LAW ÀLA MODE Issue 14 – October 2014

Understanding the new EU Consumer Rights Directive

Free Zones in the UAE

Karen Millen Fashions Ltd v Dunnes Stores

Online business and German employment law

Consumer data protection in the EU, US and China

Risks of an Insolvent Retail Acquisition

Protection of Design Patents for apparel

Online retailing and the Asian Real Estate market Fashion, Retail and Design Group Contents

Understanding the EU Consumer Rights Directive...... 04 An overview of the new Directive on Consumer Rights and its implementation in Belgium, France, Italy and the UK

Free Zones in the UAE...... 08 What do they mean for retailers?

UNRegistered Design Rights...... 09 The recent CJEU ruling in Karen Millen Fashions Ltd v Dunnes Stores

Online retail business struggling its way through German employment law...... 10 Protecting privacy in the EU, US and China

Consumer Data Protection in Online Retail...... 12 Protecting privacy in the EU, US and China

Insolvency in the Fashion Retail Sector...... 14 Understanding and managing the risks of an insolvent acquisition

From Logging on to Logistics...... 16 Online retailing and the Asian Real Estate market

Seeing Beyond Doggie Wear...... 18 What MCR Innovations teaches us about the obviousness of design patents

BUSINESS ROUND UP...... 19 The news and the views

CALENDAR...... 20 What’s on where you are

02 | Law à la Mode Editorial

The German editorial team is proud to present to you the Moving outside e-commerce, on page 8, we provide you 14th edition of Law à la Mode, the quarterly legal magazine an insight into doing business in the free zones of the UAE. brought to you by DLA Piper’s Fashion, Retail and Design Continuing their series on insolvency in the retail sector, group. We aim to bring to you, our readers, cutting-edge our Restructuring professionals examine the risks of an developments and trending topics worldwide in this fast insolvent acquisition at pages 14 – 15. growing and ever developing industry. The protection of intellectual property is of utmost This issue looks in particular at e-commerce. Online trading importance for brands. A recent decision of the European has transformed the retail industry worldwide. Going hand Court of Justice deals with the protection of unregistered in hand with globalisation, digitalisation has put a new spin design rights under EU law (page 9). On page 18, on doing business for retailers, providing both exciting the spotlight is on design patents for apparel, following opportunities and challenges. a 2014 US Federal Circuit decision. Consumer rights and consumer protection are fundamental Last but not least, we conclude our 14th issue with the usual to online business. In Europe, EU legislation has been central business round up (page 19) and our calendar of upcoming to developing the legal framework for protecting consumers fashion events (page 20), to keep you up to date on what is in electronic commerce. As of June 13, 2014, the Directive on going on. Consumer Rights 2011/83/EC has replaced earlier directives concerning distance contracts and contracts negotiated away We hope you enjoy this edition of Law à la Mode. from business premises. We delve into the key provisions If you have any comments, please get in touch with of the new Directive and reflect on its implementation in the Fashion, Retail and Design group via our email address: Belgium, France, Italy and the (pages 4 – 7). [email protected] ● From an employment law perspective, we consider the challenges faced by online retailers in Germany when employing temporary workers and being pressed for Editorial team collective bargaining agreements (page 10). Dr. Kai Bodenstedt Protection of consumer data and privacy is another critical and contentious issue in online retail. On pages 12 – 13, we take Dr. Kai Tumbraegel an in-depth look at consumer data protection, covering the Dr. Stephanie Rohlfing EU, US and China. Our Real Estate team joins the e-commerce debate at Dr. Astrid Schnabel pages 16 – 17, examining the impact of the shift towards online retailing on the Asian real estate market. Bricks-and- mortar stores might be on the decline, but the demand for physical warehouse space is increasing.

www.dlapiper.com | 03 Understanding the EU Consumers Rights Directive

by Max Wenger (Cologne)

Reports in 2013 about online business transactions across information requirements. It has amended Directives 93/13/ EU national borders revealed some disturbing facts. According EEC and 1999/44/EC and repealed Council Directive 85/577/ to the 2013 Flash Eurobarometer reports (nos. 358 and EEC and Directive 97/7/EC. In their stead, it adopted the 359, 2013), retailer and consumer attitudes regarding Directive of the European Parliament and of the Council of cross-border transactions were similar: only 36 percent October 25, 2011 on Consumer Rights (Directive 2011/83/ of European consumers felt confident enough to make EU – Consumer Rights Directive). cross-border online purchases, while an alarming 40 percent Member states within the European Union were mandated to of retailers felt that compliance with the varying national have implemented the Consumer Rights Directive into their consumer protection rules would be too costly for business. respective national laws by June 13, 2014. Accordingly, only 25 percent made any effort to reach out to consumers beyond their national borders. The scope of the Consumer Rights Directive in general covers all contracts between a trader and a consumer but explicitly Recognizing a huge untapped potential for economic growth in excludes several contracts, such as contracts for social online sales, the European Union reviewed existing Directives services, healthcare, gambling or financial services (Article 3). dealing with consumer protection to identify options to improve the exploitation of such potentials. As a result, the The Consumer Rights Directive is organized into six chapters. European legislature has decided to standardize and simplify Chapters two to four are particularly pertinent, setting up rules and guidelines, especially with regard to mandatory the playing field for retailers and consumers and the rules and guidelines both parties must adhere to. Chapter two lays out specifics for “non-distance” and “on-premises” transactions – e.g. transactions at the retailer’s established place of business, such as the retailer’s shop, market stall or fair stand. Chapter three spells out the rules for “distance” and “off-premises” transactions (these include transactions by phone, mail order, e-mail, Internet or, alternatively, on the consumer’s doorstep or any other place away from the retailer’s established place of business). Additionally, Chapter three governs the consumer’s right to withdraw from distance and off-premises contracts. Chapter four covers – among others – legal questions regarding time and execution of delivery (Article 18), as well as fees a retailer is allowed to pass onto the consumer (Article 19), fees for communication by telephone (Article 21) and the condition of the consumer’s express – i.e. no-default settings – prior consent for any payments additional to the regular remuneration (Article 22).

04 | Law à la Mode What does this mean for online retailers? Here is a brief methods (for example credit card and debit card fees summary of some major changes that will affect businesses or telephone fees) are not permitted in excess of what operating online. retailers are themselves subject to payment for.

■■ Implementation of further fundamental information ■■ The seller must provide a confirmation of the contract obligations with respect to consumer contracts concluded on a durable medium (email suffices) within depending on whether the sale has been made on- a reasonable time after the conclusion of the contract, premises, off-premises or at a distance. The new obligations i.e. at the latest at the time of delivery. comprise, among other things early information on Taking into consideration all the above, it is important to note delivery restrictions and on the means of payment which that the Consumer Rights Directive itself allows member are accepted – e.g. information on guarantees including states to refrain from applying it for transactions off-premises the applicable conditions or the interoperability and which are not in excess of €50. The Consumer Rights compatibility of technical products. Directive specifically provides that member states may define ■■ Far-reaching amendments and harmonization of laws on an even lower value in their national legislation. distance selling, e.g. revision of the right of withdrawal. Beside the extensive regulation of off-premises and distance An EU-wide model withdrawal form, which although sales, the Consumer Rights Directive stipulates for the not mandatory, provides for uniform instructions and first time comprehensive information requirements for information exchange between retailers and consumers on-premises sales. These include information on the main no matter where business is conducted within the characteristics of the goods, the identity and the contact EU. Non-compliance with the obligation to inform details of the retailer, the total price (see above), arrangements the consumer about these rights will lead to an extension for payment, delivery and performance, the retailers complaint of the withdrawal period to 12 months from the end of handling policy as well as a reminder on the guarantee of the initial withdrawal period. The direct costs of returning conformity for goods and the conditions of after-sales services the goods in the course of a withdrawal can be imposed and commercial guarantees. on the consumer, provided he or she is informed about it correctly. However, EU member states are free to not apply such obligations to contracts on day-to-day transactions, which ■■ Final prices must be indicated, including tax, and where are performed immediately at the time of their conclusion. such prices cannot be reasonably calculated, the manner Hence, classical fashion business in retail stores will not be in which the price will be calculated must be provided, affected in all member states. including all additional freight, delivery or postal charges. Additional price elements may not be added by default Below, we look at how the Consumer Rights Directive settings which the consumer is required to reject. Extra has been implemented into the national laws of selected fees and surcharges associated with using certain payment member states ● Implementing EU Directive 2011/83 into French law

by Gregory Tulquois and Farid Bouguettaya (Paris)

The Consumer Rights Directive was implemented Additional costs are prohibited if the trader in France by the so called Loi Hamon of has not obtained the consumer’s prior March 17, 2014. express consent. The Loi Hamon strengthens the information Furthermore, the Loi Hamon contains obligations on traders which cover in particular provisions that were not required by the main characteristics of the goods/services, the Consumer Rights Directive, for identification of the trader, accepted means of example regarding the consequences of payment, information on the payment obligation, an unfair term in a BtoC agreement: a delivery restrictions and right of withdrawal, judge must rule on unfair term(s) on its among other things. own initiative if the issue arises during The French Consumer Protection Authority proceedings. The DGCCRF and consumer (DGCCRF) can now impose an administrative associations can claim for the removal of fine of up to €3,000 for individuals and €15,000 the unfair term(s) from any similar contract for legal entities in case of noncompliance. between the trader and other consumers (erga omnes effect). The Loi Hamon also The right of withdrawal is extended to 14 days contains provisions regarding the authority (or 12 months in case of a lack of information), and sanctioning powers of the DGCCRF; and the trader must refund the consumer it introduces a procedure for bringing a class within 14 days. The DGCCRF can impose action under French law (not yet applied); an administrative fine of up to €15,000 for and it includes certain provisions that are individuals and €75,000 for legal entities in case of applicable to BtoB contracts ● noncompliance.

Implementing EU Directive 2011/83 into Belgian law

by Julie De Bruyn (Brussels)

Belgium has implemented the Consumer this prohibition does not aim to protect Rights Directive by means of the Act of the consumer, but rather the interests of December 21, 2013 introducing Book VI of traders. As this is still a highly controversial the Economic Law Code on Marked Practices issue for traders, which is currently the and Consumer Protection, as published on subject of discussion before the courts, it is December 30, 2013. The previous Act of unfortunate that the legislator did not take April 6, 2010 on Market Practices and Consumer the opportunity to create clarity for traders Protection was formally repealed with the (and consumers) in this respect. exception of articles 110 to 118; in practice The Consumer Rights Directive however, the majority of the provisions of the Act furthermore extends and streamlines were codified in the new Book VI and substantial the right of withdrawal for consumers, modifications were made to align these provisions from 7 working days to 14 calendar days. with the Directive. In Belgium, a minimum term of 14 calendar Book VI imposes among other things, a more days was already in place for distance extensive information obligation on the trader contracts, however, the previous (7 working towards consumers. The Belgian legislator explicitly days) term in Belgium for off-premises chose to allow almost no exceptions to this contracts has now been extended to information obligation, even though the Consumer 14 calendar days in accordance with the Rights Directive provided for the possibility to Consumer Rights Directive. What was do so. already set out in Belgian consumer protection legislation has now also been The Belgian legislator furthermore maintained the confirmed by the Consumer Rights prohibition for the , footwear and leather Directive, notably that the consumer is goods sector to announce price discounts in the not required to provide a motivation for blackout pre-sales period, but emphasizes that exercising his right of withdrawal ● 06 | Law à la Mode Implementing Directive 2011/83/ EU into Italian Law

by Sara Balice (Milan)

Italy implemented the Consumer Rights Directive In the case of distance or off-premises sales, by adopting the Legislative Decree no. 21 of traders must also inform consumers on the February 21, 2014 effective from June 13, 2014 conditions, time limit and procedures for which amended the Italian Consumer Code. exercising the 14 days right of withdrawal and The new rules apply to any contract provide the consumer with a model concluded between a trader and a withdrawal form. consumer, with the exceptions indicated In case of online/off-premises contracts, in the Consumer Rights Directive (as the trader must provide the consumer outlined above). As allowed under Article 3.4 with confirmation of the contract entered of the Directive, Italy decided that the new into, including the pre-contractual rules do not apply to off-premises contracts information, on a durable medium. Traders for which the payment to be made by the are prevented from surcharging consumers consumer does not exceed €50. in respect of the use of a specific means of According to the new rules of the Italian Consumer payment, or to seek any extra payment for Code, a number of pieces of information additional services not expressly requested by (for example on the main characteristics of the the consumer. goods or services, the identity of the trader) Pursuant to Article 24 of the Directive, the must be provided by the trader to the consumer Italian Antitrust Authority has the power to before the latter is bound by a contract. An supervise the implementation of the new exception is provided for contracts involving rules and to impose administrative fines up day-to-day transactions and which are performed to €5,000 in case of breach ● immediately at the time of their conclusion.

Other Member States

In the UK, the Consumer Rights Directive has been implemented in line with the guidelines mentioned above by two sets of regulations, namely the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 and the Consumer Rights (Payment Surcharges) Regulations 2012 ●

www.dlapiper.com | 07 Free Zones in the UAE By Katie Montazeri (Dubai)

The UAE is comprised of seven emirates, and its laws are AED100,000 (approximately US$27,000). This means that free promulgated at both the federal and emirate level. Federal zones have typically been of little interest to retailers (and their laws override the laws passed by the individual emirates. non-UAE distributors), who wish to trade in onshore UAE. There are also various free zones within the UAE with laws Specifically, the restrictions on onshore trading mean that a which are passed by the relevant emirate, but limited to the free zone company is effectively treated in the same way as area within the free zone. To date, the UAE’s free zones a business established outside the UAE for the purposes of have been successful in attracting a large number of overseas the foreign investment rules and may only own 49 percent companies and foreign direct investment to the UAE. of an LLC. However, companies in certain free zones may be licensed by the free zone authorities to carry out online Outside of the UAE’s free zone, UAE nationals or companies trading, which cannot easily be restricted to onshore activities. wholly owned by UAE nationals must own at least 51 percent This is not necessarily consistent with the restriction on free of a limited liability company’s shares. Within the free zones, zone companies from onshore trading, and this seems likely foreign nationals can own 100 percent of the share capital of to be an area for future reform. the free zone entity. In total, there are over 25 free zones, some specifically for certain industry sectors, such as Dubai Media For parties seeking to do business in offshore UAE, factors City and Dubai Biotechnology and Research Park. Imports into which are likely to influence the choice of free zone include Dubai’s various free zones do not attract import duty. their location, the infrastructure available and the likely set-up and capital costs ● Generally speaking, free zone companies may not do business outside the free zone in onshore UAE, and anyone who violates the provisions of this law can be fined up to

08 | Law à la Mode Unregistered design rights the Karen Millen case

by Stefania Baldazzi (Milan)

The recent decision of the CJEU in the design protection under the Regulation from a number of earlier designs, but Karen Millen case provides important because of their lack of individual by one or more earlier designs, taken guidance to fashion designers and character, also pointing out that the individually. retailers who rely on unregistered Regulation required Karen Millen to By its second question, the referring design rights in their designs according prove such individual character. court asked, in essence, whether, in to the Council Regulation (EC) The Supreme Court of decided order for a Community design court No. 6/2002 on Community Design. to refer two questions to the CJEU for a to treat an unregistered Community The CJEU ruled in favor of Karen Millen preliminary ruling on how to interpret design as valid, the right holder of that in the proceedings, which concerned Article 6 and Article 85(2) of the design is required to prove that it has sales made by Irish retailer Dunnes Regulation. individual character within the meaning Stores and which were brought of Article 6 of that Regulation, or needs By its first question, the referring court pursuant to the Community Design only to indicate what constitutes the asked, in essence, whether, in order Regulation No. 6/2002 (hereinafter individual character of that design for a design to be considered to the Regulation). (under Article 85(2) of the Regulation). have individual character, the overall Karen Millen started the proceedings impression which that design produces The answer to the second question for damages in 2007, claiming that some on the informed user must be different was that the right holder is not required of Dunnes Stores’ products infringed its from that produced on such a user to prove the individual character of its unregistered designs in a striped shirt (in by one or more earlier designs, taken design but need only indicate what, a blue and a stone brown version) and a individually, or by a combination of in his view, are the element(s) of the black knit top, which had been produced features taken in isolation and drawn design concerned which give it its and sold since 2005. Karen Millen also from a number of earlier designs (under individual character. sought an injunction restraining Dunnes Article 6 of the Regulation). The decision will be warmly welcomed from using the designs. The answer to the first question was by rights holders in the fashion The High Court upheld Karen Millen’s that the overall impression which the industry, who can now benefit from a claim, following which Dunnes brought design produces on the informed user strengthening of the protection afforded an appeal before the Irish Supreme must be different from that produced to unregistered designs. We may, Court alleging that the Karen Millen on such a user not by a combination of however, ask ourselves how this move garments were not entitled to benefit features taken in isolation and drawn would affect the registration system, from the unregistered Community which should remain the preferred way to protect creative designs ●

www.dlapiper.com | 09 Online retail business struggling its way through German employment law By Kai Bodenstedt and Astrid Schnabel (Hamburg)

Labour unions and collective bargaining agreements

As the profits of German online retailers increase, so too do labour union’s efforts. Other employees have even been the HR pressures that such businesses face. As electronic retail known to protest against the strike activities of the labour businesses hire more and more workers, they are increasingly union members and supporters, for instance by signing lists faced with labour law issues. For example, the primary and giving press interviews voicing their strong anti-strike German trade union for the retail sector, ver.di, has tried sentiments. desperately to get a foot in the door at several online retailers. Nonetheless, online retailers, being pressed by trade In particular, ver.di has tried to organize the employees in unions for change, are gradually increasing wages and have these businesses by initiating works councils elections. started offering benefits to employees, such as holiday pay. The main goal of ver.di, however, is to achieve the conclusion But, on the other side and even more importantly, such of collective bargaining agreements (CBA), providing an companies are also looking for alternative solutions to the identical wage level in retail- and mail-order businesses. problem. First steps have already been taken in this respect, Currently, most of the big online retail businesses are not with some online retailers considering opening locations in bound by CBAs and pay lower wages corresponding to those other countries or changing their legal form from a German in the logistics and distribution sector. Aktiengesellschaft to a Societas Europaea, resulting in fewer participation rights for their employees. However, it seems like the market may be difficult for ver.di. The support among employees is not great; only a relatively small number of employees seem to participate in the

10 | Law à la Mode These developments show the business that both the Temporary Worker provides for a limitation of 18 months framework and changes that online Agency and the hiring business need of temporary employment, meaning retailers are likely to face in the future to fulfill, for instance with regard to that a worker may not work for the as well. In Germany, labour unions and length and type of the employment same hiring company for more than union members have a constitutionally agreement, compensation or payment 18 months. This limitation is based protected right to strike. However, of social security benefits and taxes. on two main considerations: Firstly, since these unions have a comparatively Under the Temporary Workers Act, they fear an impact on the social small number of members working the temporary worker is considered security system if wages of temporary at online retailers, even big market as an employee of the agency and not workers do not exceed the minimum names like Germany based online shop the hiring business. Thus, the agency contribution level. Secondly, differences “Zalando” (selling clothes and shoes) or will be held responsible as employer, in wages between a company’s shopping club “Brands4Friends”, an ebay while the hiring business is bound to permanent workforce on one side subsidiary, have so far stayed under the the temporary workers agency by way and its hired, temporary workforce on radar with regard to wage agreements of a service agreement. the other side are considered unfair, and working conditions. Overall, in particular if the employees carry out Even though the regulations on also in classic retail businesses with the same work. temporary workers have been in place brick-and-mortar stores, the number for several years, they have allowed Keeping this in mind, employers might of employees organized in labour unions business a flexible approach to staffing. have to expect new legislation trying is relatively low. It remains to be seen Recently, however, the use of temporary to limit the use of temporary workers. which online retailer is the first to agree workers has been under scrutiny in Although the scope and effect of the a CBA, or whether online retail will German politics. Currently, the coalition law cannot be foreseen in detail, a loss be spared. agreement of the governing parties of flexibility is to be expected ●

Support only for peak seasons? Faced with fluctuating demands, online retailers need alternating levels of support in peak times like the Holiday season and whenever sales are increasing or decreasing. As opposed to brick-and-mortar stores, online warehouses are not limited by the physical conditions of the shop. Online retailers want and need to make use of this advantage. Therefore, flexibility in human resources management is a key factor for a successful business. The use of temporary workers in Germany is governed by the European-law based Temporary Workers Act. Temporary Worker Agencies that connect employees with jobs must be registered and licensed by the German state. The law sets specific requirements

www.dlapiper.com | 11 Consumer Data Protection in Online Retail On protecting privacy in the EU, US and China By Carol Umhoefer (Paris), Kate Lucente (Tampa) and Belinda Tang (Beijing)

Online retail presents unparalleled opportunities for reaching new consumer markets and collecting consumer data. With such opportunities, however, come heightened regulatory scrutiny, compounded by high-profile consumer data security breaches in the US, Germany and elsewhere. Not surprisingly, there have long existed specific requirements for the collection and use of consumer data in the context of online retailing, for example in the US. Other countries, notably China, are now also regulating consumer privacy, and there are more changes to come, particularly in the EU.

Regulations in the US In the US, there is a patchwork of data privacy and security by requiring notice of any material compromise of user name laws that apply to online retailers, including: and password or other online login credentials. Notably, both of these states require notice to state regulators, in addition to ■■ restrictions on the collection of personal information from children under 13 notice to affected individuals. California has also recently amended its online privacy ■■ laws mandating the encryption of credit card numbers and other sensitive data when transmitted over a website or protection act (CalOPPA) and now requires a company that other public network collects personal information online about California residents to state whether its website honors any sort of do-not-track ■■ laws requiring compliance with PCI-DSS (payment card requests, and permits any third parties to collect personal industry data security standards) information across the website and other third party sites.

■■ consumer notice laws and This amendment reaches nearly every website that engages in any sort of behavioral advertising and comes in addition to ■ ■ breach notification laws. previous CalOPPA requirements for online privacy notices. Recently, two of the most populous US states, California The California Attorney General has the ability to enforce and Florida, have broadened their data breach notification CalOPPA and has been relatively active in the privacy area laws in a manner that directly impacts online retailers, over the last couple of years.

12 | Law à la Mode California has also passed a new law giving minors a “right to are becoming more interested in data privacy and more be forgotten.” This law takes effect on January 15, 2015 and willing to take steps toward enforcing private sector personal will require websites that either target minors or knowingly information protection. This change in attitude is evidenced by collect personal information from minors to give minors the fact that a violation of the law may result in the business a way to remove any information they have posted to the operator facing such consequences as confiscation of illegal site. Notably, websites are only required to afford this right to earnings as well as a fine between two and ten times the value registered users, with respect to information they themselves of the illegal earnings. Where there are no illegal earnings, have posted. The new law would not give teens a right to a fine up to RMB500,000 RMB be imposed. have a website remove information posted about them by another person. This same law also prohibits marketing certain The latest developments in the EU products to minors, such as alcohol, tobacco, tattoos, firearms and lottery tickets. The EU, the largest jurisdiction/region with harmonized, comprehensive data protection laws, is in the final stages of negotiating the new Data Protection Regulation, anticipated to New level of consumer protection take effect in 2017. The Regulation will replace the 1995 Data in China Protection Directive and will for the most part render the In the world’s largest retail market, China, a revised Consumer EU member states’ national data protection laws obsolete. Rights Law came into effect earlier this year. This is a major One of the key outcomes of the Regulation is the dramatic development because, like the US but unlike the EU, China effect it will have on online retailers established outside the EU does not have a comprehensive data protection law. but targeting EU residents. Indeed, the Regulation is expected Although prior legislation already was applicable in part to to expand the application of EU data protection requirements consumer personal information, the addition of data privacy by having its terms apply to the processing of personal data of protection in the new Consumer Rights Law is intended data subjects residing in the EU by a controller not established to fill a legal void and make the Consumer Rights Law an in the EU, where the processing activities are related to: integral part of the laws and regulations governing data privacy ■■ the offering of goods or services to such data subjects in in China. the EU or The new Consumer Rights Law notably gives consumers ■■ the monitoring of their behavior the right to have their personal information protected in accordance with the law when purchasing and using This reflects a new approach to EU data protection law akin to merchandise or services, and requires businesses that the tenets of consumer law, which seeks to provide a minimum collect or use consumer personal information obtained level of protection to EU member state residents regardless either on-line or off-line to observe the following: of, for example, the type of sales channel, the governing law of the contract or location of the retailer. As data protection ■■ The purpose, method, scope and rules of collection and and privacy become more critical to legislators, regulators use of personal information must be explicitly stated and consumers, it is only natural that online retailers pay and consented to by consumers. more attention and invest greater resources in ensuring the ■■ Business operators must keep personal information protection of their customers’ data ● confidential and not disclose, sell or illegally provide such information to others.

■■ Business operators must take measures to ensure information security and to prevent information disclosure or loss.

■■ Sending commercial information to consumers is prohibited where the consumer has not consented or requested it, or where the consumer has indicated that s/he does not want to be sent such information. The law does not specify how business operators must notify consumers and obtain consents, or stipulate whether the notification has to be given orally or in writing, or whether opt-in or opt-out. The addition of data privacy protection to the Consumer Rights Law reflects a general trend toward greater data privacy regulation in China. PRC government authorities

www.dlapiper.com | 13 INSOLVENCY IN THE FASHION RETAIL SECTOR

Understanding and managing the risks of an insolvent acquisition By Robert Russell and Kerry Barnard (Manchester)

Opportunity arises out an ability to move swiftly can prove Some of the key practical issues of adversity attractive to any insolvency practitioner which should be considered by any appointed to deal with the sale of the prospective purchaser are set out The recent global financial crisis has distressed business. below: seen consumers tighten their belts and the retail industry as a whole has faced ■■ Time is of the essence – increasing pressure. Profits warnings Often any potential purchaser have peppered the financial pages and will be required to enter into a fashion retailers, in both the budget non-disclosure agreement when and luxury sectors, have been subject commencing negotiations in an to formal insolvency processes. acquisition. A distressed acquisition will often be completed in a matter However, for those fortunate enough of days (typically 1-2 weeks) from to be in the position of buyer, the the point at which the non-disclosure current climate can give rise to agreement is signed. considerable opportunities, including: ■■ Cash is king – Administrators ■■ the ability to cherry-pick the will favour a party who is able to business’ best assets without having demonstrate ready funds and an to acquire its liabilities; for example ability to pay cash as opposed to the acquisition of prime retail sites reliance on bank or third party and the ability to leave failing stores funding. behind ■■ Due diligence – In order to ■■ cost effective market growth structure an offer at the right level, ■■ the acquisition of direct competitors you will need to understand the state and key parts of their supply and of the business and what is on offer. distribution networks; for example, However, the nature of a distressed the acquisition of JJB Sports by sale means a limit on the amount Sports Direct of detailed and reliable current information available both in respect ■■ the consolidation of an existing business in the sector Understanding the of the assets and the financial status pitfalls of the business and a limit on the ■■ the diversification of brands and time available to review it. The lack While the acquisition of a distressed ■ of information and consequently, the ■ the development of a multi-channel business can present numerous increased risk for the purchaser, will offering; for example, by acquiring an opportunities and the ability to bolster typically enable you to negotiate a online or catalogue function. an existing offering at an attractive price, reduced price. Knowing your industry, your any purchaser should proceed with a competitors and their financial position certain element of caution and make ■■ Warranty/indemnity is key to being able to capitalise on any sure that they understand the nature protection – A purchaser cannot opportunities which present themselves. of a distressed acquisition to avoid expect the administrators to provide An appropriately structured offer by any pitfalls. any warranties or representations a purchaser with an established link to (backed by indemnities or otherwise) or knowledge of the retail sector and in relation to the business or assets

14 | Law à la Mode being sold, nor will an administrator any purchaser may wish to retain the vendor and the administrators incur any personal liability in relation the ability to operate from well- agree to provide or procure to the sale. The administrators established, landmark stores. the provision to the purchaser are under a duty not to knowingly Such premises are not always owned of the service in question (this mislead or provide false or inaccurate by the insolvent company and are could include stock management information. The buyer will, often occupied pursuant to the terms systems, electronic point of sale nonetheless, be obliged to pay the of a lease. Such a right of occupation systems etc.). This mechanism full purchase price without deduction is invariably non-transferrable provides a purchaser with time or ability to claim for losses where without the consent of the landlord. to make its own arrangements difficulties present themselves While a landlord would usually be inrespect of the relevant supply post-completion. entitled to object to the occupation or negotiate its own terms with of the premises by a purchaser of the ■■ Non-transferable assets – the supplier. business, landlords are often willing Some of the assets of the business, not to enforce their strict legal rights –– The purchaser could agree to for example, intellectual property on the basis that the rent for any make settlement payments equal and operating licences, may be period of occupation is paid, and they in whole (or in part) to any non-transferrable in their entirety or are often keen to secure occupation outstanding sums owed by the require the consent of any relevant of the premises by a solvent tenant. insolvent company to a supplier counterparty. The purchaser should in return for the continuation of therefore consider carefully the value ■■ Suppliers – A company’s suppliers supply of goods or services, or the to the insolvent business of such can be critical to the day–to-day release of goods by the supplier assets and whether or not its existing functioning of the business. When to the purchaser. This may be an business would be able to operate a company goes into insolvency, attractive proposition to a supplier without them. The need to negotiate suppliers’ terms and conditions of as otherwise it would simply with any third parties will inevitably business often permit them to take rank alongside other creditors impact timing and could delay steps to protect their position, for of the company and would likely completion. example, terminating the supply only receive a small “pence in the contract. Suppliers are often in pound” return from the insolvency Key stakeholders – What a strong bargaining position vis- process. is needed to run the à-vis the insolvent company and –– If time permits prior to completion business effectively? any potential purchaser. While the possibility of termination of critical of the acquisition and a supplier It is imperative that any purchaser has supplies can be a great concern to is willing to cooperate, the a clear understanding of the main key a prospective purchaser, particularly, purchaser could seek to enter into assets required to run the business for example, if the supplier supplies a novation of the relevant supply effectively following an acquisition. branded goods critical to the business contract. However, a purchaser It may not be possible for the vendor or an alternative source of supply is will often wish to negotiate its and its administrators to sell and/ unavailable, there are a number of own terms with the supplier so or grant access to such assets and a steps which a purchaser can take to may not feel that this is the most purchaser will invariably need to liaise secure the continuation of supply, appropriate course of action. with various stakeholders in this regard. for example: While there are a number of pitfalls for Two of the key stakeholders are: –– A transitional services agreement the imprudent purchaser of a distressed business, those savvy and well advised ■■ Landlords – The premises from could be entered into for a short will be able to capitalise on the which a fashion retailer operates time post-completion of the opportunities offered in this arena ● are often key to the business and acquisition. Under this agreement,

www.dlapiper.com | 15 From Logging on to Logistics Online retailing and the Asian Real Estate Market By Janice Yau Garton (Hong Kong) and Carly Roberts (Sydney)

There is little doubt that the continuing shift towards online each pictured product is a QR code, which customers scan retailing will have tremendous implications for the Asian with their smartphone. The products are then delivered to real estate market. Over the coming years, physical retailers the customer at home later. Tesco’s flagship virtual store is will have to change the way they use their space, shopping located in Seolleung underground station in Seoul, where centres will undergo a transformation, and logistics real estate busy commuters can do their shopping as they wait for will see a boom, particularly in China. their train to arrive, and arrange for delivery to occur when they get home; Tesco also trialled a second virtual store in This year, the Asia-Pacific region is set to overtake Gatwick Airport, where departing passengers could scan their North America as the world’s largest e-commerce market, groceries while waiting for their plane and arrange for delivery and China is predicted to become the second-largest to take place when they arrived home from their trip. business-to-consumer e-commerce market by 2017 (with the US remaining the largest). Between 2009 and 2012, e-commerce grew by an annual average of 70 percent Transforming shopping centres in China. B&M retailers are being forced to think more carefully about Customers are looking to online retailers for lower prices, store locations in order to ensure they maximise their returns. wider ranges and more convenience. In Asia in particular, Leading B&M retailers are looking for shopping centres that access to the Internet has improved markedly in recent years, have high productivity, growth potential, efficient layouts, and Internet users located in Asia now account for almost positive competitive dynamics and high shopper traffic. Some 50 percent of all Internet users worldwide. shopping centres now feature many “product showroom”- type stores, where customers test products before purchasing them online. Changing spaces Shopping centre landlords are also considering these new Online retailers are eating into the market share of traditional buying patterns and shying away from prospective tenants bricks-and-mortar (B&M) retailers, forcing smart B&M in the hardest-hit sectors (such as music, books and video). retailers to consider ways to use online platforms to maximise Instead, they are favouring retailers in the more resilient their margins. Some B&M retailers have closed unnecessary sectors. They are also increasing their customer engagement physical branches; others have become more discerning about and lifestyle offerings, with entertainment and food and the location of their shops; others still have developed new beverage operators beginning to feature more prominently sales channels. in shopping centre portfolios. On top of all this, landlords are Tesco is on the forefront of these new sales channels, having investing more in convenience solutions, such as valet parking developed a virtual store concept described by senior Tesco services and smartphone apps designed to guide customers figures as a blend of “clicks and bricks”. These virtual stores, around their shopping centres. As online retailing continues designed for time-poor and tech-savvy customers, feature to grow and challenge B&M retail, the ownership and large billboards covered with pictures of Tesco’s products management of retail spaces such as shopping centres can only laid out as they would be in a traditional store. Next to become more specialised.

16 | Law à la Mode Logistics real estate reactionary so far, as e-commerce logistics models play catch up with the rapid boom in online retailing and changing Online shoppers are increasingly demanding better service in consumer preferences. Forecasts for logistics real estate over the form of more reliable and faster shipping. The efficiency the next few years indicate a growing demand for six types of of the warehouse has a direct impact on shipping processes, e-commerce logistics facilities: and this is the only point of differentiation for many online retailers. To ensure their competitiveness, many online retailers ■■ Mega e-fulfilment centres – where merchandise is stocked are expanding their warehousing capacity and improving and picked at item level warehousing processes. This has drawn the attention of many ■■ Parcel sortation hubs – where parcels are sorted before savvy real estate investors, particularly in China. being sent to local parcel delivery centres The Chinese warehousing situation is a unique one. ■■ Local parcel delivery centres – where parcels are then The increasing demand for warehouse space has made delivered to their final destinations logistics real estate one of the only sectors in Chinese real estate where demand is outstripping supply. However, ■■ Local urban logistics depots – which service major cities to unlike modern warehouses in the US and Europe, China’s facilitate fast order fulfilment warehouses are ageing and lack the automation and ■■ Return processing centres – where returned items are state-of-the-art technology necessary to keep up with the processed and demands of the thriving online retail market. Singapore-listed Global Logistic Properties, the largest logistics specialist in ■■ Online food e-fulfilment centres – where online food Asia and largest logistics enterprise in both China and Japan, orders are fulfilled predicts that up to US$2.5 trillion may be required to be Due to the specific requirements of these types of logistics injected into warehouse development over the next 15 years. properties, the Asian logistics real estate market may follow Real estate heavyweights have indicated their interest: Dutch the trend in the US, where in 2013 half of all construction pension manager APG Asset Management has partnered commenced with pre-leases already in place. with Shanghai-based developer e-Shang, investing up to US$650 million; and other major players such as Blackstone The shape of the logistics real estate market in Asia will continue Group, Carlyle Group, China Vanke and Heitman have all to evolve, but one thing is certain: logistics properties will need indicated their intention to make a move into the logistics to both improve and increase in order to keep up with online ● real estate market. shoppers’ increasing demands for fast and reliable shipping A new class of purpose-built logistics real estate is emerging as the trend towards online shopping continues. The change in the logistics real estate environment has been largely

www.dlapiper.com | 17 Seeing Beyond the Doggie Wear What MCR Innovations Teaches about the Obviousness of Design Patents in the Garment Industry

By Tamar Duvdevani, Matt Ganas and Amanda Liverzani (New York)

In the , patent protection patent obviousness analysis: scope and head, (2) two openings and sleeves can be afforded to aesthetic innovation content of prior art (relevant designs stitched to the body for limbs and (3) a (design patents), and functional that existed prior to the claimed design), body portion on which a football logo innovation (utility patents). Because the level of ordinary skill of the art, the is applied. The district court used two binding precedent relating to design differences between the claim at issue other prior art pet jerseys as secondary patents is relatively sparse, practitioners and prior art, and objective evidence of references, which suggested the use take note any time the Federal Circuit non-obviousness. For design patents, the of a “V-neck pattern” and “non-mesh addresses thorny issues of design patent obviousness determination ultimately fabric on the side panels” – patented law. This is especially true when the depends on “whether the claimed design design features not found in the primary patents-in-suit are directed to products would have been obvious to a designer Eagles jersey reference. Finally, even that permeate our everyday lives – in a of ordinary skill who designs articles though none of the prior art references recent case, athletic uniforms worn by of the type involved.” MRC Innovations, contained the patented design’s dogs. But the Federal Circuit’s opinion 747 F.3d at 1331. “additional ornamental surge stitching in MRC Innovations, Inc. v. Hunter MFG. running down the rear of the jersey,” the The Federal Circuit articulated the two- LLP, 747 F.3d 1326 (Fed. Cir. 2014) does Federal Circuit agreed with the district step process used to answer this inquiry. more than affirm the invalidity of patents court’s conclusion that this was not a First, courts select a “primary reference” claiming the ornamental design of canine “substantial” difference that created a that is “basically the same” as the design sports jerseys. It provides much-needed patentably distinct design. Instead, this at issue. Designs are considered “basically guidance on obviousness standards merely amounted to a de minimis change the same” if they create the same “visual applicable to design patents in the well within the skill of the ordinary impression.” Judges may determine this garment and apparel context. designer to make. “almost instinctively,” but they must also MRC sued Hunter and CDI for be able to communicate their reasoning. While the Federal Circuit’s decision in infringement of US Patent Nos. Second, courts must recognize one or MRC Innovations did not create new D634,487 (“’487 patent”) and D634,488 more “secondary references,” which are design patent law, its clarifications (“’488 patent”), which cover designs “so related to the primary reference” of existing standards should give for dog baseball and football jerseys, that they would motivate the skilled practitioners paws to consider how respectively. An Ohio federal district artisan to modify the primary reference the obviousness analysis applies in court granted summary judgment in to achieve the same “overall visual the garment and apparel context. Hunter and CDI’s favor, finding both appearance” as the claimed design. For instance, the Federal Circuit credited patents invalid as obvious. The Federal the district court’s reliance on only In MRC Innovations, the district court used Circuit affirmed, and, in doing so, offered jerseys designed for pets as secondary previously manufactured pet clothing a thorough analysis of the obviousness references, rather than general articles articles as primary and secondary standard as it applies to design patents. of clothing for pets or sports jerseys for references to conclude that the ’488 humans. This can provide support for a As with utility patents, the four factors and ’487 designs would be obvious to a patentee’s attempt to limit the prior art articulated by the Supreme Court in designer of ordinary skill. With respect references available when the validity Graham v. John Deere Co. of Kansas City et to the ’488 patent, for example, the of a patent claiming the ornamental al., 383 U.S. 1 (1996) govern the design district court used a prior art Eagles design feature of a niche clothing item is pet jersey as the primary reference. challenged. Moreover, MRC Innovations According to the Federal Circuit, clarifies that not every single feature of the district court properly analyzed the a claimed design must be present in the relevant characteristics of the patented primary and secondary prior references, design and identified the key similarities if the necessary modifications are between the patented design and the insubstantial and thus fall within the skill primary Eagles jersey reference: (1) an of an ordinary designer in the art ● opening at the collar portion for the

18 | Law à la Mode Business Round Up The news and the views By Ruth Hoy and Claire Sng ()

Thomas Pink Ltd v Victoria’s New IP Crime Report released by the IP Crime Group Secret UK Ltd [2014] Hot off the press this October is the The report provides a comprehensive EWHC 2631 (Ch) annual IP Crime Report for 2013/2014, overview of the challenges faced, Two particular points for brand published by the UK Intellectual including details of a survey from Trading owners to take away from the Property Office on behalf of the UK IP Standards giving a flavour of the types of decision: Crime Group. goods investigated; the most commonly investigated items being clothing, closely 1. If faced with an invalidity challenge The report contains some eye watering followed by cigarettes and tobacco. on the grounds of s3(1)(b) or but unsurprising figures as to the scale of (c) of the Trade Marks Act 1994 the issue of counterfeit goods, noting that The report also sets out some of the (“TMA”) i.e. the mark is devoid an estimated 10% of global trade relates tactics being adopted, for example in of distinctive character and/ to counterfeit goods. What is clear from relation to the online sphere: or for example it designates the report is that the joined up approach 1. Deregistering domain names so that a characteristic of the goods, being adopted by the agencies and infringers are no longer available to you can assert acquired organisations working to tackle IP crime is advertise counterfeit goods; distinctiveness even if you are working. In 2013, a reported $174 million 2. Removing payment services from using your mark in a form different of counterfeit items were seized globally, a website so that they cannot take to the registered form, so long as UK Customs officials are reported payment for such goods; the use does not differ in relation to have detained more than 21,000 to the distinctive elements of the consignments of ‘IP infringing’ goods at 3. Working with advertising agencies to mark. This ruling in effect re-writes UK borders and the Police IP Crime Unit stop adverts appearing on illegal sites the statute, giving brand owners is reported to have investigated more thereby removing income streams the same get out of jail free card than £29 million worth of IP crime and and the provision of legitimacy that for use of registered marks in suspended 2,359 domain names. third party advertising can provide; an altered form as provided for Interestingly the report notes a change in 4. Obtaining court blocking orders explicitly in the statute in relation the landscape of online IP infringement. compelling Internet Service Providers to revocation under s46(2) TMA. It provide statistics to indicate that to stop their customers gaining access 2. If you are trying to prove actual infringers are moving away from auction to illegal websites, and arresting and confusion in relation to a trade sites and websites and increasingly using charging those who are responsible. mark infringement action – think social media to make sales. So much so in 5. Screening website content with about obtaining consumer fact that the report asserts: “this is now software in order to identify illegal evidence. While it may not be a lead location for investigating IP crime, content; and accepted as positively proving particularly for Trading Standards. In 6. Seeking Google’s support in actual confusion it can play an 2013/14”, repor ting that: removing URLs from their indexing important role in preventing a ■■ Sale of counterfeit goods via social to clean up search results. defendant arguing that there was media rose 15% no evidence of actual confusion. Brand owners that are plagued by online ■■ Sale of counterfeit goods via online counterfeiters may want to consider auction sites rose 2% Other issues the case touches on whether any of these tactics can be include series marks, trade mark ■■ 69% of local authorities investigating taken up in their own fight against classification and specifications, IP crime used social media to do so counterfeit goods ● the “without due cause” element ■■ 65% of local authorities investigated of the 10(3)TMA, slogans and use auction sites and 61% on other of part of a mark, the list goes on. websites The case is well worth a read. www.dlapiper.com | 19 Calendar Our round up of what’s on where you are…

October 2014 November 2014

Les “Selfies à Paris” du Mandarin Oriental Fashion Accessories, Johannesburg (1 Oct 2014 – 31 Jan 2015) (13 – 15 November 2014) Fashion Industry, Saint Petersburg (09 – 12 October 2014) ModaPrima, Florence (21 – 23 November 2014) Adelaide Fashion Festival, Australia, Adelaide (17 – 26 Oct 2014) Select, (13 – 15 October 2014) December 2014 Mode, Shanghai (15 – 17 October 2014) Clothes Show Live, Birmingham (5 – 9 December 2014) Fashion, Helsinki (17 – 19 October 2014) Fashioning Winter, Somerset House Salon du Vintage 2014 (Carreau du Temple), Special UK (11 November 2014 – 11 January 2015) fashion (18 – 19 Oct 2014)

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