Recently, the New Balance footwear company won a landmark $1.5 million trademark decision in the Suzhou Intermediate People’s Court, near Shanghai, China. Daniel McKinnon, the New Balance senior counsel for intellectual property, told the New York Times: “If the China marketplace can be thought of as a schoolyard, New Balance wants to make it abundantly clear we are the wrong kid to pick on.”
The schoolyard brawl all started when New Balance alleged that three Chinese brands infringed upon its well-known New Balance “N” trademark. The three Chinese shoemakers, New Boom, New Barlun, and New Bunren, saw fit not only to use similar brand names, but also to trade off of New Balance’s international acclaim by mimicking its slanted “N” design on their shoes. A Suzhou Court cited the defendants’ free-riding, consumer confusion, and market harm as the basis for its ruling in favor of New Balance.
What makes this case important is not only that New Balance was prepared to fight for its rights in China—often a challenging thing to do—but also that it was willing to do so over a single-letter trademark.
A trademark is a source indicator that can convey a range of messages about your brand such as quality, price, taste and reputation—the sometimes obvious and sometimes mysterious factors that, in total, are the goodwill of the brand.
Brand owners often reflect upon the value and protectability of words, names, logotypes, slogans and even colors as trademarks. The victory by New Balance in a famously tough territory tells us that a lot can ride on who is found to own and have the rights to exploit a single letter.
Minimalism is as much a factor in trademark recognition as anywhere else in the broad field of visual expression. Mercedes Benz has made a simple three-pointed star one of the most recognizable marks on earth. In the USA, Louboutin owns the color red for the soles of shoes, and Federal Express owns the truncated version of its mark popularized by the public: FedEx. Take it down even further, and you get marks with one or two letters: PayPal is recognized by two cerulean stylized “P’s” and Facebook by a solitary but consequential byzantine blue lower-case “f”. Uber upgraded its former “U” mark to a modernized “U” enclosed by emerald green.
In fashion, designers have been using single-letter marks for decades. Hermès uses its elegant “H”; and of course, New Balance is using its slanted “N”. A few logos have doubled letters: Gucci has made the twin “G” into a brand; as with the seemingly reflective Tory Burch “T”, the mirrored Fendi “F”, and the interlocking “Cs” of Chanel.
Single-letter marks can be significant in fashion because a single letter can serve not only as a logo, but also as a design that can be emblazoned on clothing, handbags, shoes, etc. Meanwhile, the boom in online retail—where a mark may be only barely visible—has been the basis for the further simplification of marks. The large British online retailer Asos recently abbreviated its trademark to the letter “a,” the better to identify the brand on its mobile app.
Credit: Candace R. Arrington
Candace Arrington provides research support as a law clerk to our corporate and business law, intellectual property law and entertainment law practices.
If you were hoping that following the Supreme Court’s decision in Star Athletica you might learn whether common stripes, chevrons, color blocks and zig zags are sufficiently original to be copyrightable—a question expressly reserved by the Supreme Court and the Sixth Circuit– you will be disappointed. On August 10, 2017, the district court permitted Varsity Brands to voluntarily dismiss its copyright infringement action against Star Athletica with prejudice, over the objection of Star Athletica, which wished to pursue its counter-claims seeking to invalidate the Varsity Brands copyrights.
You might well ask, as we did, why after seven years of largely successful litigation, Varsity Brands would be permitted to walk away. Or you might ask, as we also did, why Star Athletica would object to having the suit end with no apparent injunctive or other relief awarded against it. Both are fair questions and the answer to each is unusual: The insurance company that was defending Star Athletica reached a settlement agreement with Varsity Brands, without the participation or approval of Star Athletica. The terms of the settlement are confidential. The only clue is the court’s reservation to Varsity Brands of the right to return to court if it does not receive the payment from the insurer required by the settlement. As far as Varsity Brands is concerned, not only does it get money, but it also avoids the potential for invalidation of its copyrights, having made its point that the two dimensional designs reflected in its uniforms are separable from their utilitarian features and theoretically capable of copyright protection. It now has a stronger threat to hurl at potential competitors.
But what of Star Athletica and its interest in settling its rights to compete with Varsity Brands in the cheerleading uniform market? In the view of the court, Star Athletica receives what is in effect immunity from future claims of copyright infringement related to the copyrights and uniforms at issue in the action. And also in the court’s view, Star Athletica’s counter-claims to invalidate the copyrights were only defenses to the copyright infringement claims and not independent bases for legal action once the threat of copyright liability was removed. And that is the rub: Varsity Brands has many other copyright registrations for which similar challenges to their validity might (or might not) have merit. Because the court did not provide guidance on that fundamental point, competing uniform makers remain exposed to similar infringement claims.
One can’t help feeling that the broader fashion public had an interest in the resolution of the question of whether stripes and chevrons are original when applied to garments. But it is an axiom of federal court litigation that the courts do not decide hypothetical cases or controversies for the edification of the public.
For now, if you are interested in whether stripes can be protected in fashion, you will have to focus on trademarks and not copyrights. There is always Gucci’s suit against Forever 21 for knocking off what it claims is its stripes trademark. And then, too, there is Adidas’ pending suit against Skechers for knocking off its three stripe trademark. The district court in Oregon just decided that Adidas’ trademark infringement suit can proceed.
Credit: Helene M. Freeman
The beaches of summer remind us that it is no disrespect for any of us to confess that most people do not look their best in swimwear and that those who do probably would look great in just about anything. Simply, the more the body is revealed, the more the aesthetic duties that are commonly undertaken by fashion are left to uncovered skin. Call it a triumph of artifice over nature, but for most of us, more clothing, rather than less clothing, even on the beach, is often a good thing. Fashion may make the great-looking come across even greater, but it is often a turning point, in the direction of great, for the rest of us in how we present ourselves to the world.
My colleagues and I have been writing and speaking quite a bit this year about the Star Athletica case—the Supreme Court decision that turned cheerleader uniforms into the biggest issue in fashion law in years. (Law is made by the cases actually brought, and this one just happened to be about uniforms worn by cheerleaders, but by its potential impact, you might well imagine the clothes were couture evening wear.) If nothing else, the case reaffirmed (that is, it did not change) the fact that, in the USA, anything functional in fashion cannot be protected by copyright registration (or with a design patent). When applied to swimwear, which typically represents about the minimum that the law allows any of us to wear in public, whatever precious square inches of cloth are involved almost always serve some kind of function. Finding something protectable in what is there can involve examining decorative clasps, closures and add-ons—but minimalism is the essence of swimsuit design, and such design elaborations are quite rare. That leaves for examination whatever small amount of fabric is actually in use.
As we have noted in these pages before, fabric patterns are protectable, and here, Star Athletica may be helpful in providing guidance. The Supreme Court has now told us that we need only look at a fabric pattern laid flat (in reality or imagination) to view it as we would any two-dimensional artwork to determine if it is original enough to be protectable by copyright. The shape into which it is cut—as swim trunks or a bikini, for example—is irrelevant. That is good news for fabric designers. It confirms that it does not matter how little of the design is there to see: if it is original and visible, it is theoretically protectable.
During the 4th of July weekend, I heard a young man compliment another, his tennis partner, on baggy swim trunks and a matching baseball hat—both made of blue cloth filled with an exaggerated white pattern that looked like multiple slash marks. At a pool the day before, a woman was similarly complimented for a black bikini that had small but intricate white designs only on the cloth that just about covered her right hip and left breast. If any of that is original, it may well be protectable.
Does that mean it is getting harder for a fashion company to know if a fabric being offered to it for use in garments is potentially infringing on the rights of others? Does it mean you have to worry about some design that would not fill the space that could be occupied by a chocolate-chip cookie? Unfortunately, that is likely the case. Where that next takes us is for the courts to decide—but not for now. Summer is here and many of those people you will see on the beach are copyright lawyers and judges, putting much of this behind them until fall.
Credit: Alan Behr
Recently, the Federal Court of Appeals for the Ninth Circuit upheld an injunction issued for the benefit of members of the Kardashian family against their cosmetic products licensee.
The Kardashians had terminated the license agreement due to the licensee’s alleged failure to pay royalties, among other alleged breaches. The licensee continued to exploit the license and sell products bearing the Kardashian trademarks, asserting, among other things, that “the Kardashians’ termination of the license agreement was invalid because the Kardashians breached the license agreement first . . . .”
The district court found for the Kardashians, holding, unremarkably, that a licensee has but two options when faced with a breach of the license agreement by the licensor: “First, the licensee can consider the contract terminated and stop performance. Second, the licensee can instead continue making royalty payments under the license agreement, continue using the trademarks, and then sue for damages. Regardless, the licensee cannot both stop paying royalties but nevertheless continue using the trademark.”
Although the options presented to a licensee by the district court decision are seemingly reasonable, they can present real risk to the licensee. For example, if the licensee had made significant investments and engaged a large staff to support the licensed business, terminating the agreement and closing down the licensed business not only will put any number of people out of work without advance notice, but also may result in defaults under the licensee’s banking arrangements and the loss of its entire business, thus giving rise to consequential damages potentially far in excess of any award for actual damages to which the licensee may be found to be entitled. Under the district court decision, the licensee’s option in these circumstances would be to continue the licensed business and bring an action against the licensor for damages, with the attendant relationship issues potentially adversely affecting performance, while continuing to make royalty payments with no guaranty that the licensee’s damages can be recouped, even after years of expensive litigation.
There is another quite unremarkable statement in the decision, which, although not in any way undercutting the ruling, may give some guidance as to how a licensee may attempt to protect itself in circumstances like those that the Kardashian licensee alleged it was facing. The court wrote, “like all contracts, trademark license agreements are governed by general principals of contract law.”
Among the most wonderful aspects of our contract laws is that the parties can, in effect and with few limitations, create their own law as to their rights and obligations under almost any circumstances. Accordingly, a licensee familiar with the Kardashian case might look to create a contractual structure whereby it would not have to pay royalties in the event of a significant breach by the licensor or, more realistically, a contractual structure by which it would not have to chase the licensor, at great expense, to recoup royalty payments in order to continue to exploit a generally valuable license agreement.
It is not uncommon to see license agreements in which the licensor has included a right for the licensor to set off amounts due and owing to it by a licensee against any outstanding payment obligations it may have to the licensee. However, even if a licensor would be willing to make this provision bilateral, these provisions are objectively problematic because they cannot be reliably drafted to prevent with certainty a party from merely alleging that the other owes it money in order to trigger the clause (unless, of course, a claimant party is required first to obtain a final judgment as to the amount allegedly owed, which brings us back to the problems with option number two). A better and more objective protection would be to allow the licensee to put its payments of royalties into escrow, with an obligation to take some formal legal action in accordance with the license agreement’s arbitration or litigation provisions before, or reasonably soon after, it notifies the licensor that the escrow account has been established. Assuming that the licensee establishes in the proceeding that it is entitled to damages, the escrow fund, even if less than the damage award, will be available to be applied toward the satisfaction of the judgment. It also is possible that establishing an escrow account and making payments into the escrow account will help relieve at least some of the tensions arising from awkward efforts to work together while the parties are adversaries in court or in an arbitration and perhaps even salvage the relationship after the legal action has ended.
Credit: Jonathan R. Tillem
In the cosmopolitan city of Barcelona, several of us, including my colleague Alan Behr, gathered for a private fashion industry meeting at the exquisite Hotel El Palace. While sipping tea and sampling fine pastries, we heard brief presentations on important legal developments from around the world.
Owen Tse, a partner at Vivien Chan & Co. in Hong Kong, presented on the New Balance case before the Intermediate Court in the People’s Republic of China. The court ruled in favor of the Chinese company New Barlun, which New Balance had accused of selling infringing footwear. The court relied on the fact that New Barlun had filed the Chinese mark before New Balance had made an attempt. To add insult to injury, the court awarded the equivalent of US $15.8 million to New Barlun, which was subsequently reduced to the equivalent of approximately US $700,000 by the Appeals Court. Owen also reported an interesting fact—“Ivanka Trump” in Chinese was the subject of more than 300 trademark applications in the PRC since 2016.
In addition, the practice of using “shadow companies” to infringe the Chinese translation of well-known brand owner’s trademarks is on the rise in Hong Kong. Infringers promote themselves by claiming they have authorization or license from the shadow companies. Example: Pearl Bay vs. Peony Bay in English and Chinese.
From Amsterdam, Herwin Roerdink of Vondst Advocaten gave a presentation regarding fashion brand owners and European Union data protection regulations. Herwin discussed the issue of smart products, such as socks that collect running data of their wearers and golf shirts that track swings, all in connection with EU privacy regulations. Specifically, a new EU privacy law, GDPR, EU 2016/679, which will become effective on May 25, 2018, imposes heavier regulation and more obligations on data controllers and data processors, whether or not the data is processed in the EU. GDPR also applies to the processing of data of those in the EU by non-EU entities that offer goods and services that monitor behavior in the EU. Non-EU fashion brand owners who target EU customers with monitoring products will therefore be subject to the regulation.
Herwin also explained the differences between the approach of the Dutch data protection authority and the United States Federal Trade Commission regarding the permissibility of WiFi tracking by retailers. Although the Dutch decision was based on Dutch implementation of the EU Privacy Directive, which focuses on whether the processing is necessary to achieve the desired purpose, the FTC decision was based on balancing the concern for customer harm and the legitimate interests of the retailer.
From London, Roland Mallinson of Taylor Wessing updated us on the implications of Brexit to fashion IP, on the assumption that the United Kingdom will not leave the EU before March 2019. Roland predicted that existing European Union Trade Mark (EUTM) registrations will likely continue to be recognized in the UK. He posited that parallel filing in the EU and UK is not imperative now, especially if you are not yet using your mark in the UK. He expressed confidence that there will be some arrangement by which current EUTM trademarks and those being filed now will result in protection in the UK, from the current priority date; however, because nothing is for certain, Roland recommended that strategically key brands continue to file UK applications in parallel with any new EUTM applications. For existing UK and EUTM registrations, it does not automatically follow that a new UK application should be filed now – even for strategically key brands.
The discussion also focused on the practical issue of transferring 900,000 EUTM registrations to the UK system, a process made more complex by the fact that a fair number of the registrations were not filed in English. Some issues, like parallel imports and European design rights, have political sensitivities.
Finally, I made a presentation regarding the important Star Athletica case, which was decided by the US Supreme Court in March 2017. We have previously reported on that development in our blogs on March 22, 2017 and May 5, 2017.
In short, we had a very enjoyable and productive meeting. And as anyone who attends the INTA annual meeting knows, half the pleasure for us was being able to sit down while we networked with friends and colleagues.
Credit: Monica P. McCabe
Thank you to Phillips Nizer law clerk Candace Arrington of our Corporate & Business Law and Intellectual Property Law Practices for providing assistance with the review and preparation of this blog post.
My partner Helene Freeman has offered her reflections on these pages about the recent Supreme Court opinion in Star Athletica, L. L. C. v. Varsity Brands, Inc., commonly known as the cheerleader uniform case. Our Fashion Practice held a seminar recently for the industry where Helene provided further thoughts based on her posts, and I provided some practical considerations based on the court’s ruling. Here is a brief summary.
The key point to remember is that the Supreme Court has greatly simplified how you look at cases of apparel and accessory copyrights and claimed infringement. Because the case involved fabric patterns, I will limit my discussion to them, but there are broader implications, from belt buckles to furniture. The bottom line is this: from now on, we will not examine the garment itself, just the surface design. It no longer matters that, if you take stripes, chevrons and other familiar cheerleader-uniform patterns off the uniform, all you have left is a tennis dress–that is, something with a different function from a cheerleader uniform. All we need do is look at the pattern on the fabric used to make the dress, as if it were unrolled from a bolt of cloth and laid flat. In fact, it does not even matter if a cutter snips pieces from the bolt into a recognizable shape of a dress. It’s the design of the fabric, and just that design, that matters from now on.
That possibly makes even more important the question that the Supreme Court sent back for consideration by the trial court: whether the design that was allegedly copied embodied enough original expression to warrant protection by copyright. The rule is that even modest creativity, when fixed in a creative work, is protectable by copyright. (All you haiku writers, take heart.) Using neckties from several makers and nations as an example, I showed our conference attendees that original variations to familiar patterns (such as bees and starbursts) could be protectable. Even if what results is a “thin” copyright, it is still enforceable.
That leads to a follow-on reflection: There being no central database of protected designs, and with fabric designs now being viewed as if standing alone, as some kind of sartorial Ding an sich (a “thing in itself” in Kantian philosophy), if you have a pattern that looks like it might be original, and if you intend to spend time and money using it to make clothing (or other products), now, more than ever, it is important that you seek copyright registration–and that you discuss your options with counsel. Because the cut of the cloth and claimed usefulness (as in, “Those look like the kind of stripes I would find on a cheerleader uniform.”) are now irrelevant for copyright purposes, you will have to undertake your analysis in a field of potential risk beyond that formed by the goods you are making. Using cheerleader uniforms as an example once more: stripes and chevrons on those uniforms, if upheld as protectable by copyright, could, in theory, be infringed upon not merely by designs on competing uniforms but also by fabric designs on anything that is nonfunctional (such as a purely decorative wall hanging) or functional (such as neckties, carpets and sofas).
That brings us again to our favorite money-saving advice: discuss these issues with knowledgeable counsel before you invest your time and money. In the law, that ounce of prevention is worth at least a ton of cure.
Credit: Alan Behr