Is the Country of Origin Labeling Requirement Unconstitutional?
Posted: June 3, 2014 Filed under: Accessories, Cases, Childrenswear, Menswear, Womenswear | Tags: Federal Trade Commission, First Amendment, FTC, SEC, Securities and Exchange Commission, U.S. Constitution Comments Off on Is the Country of Origin Labeling Requirement Unconstitutional?
The constitutional rights of businesses are hot topics. Freedom of speech is a fundamental tenet of liberty, protected by the First Amendment to the Constitution, that benefits commercial entities as well as individuals. The right to spend unlimited money to support the election or defeat of particular candidates for office derives from the right to freedom of speech. But does the same First Amendment right protect businesses from being compelled by government regulations to speak on matters as to which they would prefer not to comment, whether or not they are “controversial” or “political”? Is there a freedom to refrain from speaking?
If you think this question has nothing to do with fashion, you would be wrong. Every manufacturer in the fashion and accessory business labels its products with their “country of origin”, guided by detailed regulations promulgated by the Federal Trade Commission. Decisions in two recent cases, which have nothing to do with fashion, but everything to do with government regulations compelling businesses to speak on the source of their products, suggest that the “country of origin” regulatory scheme for the fashion industry may be challenged on First Amendment grounds.
A federal statute requires country of origin labeling for meat to address the country where the animal was born, raised or slaughtered. New rules for implementing the statute were promulgated in 2013 to comply with a World Trade Organization ruling on a complaint from Mexico and Canada, requiring greater specificity in describing separately the country where each of these events in the animal’s life occurred. A group of trade associations, feedlot operators and meat processors filed suit to enjoin the rules, claiming they violated the First Amendment. The argument was rejected by a three judge panel of the Court of Appeals for the D.C. Circuit, holding that the First Amendment did not bar the government from compelling factual speech on a non-controversial matter that might be of interest to consumers. The full court, however, voted to hear the case anew before all eleven judges of the court. The parties were directed to address the scope of First Amendment protection for mandatory disclosure of purely factual and non-controversial commercial information, compelled for reasons other than preventing consumer deception.
The outcome of this review may be foreshadowed by the same court’s decision on April 14, 2014, striking down Securities and Exchange Commission regulations that required public companies to disclose whether they used “conflict minerals” (minerals from the Democratic Republic of the Congo used by warring factions to finance their operations) in products they marketed or manufactured. The three judge panel found that it was unconstitutional to compel speech in the absence of a need to prevent consumer deception.
So one might well ask whether it is unconstitutional to compel apparel manufacturers to say anything about the subject when they are not marketing goods based on the country of origin. What purpose does it serve and do consumers need the information?
Credit: Helene M. Freeman
License to Kill (Your Business)
Posted: June 2, 2014 Filed under: Accessories, Childrenswear, Footwear, Licensing, Menswear, Womenswear | Tags: Hermes, licensees, licensors, Ralph Lauren Comments Off on License to Kill (Your Business)Licensing represents an opportunity for a fashion brand founded on one or a small number of product lines to stretch into almost any clothing, jewelry, beauty or accessories category—and beyond. Moving into a broad range of products and services has been an especially successful strategy for luxury brands. Consider that Ralph Lauren started as a maker of men’s neckties and that Hermès began as a maker of harnesses for carriage horses. Although you sometimes hear the saying that, “No one ever got rich licensing a brand,” licensing can be a useful, even necessary tool to build brand awareness among both old and new classes of customers. When you leap into categories that have specialized production requirements, unique distribution methods or simply just high barriers to entry—consider timepieces, fragrances and eyewear—licensing is about the only sensible way to make it happen.
But what is a legal article without a warning about pitfalls? (Just as designers are paid to create and merchants are paid to awaken and satisfy customer desire, lawyers are paid to worry.)
- For the licensor, a key concern is that its licensing agent or licensees themselves may prove unmotivated or unable to bring the brand’s image to new product lines. A licensor can find itself devoting an inordinate amount of time to servicing the product development needs of its licensees—to the point that, in extreme cases, the licensor can start to feel as if it is working for its agent or licensees. On the other hand, licensees’ successes may kindle the temptation to over-license, risking dilution of the brand.
- For the licensee, pitfalls can include disapprovals of products by the licensor that result in missed shipping dates, lost markets or revenue, confusing or incomplete branding direction or support (especially after a change of control at the licensor), and all the potential dangers that come from devoting your business to enhancing the goodwill of someone else’s brand.
Any one of those concerns can cause serious—and in extreme cases terminal—problems for participants in the licensing game.
In subsequent posts, we will review the ins and outs of licensing in more detail. As with a good story, where the art is in the telling, with a good license, the art is in the drafting.
Credit: Alan Behr
Preventing Trouble From “Popping Up”
Posted: May 19, 2014 Filed under: Accessories, Real Estate | Tags: landlords, leases, pop-up stores, retail, tenants Comments Off on Preventing Trouble From “Popping Up”
Pop-up stores have become fashionable among small businesses and large companies alike because they offer a company the opportunity to sell merchandise and to test retailing concepts with minimal investment. They are also advantageous for landlords who hope to rent space that is temporarily being carried without rental income.
From the perspective of tenant counsel, however, there can be difficulties. Because the whole point of the exercise is to offer customers a temporary retail experience at minimal financial exposure, the client is seeking to avoid expending large sums on legal fees. If the client concludes that there is very little financial risk due to the short-term commitment, there can be a tendency to ask for minimal or even no involvement by counsel.
Complicating matters, the landlord is also looking to minimize legal fees, with similar pressures on its counsel to hold down fees. The attorney for the landlord will therefore often send its standard lease form with only minimal modifications to tailor the lease to the pop-up concept. Because standard form commercial leases typically impose maximum liabilities on the tenant (which is contrary to the pop-up concept, at least from the tenant’s point of view), the tenant’s lawyer may well find it difficult to deliver a fair lease at the right price.
As an example, the lease form from landlord might provide that, in the event of fire damage, the landlord has a substantial time to rebuild. That makes no sense for a pop-up store. The draft lease may also provide for tenant to make all sorts of repairs to the premises, often including building systems. That is hardly an expectation of the tenant when signing a lease for temporary space. Compliance with law can prove tricky under the best of circumstances. Even a long-term tenant must protect itself from expenditures in case the premises need to be brought up to code. Although the pop-up tenant must of course comply with applicable law, it likely will not want to be responsible for any expense to the pop-up due to deficiencies in the building or the leased premises. The date of delivery of the leased premises is also an issue. A landlord typically wants a grace period if it is late in delivery. For a pop-up tenant, for whom every day of a short-term rental will likely count, any delay in delivery could spoil everything.
Fighting out the applicable clauses concept-by-concept and line-by-line with the landlord’s attorney cannot lead to satisfaction for anyone due to time constraints and the desire to keep down legal fees. In my experience, the best way to handle the problem is to put in an “omnibus” clause such as:
Notwithstanding anything in this Lease to the contrary, the parties agree that Landlord shall be responsible for all repairs, ventilation, utility lines, maintenance and compliance with laws regarding building repairs that commercially reasonable parties would expect a landlord to perform, taking into consideration the length of this lease and the demised premises’ use as a “pop-up” store, and all other provisions of the lease (including, without limitation, casualty, condemnation, access to premises for improvements, failure to timely deliver possession, and use of existing facilities such as electrical wiring and meters) shall be deemed so modified in the light of the same reasonable expectations. No “To Let” or “For Sale” signs shall be permitted at the Premises.
Credit: Steven J. Rabinowitz
Steve is counsel in Phillips Nizer’s Real Estate Law practice.
Fashion: It is a business.
Posted: May 19, 2014 Filed under: Accessories, Childrenswear, General / Musings, Intellectual Property, Menswear, Womenswear | Tags: brands, designers, fashion law, manufacturers, retailers Comments Off on Fashion: It is a business.In business law, whatever the business might be, commercial considerations come first. An airtight contract or brilliantly argued appeal means nothing if it showcases the lawyer’s prowess but fails to deliver on the client’s business objectives. For anyone practicing fashion law, the first rule, after knowing the law, is to know fashion and the fashion business.
Within that broad mandate, we all bring our personal points of view, as future posts on these pages will surely reveal. And here are a few of mine:
Our Fashion Practice Group represents designers, manufacturers, brands and retailers. That translates roughly into hope, expectation and reality. Design has every right to be seen as one of the applied arts; as with all the arts, practitioners must be mindful of the marketplace but not be a slave to market expectations. Overall, I see designers as optimists by nature; they are energized by hope even as they labor to fulfill our dreams.
In representing designers, we borrow methods from our art law and general business practices, working to defend originality in design with the legal tools of copyright, trade dress and design patent protections. In contracts, we help designers in their relationships with the makers of the fashions they conceive and in the protection of their names as brands.
For a manufacturer or brand owner, the designer’s work has transformed into expectation–of sales, market share and ultimately of brand enhancement. Here is where we devote much of our work to trademark protection, contracts with suppliers ranging from manufacturing sources to advertising agencies, to factoring deals, and contracts with retailers.
What is retail if not a bucket of true reality for every fashion design ever to make its way to the judge and jury of all fashions—the eye and wallet of the consumer? To make that a successful encounter, we help with store leases; the employment of sales staff and others; stop-in-shop deals; and, of such increasing importance, website development and maintenance, and social media utilization. However inspired the vision, however brilliant the execution, and however clever the marketing and display, if the customer does not buy it, what you have on the racks are rags, not riches. The job of the fashion lawyer is to do what he or she can to bring each fashion fairytale to a close in the way that all fairytales should—with a happy ending.
Credit: Alan Behr
