Protecting the Confidentiality of Your Key Suppliers

trade secrets label

A case that was decided last year by the New York Supreme Court, Kings County, illustrates the importance of protecting the confidentiality of proprietary supplier and manufacturing sources.
In this case, a wholesale distributor of off-price apparel engaged an employee to assist the distributor in sourcing merchandise from overseas manufacturers. The distributor and employee made a number of trips to a South American country where the distributor sourced merchandise through a business broker who provided introductions to local apparel factories.

After a few years, the employee left the distributor to work for a competitor that began to place orders for merchandise with these same factories through the same broker.

The distributor subsequently brought an action against the employee and the competitor for unfair competition claiming that the identity of the broker and associated factories constituted trade secrets, which the employee misappropriated for his own and the competitor’s benefit.

Under New York law, a former employee may generally solicit a business’s customers, so long as the employee is not bound by a non-compete agreement, does not solicit the customers while still employed by the business and does not rely on customer information that was wrongfully obtained or which constitutes a trade secret. The courts have applied a similar standard when evaluating whether the identity of a company’s suppliers may be treated as a trade secret, often also considering whether the company had exclusive arrangements with those suppliers.

In determining whether information is a trade secret, New York courts frequently apply a six factor analysis:

  1. the extent to which the information is known outside of the company;
  2. the extent to which it is known by employees and others involved in the business;
  3. the extent of measures taken by the company to guard the secrecy of the information;
  4. the value of the information to the company and its competitors;
  5. the amount of effort or money expended by the company in developing the information; and
  6. the ease or difficulty with which the information could be properly acquired or duplicated by others.

The court ultimately decided the action in favor of the employee and competitor, determining that the identity of the broker and the associated factories were not trade secrets. The distributor did not establish that the broker or the factories had promised to or did, in fact, sell exclusively to the distributor and did not show that the identities of the broker and the associated factories were confidential. The distributor also failed to provide evidence that it had undertaken great effort in discovering the factories, in establishing a business relationship with the broker or in keeping the identities of the parties secret.

The lesson here is that businesses that depend on key suppliers should not rely on trade secret protection alone to protect these relationships. Instead, they should take steps to identify as proprietary that information which they wish to protect and should enter into appropriately tailored non-compete and non-solicitation agreements with their employees that are designed to prevent them from disclosing or otherwise taking unfair advantage of such information of which they become aware during the course of their employment.

Credit: R. Brian Brodrick

Brian is a partner in Phillips Nizer’s Corporate Law and Securities & Private Placement Practices.


I Didn’t Recognize You with Your Clothes On

That was a pickup line in the tavernas of the island of Mykonos back in the day, spoken to fellow vacationers fresh off the clothing-optional Paradise Beach.  In the ongoing and sometimes dysfunctional relationship between clothing and the law, the usual first requirement of the law is that you wear some.  Not that anyone on Mykonos asked what Greek law said about beach attire.  And Mykonos is not alone.  Nudity is forbidden on the fashionable Caribbean island of Saint-Barthélemy, but the island’s own website advertises the virtues of its two enchanting nude beaches.

Clothing on Beach 108288676_8Could it be said, where beaches are concerned, the law makes allowances?

Consider that, on a chilly May morning in San Francisco a few years ago, while I was attending the Annual Meeting of the International Trademark Association (INTA), I put on every piece of warm clothing I brought with me and left my hotel before breakfast to catch the start of the Bay to Breakers Race—which is more of a brisk constitutional in outlandish costumes than anything resembling a marathon.  As the race progressed, men and women dressed for Carnival passed by in great numbers and, within this crammed costume parade, a few were sauntering—not running—in the nude (save for sneakers).  San Francisco has since adopted an ordinance banning public nudity (something it had previously not bothered to do), but our Bay Area correspondent, the Fabulous Mrs. John, reports to us that the naturalist practice remains a feature of the race.

In People v. Santorelli, a case decided in 1992 by the Court of Appeals of New York (the state’s highest court), the law making it a crime for a woman to expose her breasts in public was ruled inapplicable to topless sunbathing in a public park on the grounds of discrimination based on sex.* More than two decades later, New York women are still getting picked up by overzealous police officers unfamiliar with the case law.

Suffice it to say that, around the world, this most simple of legal imperatives about fashion—when outside, put something on—has had a ragged enforcement history.  There are also laws about fabric composition and the identification of country of manufacture, among other essentials that apply to each article of apparel—and on and on from there.

The point is, starting with the simple insistence that we all wear clothes, the law has interposed itself into every aspect of the fashion business.  For that reason, consulting your lawyer before you get going on anything both new and important—or before getting yourself involved in something that your business judgment foretells may not sit well with someone else who might have reasons and the means to oppose you by resort to law—is the classic ounce of prevention that obviates that often painful (and expensive) pound of legal care.  In short,…

…when in doubt, call your lawyer before you get going with something new
or before trouble starts.

Do not wait until the vendor fails to deliver by the due date because no contract says he has to, until the cease and desist letter arrives, or until the competition poaches your key people.  For the sake of sleeping well at night, there is no better time to get your lawyer involved than at the earliest moment you can.  To do otherwise is like walking outside without your clothes on.  And we all know than where that can lead.

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* I am aware of the adaptation of the word gender to serve where sex was once employed. The English language is ever evolving, but here I will follow classic usage: nouns have gender, and people have sex.

Credit:  Alan Behr


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.

Dressmaker dummies / mannequines / modelsWithin 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