Fashion Law columnist Anna Zabrotskaya, Co-head of the Fashion & Lux Practice at law firm Borenius, met with leading fashion lawyers from global fashion capitals New York and Milan. Douglas Hand, a partner at American law firm Hand Baldachin & Associates (HBA), and Ida Palombella, head of IP and technology at law firm Withers, spoke about the specific features of providing legal advice in the field of fashion law.
Manages the intellectual property and technology practice in Italy. Worked for several years at Valentino, one of the most famous fashion brands. Has represented the Italian chamber of fashion (Camera Nazionale della Moda Italiana - CNMI) and is a member of its intellectual property commission.
One of the USA’s most influential lawyers in the field of fashion law. Sits on the Business Advisory Committee of the Council of Fashion Designers of America (CFDA). Is an adjunct professor of Fashion Law at both NYU School of Law and Cardozo School of Law. Began his career at Shearman & Sterling.
1. Why have fashion-related legal services developed into a distinct practice area in law firms?
Douglas Hand (DH): Fashion is a two trillion dollar industry. It’s massive. Fashion law really covers a whole breadth of areas of law that touch on the industry where the application of the law for a fashion brand has its own specific nature, distinct from other areas of the economy. This can take in IP, corporate finance, employment law, the leasing of retail space, import/export regulation and litigation.
Ida Palombella (IP): Law in the fashion industry covers all legal areas, but is mainly based on day-by-day business matters and a knowledge of specific insights and approaches that lawyers have devised for the specific needs of the fashion industry. For instance, in Italy, license and distribution agreements are not expressly governed by the Civil Code but they always provide for a specific set of conditions and provisions that is typical for the fashion industry. The same applies to the contracts between designers and fashion companies as well as other types of labour contracts entered into with models or store personnel.
2. But why it is important to understand the fashion industry for a lawyer? What is the difference between, for instance, M&A and fashion M&A? Employment contract and employment contract for a fashion company?
DH: An M&A deal in the fashion industry often involves “acquiring” a great number of IP items and, in the case of designer led brands, certain non-proprietary life rights (author’s note – in the USA these are also transferable as proprietary rights). This makes for a difficult group of assets to both value and, in some cases, transfer. Knowing the fashion industry is crucially important.
Employment law also has specialized interpretation for creative employees where non-compete provisions and rights to designs really matter. There are many industries where you could say, “If I lose Tommy Hilfiger, but I own the “Tommy Hilfiger” brand, I will be fine.” In fashion you won’t be fine if you lose the creator, as you can’t have a contract which obligates a man to continue to work for a company. Its slavery. Each situation like this poses a challenge to a lawyer.
IP: When I started to work for fashion companies, I understood at once that everything is completely different from other industries. Knowing the specific features of the fashion business is a major help when you practice law. For a lawyer who wants to work in the fashion industry, it’s very important when someone from the industry can give you the inside track and explain how things actually work in practice. This was one of the reasons why, together with the Italian Fashion Council, I decided to launch a special fashion law course in Milan.
3. What are the most common issues you have to deal with in your practice? What keeps you busy at the moment?
DH: Every day it’s something new! During a single day, I might find myself jumping from an early stage financing for an emerging brand, to a potential litigation for another brand, to an IP protection issue for yet another brand.
IP: Assignments change from one day to another. We have 4 fashion weeks in Milan, where I work. Before fashion week everything is very hectic. For instance, I often have a request to draft an agreement, or resolve a dispute, or similar, and everything needs to be done at top speed. During fashion week, I spend half my working hours outside the office, attending shows and different events. For me this is also a very important time in my work, when I can see the actual work done by my clients. After fashion week, everything settles down and work issues can be resolved against a more peaceful backdrop. In many cases we have personal relations with clients, especially when we work with designers, which means they can also ask not for legal advice, but raise a common sense matter or a commercial point. This allows me to play the role of a business advisor on occasions.
4. Who are your main clients (designers, big brands)?
DH: We have a mix of clients but certainly by number, we represent more emerging brands and representatives of fashion-tech businesses. The larger brands we represent (over $100 million in revenues) are still private companies.
IP: Likewise, we work with designers and big brands. Of course, big brands have their own in-house legal departments and they generally involve us to work on special projects only. Smaller companies, on the other hand, ask us to do a lot of day-by-day work, like drafting license agreements, distribution contracts and so on. I also assist designers, whether they are just starting out or are well established. In addition, I also work with companies which are not directly in fashion themselves, but have a link with the industry: in particular these may be models and PR agencies, but these days also digital fashion or SMM agencies.
5. Who are your main competitors? Who are the main players overall on this market: boutique firms or practice groups within firms, sole practitioners or in-house lawyers?
DH: I don’t call to mind ever encountering such a narrowly focused adviser as HBA. Large firms have several relevant specialists but not the direct specialization. Smaller boutiques focus on the more traditional legal disciplines like IP, dispute resolution or tax.
For the larger brands in-house legal departments do most of the legal work. And they only use external consultants for major matters, such as litigations and M&A deals. It is extremely difficult for a brand to use its own internal resources to handle a major piece of litigation, nor would they undertake M&A deals and IPOs independently. In these fields, law firms are the players. No one at these firms will draft terms and conditions on the web or work on collaborations between small brands – the brands have the resources to do this on their own. We do a lot of that “in-house” work for brands that are not big enough to hire internal lawyers.
IP: Likewise in Italy, but I must say that, though it seems strange, there are not so many lawyers who specialize in fashion right now. For a long time in Italy, there was a tradition to specialize in a specific area of law, like labour law, IP law, or commercial law. Now we see a tendency to focus on particular industries (like the pharmaceutical industry, for instance, or oil and gas). And I think that in 10-years’ time we will have a new generation of lawyer, specializing in various industries, including fashion.
6. Copying is a well-known problem in fashion. How can a designer be protected against copying in the US and Italy?
DH: Copying is a problem, of course, but there are varying schools of legal thought regarding how to resolve it. In the USA, a design is protected only by patent law. Patents are, however, difficult to obtain, particularly for apparel, where very little in design is truly novel. Moreover patents for a design are an expensive luxury. In America, copyright affords some protection mainly over fabric prints and certain items of jewelry. A trademark is the most effective form of legal protection of IP here in the US, but it does not protect a design, just a brand name.
There is an opinion that the cycle of fashion itself requires that there should be copying. Because by virtue of copying, people who are less fashionable get close to the item and then those who are at the cutting edge create fashion, thinking about the need to design something new. And that creates a cycle of consumption that makes fashion a multi-trillion dollar industry.
IP: Design protection in Italy is very different from regulation in the US. If the work is very original and creative and has an artistic value, you can count on it enjoying copyright protection. It is also possible to apply for an international, European, or domestic design registration, but this requires some expenditure before it becomes clear whether the product will be successful on the market. We also have rules restricting unfair competition, which require proof of who first brought the idea to life, and how famous it was before the competitor came onto the market. And, of course, we should also remember the registration of trademarks.
7. What do you think about accounts like Diet Prada?
DH: I believe that they are generally not a bad thing in that they try to create debate over cases of copying and make an honest attempt to establish design attribution. Given the limits of the current law as well as the costs of engaging competent legal counsel, social media has given smaller brands the fairly practical route of making copiers the subject of public discussion. This digital vigilantism has proven effective for several brands and independent designers, if not in being awarded compensation for the copying, at least in having the offending products withdrawn.
IP: Social media is definitely being used more and more nowadays for almost everything, including the struggle against counterfeits and copycats. But the problem is that it is sometimes very difficult to establish in these types of cases who is copying whom. Once I was advising a designer who had allegedly copied some ideas from another designer, who was his former classmate at design school. In the end it turned out that both of them had taken their ideas from the old archive of Gianni Versace. And this happens all the time in fashion, because it is genuinely difficult to invent something completely new.
8. How often do fashion disputes end in a court room? What types of dispute resolution are widespread in the fashion industry?
DH: The cycle of fashion is incredibly swift. The process of litigation in America is extremely slow. Thus, disputes relating to design protection often do not make it to court. The parties settle or the copied brand simply ignores the copy.
Disputes that center around licenses, brand collaborations, investments or non-compete violations do end up in court reasonably regularly. I would say disputes arising from contractual relationships are considered in court just as often as alternative dispute resolution measures, such as arbitration, are applied to such disputes.
IP: Litigation in fashion occurs fairly rarely, and there is a preference for resolving disputes without going to court. For instance, the settlement agreement which was reached many years ago in the long lasting trademark litigation Mario Valentino v. Valentino is still in force, in particular, preventing the latter from placing the word Valentino on branded bags.
9. Is there any example of a class action lawsuit against a fashion brand?
DH: Sure. The industry has seen a few waves of plaintiff lawyer led class actions over the years. For instance, in relatively recent memory there was the issue of unpaid interns – it was very common practice in the fashion industry not to pay interns. These claims tended to result in large awards of compensation. This is linked to the fact that insufficient rates of remuneration and violations of the rules for maximum working time have been grounds for class actions against employers.
Labeling is another example of a cause of class actions in the fashion industry. In California “Made in the USA” labeling is highly regulated as are certain disclosures regarding amounts of potentially hazardous substances like lead. Since all brands sell into California, they are subject to such state laws, and the losses linked to non-compliance with local requirements can be substantial.
IP: Class actions are not very widespread in civil law jurisdictions. In Italy we have enacted a specific legislation a few years ago but the actual implementation raises many practical and procedural issues. I am not aware of any highly publicized examples in the area of fashion, but recently some such actions were started in relation to telecoms and insurance companies.
10. What advice you can give to a fashion brand which would like to enter the US or Italian market?
DH: Hire competent US counsel who is conversant with issues in and the specifics of the fashion industry. Otherwise, you could either overpay or be poorly served. It is generally advisable (even necessary when entering into US contracts) to form a US subsidiary and to pay particular attention to structuring the business in the US in terms of the optimal structure for the international group of companies as a whole.
IP: You need to attract a blogger/influencer who enjoys prestige in Italy to present a collection at the fashion week in Milan, in particular, the women’s fashion week in September, which really has the eyes of the fashion world on it. From the legal perspective, of course, you need to register a brand, and to enter into a good distribution agreement to be sure that your products are distributed among the top shops in the major cities. It is of course necessary to exercise care in protecting your IP, and to launch a quality website and social media marketing. For the Italian market it is also very important to have everything in the Italian language.