held accountable.30 These escalated stakes, coupled with the FTC’s meet- ing this month in which such disclosures will be discussed, make it likely for the FTC to begin even more seriously policing the fash- ion industry. Whether by willful disregard or mere mistake, a violation of FTC Guidelines is a violation of federal law for which there will be consequences.
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1. Pam Danziger, “Five Luxe Trends for 2015,” Unity Mar- keting (2014).
2. Emily Backus, “Mobile Dominates for Chinese Shop- pers,” Women’s Wear Daily (April 21st, 2016).
3. Evan Clark, “Seeing Mobile as Retail Savior,” Women’s Wear Daily (June 23, 2016).
4. Joelle Diderich, “Global Department Store Summit Tracks Borderless Consumer,” Women’s Wear Daily (June 2, 2016).
5. Id.
6. Id.
7. “Mobile Dominates,” supra note 2.
8. Rachel Strugatz, “ShopStyle to Boost Blogger Earn-
ings,” Women’s Wear Daily (April 20, 2016). 9. Id.
10. “The FTC’s Endorsement Guides: What People Are Asking,” Fed. Trade Comm’n (May 2015).
11. In the Matter of Lord & Taylor, File No. 152-3181, Com-
Cheerleading
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its utilitarian aspects. Varsity Brands v. Star Athletica, 799 F.3d 468, 490-92 (6th Cir. 2015). The Supreme Court granted cert, and several amicus curia were led requesting clarity on the fundamental question of separability, as well as the test used to determine its impli- cations.
What This All Means and Why It Matters
In a case about uniforms, it seems t- ting to request uniformity. Adherence to multiple analyses that render disparate results institutionalizes uncertainty, and encourages the proliferation of industries aimed to exploit it. Such lack of legal clar- ity has practical effects, particularly for the fashion industry, whose works often straddle numerous IP protections but may not t squarely in any. Under any test, if the chevrons, zigzags and color blocks in Varsity would be copyrightable as a printed graphic, they should not lose their protec- tion because they’re applied to a cheer- leading dress. A challenge on the basis of originality remains available.
Re-Fashioning
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operations that prefer to keep the focus on seasonal styles rather than courtroom dra- mas tend to act as a check on public actions. Nevertheless, fashion contributes far more than black robes and pinstriped suits to the practice of law.
Smart, forward-looking attorneys in gen- eral and IP practitioners in particular should square their shoulders, narrow their ties, and take a close look at the fashion industry to see what’s coming next.
plaint (FTC March 15, 2016).
12. Enforcement Policy Statement on Deceptively For-
matted Advertisements, Fed. Trade Comm’n (December 2015).
13. Id.
14. “Lord & Taylor Settles FTC Charges It Deceived Con- sumers Through Paid Article in an Online Fashion Maga- zine and Paid Instagram Posts by 50 ‘Fashion In uencers’,” FTC (March 2016).
15. Complaint, supra note 11.
16. Julie Zerbo, “The Rise in Native Advertising & The (Legal) Do’s and Don’ts,” The Fashion Law (June 7th, 2016).
17. Complaint, supra note 11.
18. Lauren Sherman, “The Art of Disclosure: Fashion’s In uence Economy and the FTC,” The Business of Fashion (June 20, 2016).
19. Complaint, supra note 11.
20. Julie Zerbo, “What Disclosures? A Look at Advertis- ing in Disguise,” The Fashion Law (May 5, 2016).
21. In the Matter of Lord & Taylor, File No. 152-3181, Agreement Containing Consent Order (FTC May 23, 2016).
22. Id.
23. Id.
24. “Lord & Taylor Settles,” supra note 14.
25. Agreement Containing Consent Order, supra note 21. 26. Julie Zerbo, “The Problem With Pre-Season (and Cou-
ture Extravagant Trips, Biased Reviews & FTC Violations,” The Fashion Law (July 10, 2016).
27. Id.
28. Julie Zerbo, “A How-To Guide for Properly Disclosing Your Sponsored Posts,” The Fashion Law (July 10, 2016).
29. “The Art of Disclosure,” supra note 18. 30. Id.