As we noted in an earlier post, one of the most familiar teams in fashion is the designer and his business manager, such as Yves Saint Laurent and Pierre Bergé. There are also design teams such as Domenico Dolce and Stefano Gabanna. (Taking the role of the “suit” in that family business is CEO Alfonso Dolce, who is Domenico’s brother.) If it is essentially just two of you at first, little, if anything, may end up in writing, but as your business expands, that kind of relaxed approach will become impossible to maintain. If roles and, just as important, compensation, are not formalized, misunderstandings and disputes are likely to arise. The law being about nothing if not the prevention of disputes and their resolution, we always advocate the preventative approach: set things up to prevent troubles from the start, so that they don’t jump out at you from a bend down the road—and make doing business either unnecessarily difficult or completely impossible.
Start with the form of your organization. Although it is legally possible, to a point, for two or more people just to announce they are a business and to operate as an unorganized general partnership, that is rarely a sound approach. Every partner will immediately become, and remain, personally liable for everything the business does and for its financial problems—all of them, whoever among the team may have caused them. You can make things a bit easier for yourselves by putting it in writing, but what you put in writing is critical, and it makes sense to organize in a way that limits personal liability. Keep in mind that the word partner, which has a precise legal definition, is thrown around indiscriminately these days to mean any pairing, from companies doing business together to people in love. In a general partnership, however, the old-time definition of partner applies: a co-venturer who is personally on the hook, for whatever he or she is worth and then some, for whatever debts and other liabilities the business may incur.
To prevent that from happening, two generally preferable organizational structures are available for new businesses that intend to engage in designing, manufacturing, distributing or selling fashions or accessories: the corporation and the limited liability company. They are both roads that lead to the same good end: if the business is conducted properly, its owners generally are immunized from personal liability for the actions of the company. Which organization form works better for you is a question that your legal and tax advisors will help you resolve at the time of organization.
For both forms, however, there is an important doctrine of law that has to be considered, and its consequences need to be avoided: “piercing the corporate veil.” It is every bit as brutal as it sounds. The “veil” of limited liability is “pierced” and you end up personally liable for the debts of the business, legal judgments against it, and so on. The easiest way for that to happen is for a business owner to use the company as a “mere instrumentality” for himself or herself, for example, using the business’s checking account to pay for personal obligations or otherwise comingling business and personal funds. You say you would never do that? Good. Now look over your shoulder and ask if your co-venturer is as careful in the segregation of business from personal affairs as you are. If that is not the case, it may be a good time to get the company’s attorney involved and do a business practices compliance review.
We never said that getting along is easy to do.
Credit: Alan Behr
One of the ways to build brand identity in fashion is to create strong customer recognition of a particular color as a signature of the brand. That has value across all lines of commerce. We can be sure, for instance, that no one will consider starting a worldwide package delivery service that uses solid-brown trucks and driver uniforms. In fashion, there are many examples, from Tory Burch’s orange doors to the red outsoles of Christian Louboutin footwear—the latter of which became the subject of important litigation in the United States.
In the Louboutin case, Louboutin v. Yves Saint Laurent Am. Holding, 696 F.3d 206 (2d Cir. 2013), the Second Circuit Court of Appeals held that Louboutin could retain its trademark registration for red lacquered outsoles for “women’s high fashion designer footwear” in which the outsole and upper were of contrasting colors. What that means is that, if your competing shoes are monochrome, as was the YSL style (which had a red heel and insole as well), you can use red lacquered outsoles. But for all other such footwear, Louboutin owns the exclusive right in the United States to use lacquered red for outsoles. Both sides in the case were therefore able to claim victory: the particular Yves Saint Laurent style did not infringe the Louboutin trademark because it was indeed all red, but the Louboutin trademark was not stricken from the register, simply limited to what Louboutin has mostly been doing all long—which is to put lacquered red outsoles on women’s footwear with contrasting uppers.
It is not often that litigation ends in such a win-win scenario, but the message remains the same in any situation: If you have an important color that you believe is part of your brand’s “signature,” work with counsel to structure efforts to seek protection of that color as an element of both a trademark (a brand identifier in the form of words and logotypes) and trade dress (a brand identifier in the form of particular elements of product packaging and, with a bit more effort, the products themselves).
There are related issues. One is the color spectrum: if you are claiming the color blue, what range between blue-tinted white to midnight blue, on one hand, and green-blue to gray-blue, on the other, are you claiming as your true blue? Another issue is the business spectrum: what are the product categories and the markets (by type of customer, price point, etc.) for which you are claiming exclusivity for your color? And as the Louboutin case shows us, much may ride on the positioning of your “signature” color on products (and packaging) and your ability to prove that the marketplace understands that the signature is yours alone.
The takeaway from all this remains much the same as with other questions concerning branding in the fashion and accessories sectors: marketers should work closely with lawyers and get them involved as early as possible in the decisions that they make.
Credit: Alan Behr