Page 11 - Fashion Law

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Fashion Law | MONDAY, AUGUST 28, 2017 | S11
Social Media
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platforms, or as complicated as a physical space with several real-time monitors and any number of employees actively engaging on the platforms. However it is implemented, daily monitoring of the social media universe is critical for controlling the company’s story.
Companies should designate at least one employee to monitor and direct company compliance with relevant laws and regula- tions. These include regulations regarding the disclosure of relationships between the brand and social media influencers, and laws regarding fair use and the use of trade- marks and copyrighted material belonging to others.
Trademarks
Finally, all fashion design companies, whether or not they have made the leap into the social media universe, must con-
Distress
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or may be deemed to, impact the retailer’s obligations under any financing arrange- ments.
Customer Data
Customer lists and customer data can also generate value in both out-of-court and in- court restructurings. Transfer of this data may be restricted by a court, however, if such transfer violates the retailer’s relevant policies.
Courts in several recent bankruptcy cases, including Aéropostale, Golfsmith, and RadioShack, have conditioned sales of customer data, including by requiring buyers to respect debtors’ existing privacy policies, and permitting customers to opt out of the transfer. Customer data received particular scrutiny in RadioShack, where it was sold on a standalone basis, rather than as part of a going concern sale of the debtor’s busi- ness. The Federal Trade Commission and state regulators objected to the sale because RadioShack’s pre-bankruptcy privacy policy stated that customers’ personally identifiable information would not be sold “to anyone at any time.” The sale was ultimately approved, but subjected to extensive limitations and consumer protections. Implementing permis- sive terms of use and privacy policies prior to distress could minimize impediments for leveraging the value of such data. Aggregat- ing customer data across channels, and sub- jecting all such data to the same policies regardless of the mode of collection, could also increase asset value.
Leases
In an in-court restructuring, one of the debtor’s most powerful tools is the ability to reject burdensome leases. Retailers seeking
trol their story by policing their trademarks. If they become aware of another company using a confusingly similar trademark, they must take action to stop it. If they do not, the strength, value and impact of their brand will be whittled away. Consumers may associ- ate unfavorable commentary relating to a third party with the brand of the fashion company. The best policy is to nip these problems in the bud. The longer another company uses a confusingly similar mark, the more entrenched they become, and the more difficult it becomes to make them stop. Every fashion brand should monitor the internet and social media for the use of confusingly similar brands by others.
Fashion design companies need to tell a compelling story in order to cut through the noise of the digital marketplace and remain relevant. Part of telling a compelling story includes managing the dialogue and direct- ing the action. While it is difficult to control either in this age of consumer-created con- tent, there are many steps fashion design companies can take to engage consumers and keep their story on track.
to close storefronts should prepare a store- by-store business plan to determine which stores should remain open and which leas- es should be rejected. Because §365 of the Bankruptcy Code gives retail debtors only 210 days from the petition date to decide whether to assume or reject store leases, pre- planning is prudent with the retailer having identified which stores are profitable (leases assumed), which stores should be closed (leases rejected), and which are “bubble stores” which will be the focus of rent reduc- tion negotiations. Retailers can then begin negotiating with landlords prior to filing for bankruptcy, and use the 210-day period to finalize the terms of renegotiated leases.
Inventory
Inventory serves as the traditional col- lateral for retailers’ working capital facilities with advance rates based upon a percentage of the liquidation value. Key to recovery— and key to flexibility in seeking additional liquidity—is maintaining a proper balance of inventory (sizes and colors) and current (in-season) merchandise. Retailers who self- liquidate by selling at large reductions (50 percent off or greater) will benefit from an immediate liquidity uptick but potentially cannibalize overall recoveries from a sub- sequent “store closing” process. It’s critical for retailers to weigh the need for liquidity against preservation of an adequate inven- tory balance to enhance overall values.
Conclusion
When seeking to increase value, retailers should think creatively. Whatever concerns an individual retailer faces in adapting to industry shifts, conducting a detailed busi- ness assessment and formulating a custom- ized approach can unlock untapped assets and maximize value. For any strategy, advanced planning and innovative thinking are key to a successful outcome.
Fast Fashion
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against Lord & Taylor in 2016. In that case, the commission’s complaint alleged that, “as part of the roll-out of Lord & Taylor’s Design Lab clothing collection, the retailer paid 50 top online so-called fashion ‘influencers’ to post Instagram photos of themselves wearing a paisley dress from the collection.” See www. ftc.gov/news-events/press-releases/2016/03/ lord-taylor-settles-ftc-charges-it-deceived- consumers-through. The FTC further alleged that “Lord & Taylor failed to disclose that it had pre-approved each post, required that the posts include the retailer’s social media handle and hashtag, and that each poster had been given the dress—as well as pay- ment of up to $4,000—in exchange for their endorsements.” Id.
The FTC included copies of the FTC Endorsement Guidelines, in addition to pro- viding background information on when and how marketers and influencers should dis- close a material connection in an advertise- ment. They specifically highlighted material regarding tactics utilized by influencers and brands wherein hashtags and other disclo- sures fall below the “more” button, out of plain view of the post itself. Such tactics, as noted by the FTC, do not properly alert the consumer to the disclosure and are likely to cause confusion.
While the FTC has been limited in enforce- ment of potential violations following the issuance of the guidance letters, consum- ers have been active in taking action against
‘Three Change’
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work. Assuming that a valid copyright exists, in order to prove infringement, a plaintiff must show: (1) that the defendant copied the plaintiff’s protected work, and (2) that the copying was sufficiently extensive that the resulting product is “substantially similar” to the copyrighted work. Substantial similarity is determined under the “ordinary observer” test (just as confusing similarity under the Lanham Act is evaluated by the “ordinary purchaser”), i.e., whether an ordinary reason- able person would conclude that a protect- able expression was unlawfully appropriated by taking material of both substance and value.
Apparent variations, however, are usu- ally insufficient to defeat a claim of copy- right infringement when the overall visual impressions are essentially the same. In fact, the Second Circuit, after reviewing a “lengthy” list of differences between two sweater patterns, stated: “These differences in detail, while requiring considerable ink to describe, do little to lessen a viewer’s overwhelming impression that the [defen- dant’s] sweaters are appropriations of the [plaintiff’s] sweaters.” Knitwaves v. Lolly- togs, 71 F.3d 996, 1004 (2d Cir. 1995) (empha- sis added). Ultimately, the court determined that an ordinary observer would find the “total concept and feel” of the sweaters
brands and their use of influencers to pro- mote goods and services. One recent rash of lawsuits against the ill-fated Fyre Festival is likely to have a ripple effect on fashion brands and their use of influencers in social media marketing campaigns.1 At present, the organizers (and in some cases, the influenc- ers) are the subject of six federal and one state class action lawsuits, in addition to four individual lawsuits. In time, brands and influencers will see the fate of such strate- gies through Fyre. As such, brands should pause before pursuit and ensure compliance.
Many fashion brands, especially emerging brands, remain uninformed of their obliga- tions regarding consumers, as evinced in their marketing and sales campaigns. More so, such brands are ill-equipped to imple- ment the best practices for addressing the legal obligations companies have when they market themselves. As such, without procedures and protocols in place, these brands open themselves up to substan- tial regulatory and legal action, let alone considerable consumer backlash through social media.
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1. Multi-million dollar class actions against the Fyre Festival organizers include: Jung v. McFarland (April 30, 2017); Chelsea Chinery, Shannon McAuliffe and De- siree Flores v. McFarland (May 2, 2017); Petrozziello v. Fyre Media (May 2, 2017); Herlihy v. Fyre Media (May 3, 2017); National Event Services v. Fyre Festival (May 3, 2017); Reel v. McFarland (May 5, 2017); Seth Crossno v. Fyre Festival (May 9, 2017); EHL Funding v. McFarlane (May 11, 2017); Oleg Itkin v. McFarlane (May 12, 2017). In addition, the Fyre Festival organizers are under a criminal investigation by the U.S. Attorney’s Office, the Southern District of New York, and the Federal Bureau of Investigation.
to be overwhelmingly similar. Id. Obvious studied changes have been viewed by legal tribunals negatively.
Looking Forward
It is important to grasp the difference between legal inspiration and illegal infringe- ment. As the Second Circuit has noted, “[the] intent to compete by imitating the successful features of another’s product is vastly differ- ent from the intent to deceive purchasers as to the source of a product.” Streetwise Maps v. VanDam, 159 F.3d 739, 745, 48 U.S.P.Q. 2d 1503 (2d Cir. 1998). Circumventing this potentially actionable and deceptive intent, however, is not achieved by adhering to a fictional, albeit convenient, “rule” governing proportionate changes.
This “rule” is not based in law. Rather, fash- ion industry professionals must assess any “likelihood of confusion” or “substantial simi- larity” rather than focusing on making stud- ied modifications to an inspirational item.
No brand is immune from potential claims. Increased education, careful consideration and specialized legal review will allow brand owners to develop strategies to minimize the threat of infringement actions. We advise clients with a fashion-friendly version of the cardinal rule: If it would bother you, then it would bother someone else. Though fashion may move fast, there is simply no fast “rule” to avoid potential infringement, and in the end, there is no replacement for originality.