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.
I once insisted to my colleagues that it really is nothing to write a blog post: you can do it while waiting in the checkout line at Whole Foods.* Although that has proven overly ambitious, I was indeed standing in that very line the other day when a customer laboriously explained to a cashier about how another market had developed biodegradable non-paper bags, how her cooperative apartment building simply disposed of the Whole Foods bags without recycling, and in general how unrealistic it was for Whole Foods to expect anything good to come out of its use of paper shopping bags. The cashier, a very young woman, clearly had not been expecting, on punching in that morning, to debate sustainability with a stranger; she took the woman’s payment and gently encouraged her to move on.
Why did the loquacious customer decide that a cashier was the right person to address shopping bag policy at a company with 91,000 employees? I reflect on that because I am sometimes approached by people in the fashion business in the hope that I will introduce them to others who can help them in their careers. Young designers want me to introduce them to retailers. Entrepreneurs at start-ups want help in meeting financiers, and financiers want me to introduce them to the owners of thriving businesses and distressed businesses. Sometimes, I can accommodate them, but because lawyers tend to rub elbows with other lawyers and with executives who need (I did not say want) to speak with lawyers, doing so is not commonplace for use. My contacts are therefore what you would expect from a fashion lawyer: people who have devoted at least part of their work lives to dealing with contracts, governmental filings and lawsuits.
There are many different areas of expertise and specialties in the fashion and luxury goods businesses. And there are also many layers of responsibility. We all know that, but when you want something enough, it is easy to forget—and to hope that whoever you can easily get hold of is the right person to meet. Before approaching an organization, it is always a good idea to learn as much about it as possible, first to know about what it wishes to reveal about itself, second to know what it expects next to achieve, and third, and perhaps most important, to know who is the gatekeeper for the topic you are hoping to bring to the fore. Your lawyer can sometimes indeed be a resource. We have access to databases and we do know useful people. So we may have the right contacts for you—or we may not; it all depends on what you want and on those old but eternally important variables: good timing and good luck.
We have come a long way in gaining quick access to information from the days when, at the insurance company where I once worked, the people in charge of investments made sure to own one share of every corporation listed on the New York Stock Exchange, just to be able to receive the annual report. But that information and so much more is now readily available online—which of course means you do not need anyone else to look for you, as long as you know where to look. It is when the devil arrives with his proverbial details that lawyers can sometimes help—as can accountants, consultants and all the other professionals who absorb the time and money of business people everywhere. It is just part of the game, but it is a game we should all know how to play.
* Because I know I will be asked, as was the case with this post, the best time to catch up with your blogging is while waiting for your eight-year-old to soak himself and everyone nearby in a water-gun fight at a very wet playground.
Credit: Alan Behr
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
The Supreme Court decision in Star Athletica L. L. C. v. Varsity Brands, Inc., No. 15-866 was announced today and the fashion industry can breathe a huge sigh of relief. In fact, the industry, especially accessory businesses, would be justified in popping open the Champagne. Not only did the Court uphold the Sixth Circuit’s judgment that the designs of the cheerleading uniforms were separable, it greatly simplified and expanded the two- and three-dimensional features of useful articles that can qualify for copyright protection.
The opinion holds that the design of a useful article is eligible for copyright protection if the feature can be perceived as a copyrightable two or three-dimensional pictorial, graphic or sculptural design separate from the useful article, on its own or in some other tangible medium, if it can be “imagined” separately from the useful article. Physical separability is not required. The analysis of separability under the statute is a purely conceptual undertaking. Conceptual separability does not require that the remaining part of the useful article, apart from the two and three dimensional design, be either fully functional or even equally useful. The focus of the separability analysis under the copyright statute is on the extracted two- and three-dimensional design and, according to the Court, one need not “imagine a fully functioning useful article without the artistic features.” Nor does it matter, the Court holds, that the artistic feature plays a role in the function of the useful article.
All of the other glosses on conceptual separability that the various appeals courts had previously articulated are swept away. It does not matter that the artistic feature of the design would be marketable separately, so long as it can be imagined as existing. It doesn’t matter that it was conceived originally for the useful purpose to which it was put.
Left for another day is whether the specific designs at issue are copyrightable. That will be the task of the trial court on remand. However, Justice Ginsberg notes in a footnote that the requisite creativity for copyright is extremely low.
Credit: Helene M. Freeman
It had to happen, and it did in, of all places, The Wall Street Journal. Late in February, Jacob Gallagher contributed an article persuasively advocating for a new appreciation of baggy pants. Even as The New York Times obsessively writes about President Trump (Not long after the inauguration, I counted twenty-six pieces revisited to him on The Times‘ home page.), here comes the more conservatively leaning Journal to bring us news we can use: the ins and outs of wearing slouchy trousers.
Menswear runs in somewhat erratic cycles, with lean and trim tailoring having been the look in (roughly speaking) the years following WWI and the 1960s and much of this century, with looser cuts, often led by trousers with pleats, having been in vogue in the decades in between. Risking a generalization, when youth dominates fashion and popular culture, slim is in. Consider The Beatles and all those earnest young and lesser bands of our present era. Giorgio Armani rose to fame when he helped end that earlier cycle with his looser cut suits that draped, rather than seemingly adhered to, Richard Gere in American Gigolo (1980). In his Journal story, Jacob Gallagher quoted Patrick Grant, the designer for E. Tautz (London): “A lot of people are just not built for skinny trousers, particularly those of us who have a few years under our belt.”
All well and true, except when it isn’t. As Mr. Gallagher just barely hinted, baggy is hard to pull off if you are what he politely termed “vertically challenged”—which is to say, you can all too easily end up looking like a bar mitzvah boy forced to wear one of his father’s suits. I am not short but not anywhere near tall and not in my first youth. Having slimmed down to my high school weight and buffed up in the gym, however, I slide into the trim, Italian-inspired Brooks Brothers Milano cut like a cartridge into a revolver breech. My London tailor, Henry Poole & Co., had to snip my pattern down to comply with the requirements of my new physique. I trimmed the trousers of the Henry Poole suits already in my wardrobe and have gone down two waist sizes, even as I only buy slim cuts in casual wear. A leading fashion stylist who had worked hard in the svelte-deprived ’90s to get me to puff out now says I look great while deflated back to slim. Who wants to upset that?
And so: a thank you to The Journal for letting me know that slouchy has again gone mainstream. This time, I am having none of it. As I said in these pages before, I realized late in life (as a Uniqlo customer), that I have the taste and build of a Japanese teenager. Every other guy can and, if it strikes him as correct, go baggier than Bozo. This fit but not so tall guy is sticking with the trim cut that suits him best.
As my partner Helene Freeman has blogged, we await word from the Supreme Court about what standard will be used to determine what designs on cheerleader uniforms are properly protectable by copyright. (Star Athletica, LLC v. Varsity Brands, Inc., et al.). That case could have wide implications for anyone whose after-school activities include jumping up and down in decorated tennis dresses in front of football bleachers—and potentially for many others as well. The debate on the cut of trousers, shirts and jackets will, happily, be unaffected. In the USA, despite sincere efforts to change the law, the pattern (outline) of a garment is unprotected as long as it is a functional element—which it nearly always is. Designers and their customers have free reign to go baggy or keep it lean, without interference by lawyers or judges. The question, I am happy to report, is one of taste, not of jurisprudence, at least under American law. Apply your own style sense or consult your own personal stylist, and best wishes with that.
Credit: Alan Behr
Pose! Click! Flash! Those are just a few of the sights and sounds of Fashion Week, an exciting time here in New York City. I had the privilege of attending one of the week’s first events–PH5’s Presentation at Bortolami Gallery in Chelsea.
I was awed by the entire experience–stark white walls adorned with giant white balloons set against a row of willowy models in unique and colorful knits and clear plastic above-the-knee boots. As the models stood in mannequin-like pose on small white pedestals, cameras went off at lightning speed and reporters surrounded designer Mijia Zhang and owner Wei Lin. Others, many of them dressed to perfection, crowded into the gallery to see the looks–and look over each other. The energy was high and fast.
After some gawking and conversation over maple water, the onlookers drifted out and the room cleared just as quickly as it had filled up. It was then that I was struck how much the show reminded me of Christmas morning when the kids tear through numerous well-wrapped gifts in literally minutes. After all of the time-consuming preparations in browsing, choosing and wrapping gifts and placing them under the trimmed tree, the excitement is over in a matter of minutes. The same is true of a fashion show.
I thought of all of the hard work Wei, Mijia and their team put into making the excitement of the show. From choosing a brand, to designing the clothes, selecting eye-catching fabrics, obtaining quality manufacturers and selecting the “right” models, space and décor, the coordination is overwhelming.
As a lawyer, my mind, of course, then jumped to the “dark side.” The months of planning to over-in-minutes analogy made me think of how quickly PH5’s designs could be ripped off. We do not have copyright protection for clothing designs in the United States so copying is not only inevitable but also permitted. I have heard many a designer tell me about the frustration they experience when all of the time, effort and money they expend to create a line of clothes can be out the door in minutes when photos of fresh clothing are sent overseas and copied instantly. A few years ago, bills were introduced in Congress to give limited protection to clothing designs but they never made it anywhere. As a result, the copying continues, at least in the U.S., at the same frantic pace as Fashion Week. Some countries like France guard their famous designers by protecting clothing designs.
Some designers with novel fabrics may be luckier than others. For example, PH5 has what the Daily Beast calls “technically sophisticated knits” which can be protected by copyright. Original fabric designs are protected by copyright in the U.S., which does help alleviate the created today, knocked off tomorrow syndrome. Whether a design qualifies for protection is a question to raise with counsel—well enough before the fashion show starts—in order to help gain a measure of legal (and therefore business) advantage over makers of knock-offs.
Credit: Monica P. McCabe