LAW ÀLA MODE Issue 9 – Spring 2013

Retailing landscape in Australia

Industry Insight with Arlene Tansey, Non-Executive Director of Pacific Brands

One size does not fit all Options for restructuring your business when expanding overseas

Management within management Employment issues arising out of concession stores

The pitfalls of a parallel market

Growing up A review of UK Children’s retail sizing standards

Creativity required Developing a legal strategy to protect in the United States

High Court reaffirms Importance of confidentiality

3D Printing A designer’s friend or foe?

Business round-up

Creating links in the fashion chain

Calendar

Fashion, Retail and Design Group Contents

Retailing landscape 04 in Australia

Industry Insight 06 with Arlene Tansey, Non-Executive Director of Pacific Brands

One size does not fit all 08 Options for restructuring your business when expanding overseas

Management within management 10 Employment issues arising out of concession stores

The pitfalls of a parallel market 12 We look at parallel: Imports in Australia

Growing up 13 A review of UK Children’s retail sizing standards

Creativity required 14 Developing a legal strategy to protect fashion in the United States

High Court reaffirms 16 Importance of confidentiality

3D Printing 16 A designer’s friend or foe?

Business round-up The news and the views 18

Creating links in the fashion chain DLA Piper joins the IAF 19

Calendar Our round-up of what’s on where you are 20

02 | Law à la Mode Editorial The Australian editorial team is delighted to bring you the perspective. It may sound like arcane science fiction, but 3D ninth edition of Law à la Mode, the quarterly legal magazine printing may actually become a household item fairly quickly, produced by DLA Piper’s Fashion, Retail and Design group for with the cost of 3D printers falling and the necessary software distribution to clients and contacts of the firm worldwide. becoming more readily available. Read more on page 16. The Australian retail market has seen dramatic change Protection of intellectual property and business goodwill is over recent years. On the fashion front, high street brands a critical issue for brands and retailers alike. On this front, based overseas such as Zara and Topshop are flooding to we examine avenues for protecting fashion designs in the our shores and establishing a competitive presence within a United States (page 14), as well as a recent decision of market traditionally occupied by Australian domestic retailers. the UK High Court relating to protection of confidential The last few years have also seen a boom in luxury brand information by employers (page 16). presence within Australia, much to consumers’ delight. In this This issue also includes a look at the advantages and pitfalls edition, we examine what these changes mean for local of the most common business structures used for overseas Australian retailers, as well as considering the challenges expansion (page 8), employment and workplace issues faced by overseas players when entering the Australian retail that may arise when operating a concession store within a marketplace (page 4). department store (page 10) and the results of the UK’s We also share with you some fashion industry insights from ShapeGB review of children’s retail sizing standards (page 13). one of Australia’s leading company directors, Arlene Tansey Finally, we conclude our ninth issue with the usual business of Pacific Brands. Pacific Brands has operations throughout round-up (page 18) and the calendar of upcoming fashion Asia Pacific and in the UK and is famous for marketing many events (page 20), to ensure you remain fashion-forward no iconic brands such as Berlei, Bonds and Sheridan. We’re sure matter where you are. you will enjoy our Q&A with Arlene, appearing on page 6. We hope you enjoy this edition of Law à la Mode. If you have Parallel importation is a hot topic around the world. any comments, please get in touch with the Fashion, Retail and In Australia, the Australian dollar is strong and online retail Design group via our email address: [email protected]. is booming when compared with sales in traditional bricks and mortar stores. This has a range of implications for both importers and brand owners, and may require them to adjust existing operational models to maintain a competitive stance Australian Editorial Team and preserve the bottom line. We take an in-depth look at these issues on page 12. Melinda Upton We also discuss the phenomenon of 3D printing and the Stephanie Surm implications it has for mass manufacturers and retailers Rohan Singh the world over, particularly from an intellectual property Alex Chubb

www.dlapiper.com | 03 Retailing Landscape In Australia By Jane Baddeley (Melbourne)

04 | Law à la Mode Overview of the changing Australian Another challenge – unique to Australia – is its regulatory retail landscape framework for retail leases. Since the 1980s, attempts have been made by state governments to redress the perceived Until relatively recently, the Australian retail market was imbalance in bargaining power between landlords and small occupied in the main by domestic retailers. Many such retailers retail tenants. Each state and territory now has its own are long standing and are considered national icons, but gone retail tenancy legislation, which is in the nature of consumer now are the days when those local retailers were the sole protection legislation, designed to ensure small business drawcard to our major shopping centres. Now customers are owners are informed and equipped to enter into formal leases flocking to the new players – overseas brands like Zara and which are equitable and conducive to the success of their Topshop, who have recognised that the time has come to tap proposed enterprise. into the Australian market. Unfortunately, the fact that the legislation differs across The winds of change internal Australian states combined with anomalies of drafting, means that protection is distributed inconsistently. In the last few years we have observed two main changes For example, a retailer that is either listed in Australia on a to the Australian retail landscape. First, we are seeing an public exchange or is a subsidiary of a listed company will not explosion of luxury brand presence: no longer just the domain be protected in Victoria, but will be subject to the legislation of flagship CBD or casino sites, luxury brands are setting up in NSW. The same quirks apply for an overseas retailer, with shop in dedicated high end precincts in our suburban shopping bodies corporate whose securities are listed on a World centres. Second, we are seeing the arrival of numerous Federation of Exchanges stock exchange outside Australia, and overseas high street brands, particularly in the fast fashion and their subsidiaries, being excluded in Victoria, but not in NSW. general apparel sectors. There have been recommendations for uniform national Australians have long been familiar with both of these sets retail tenancy legislation around Australia. It would appear of brands, having been introduced to them in the course that achieving this is some way off, with state and territory of overseas travel and more recently as a result of online governments continuing to turn their attention to other issues. shopping sites extending delivery services to this part of the Where the legislation does apply, it prescribes landlord world. But now these international retailers are more formally disclosure before the lease is entered into, minimum lease terms entering our market, with their own bricks and mortar stores, of five years, compensation to tenants for disturbance and and bringing their experience and competitive pricing achieved redevelopments, rent review, operating expense and sinking through economies of scale. fund limitations, use of tenant’s sales information, procedures We cannot yet know the longer term effect on our local for landlord consent to assignments of lease, relocation retailers. Are these overseas retailers taking the consumer requirements and dispute resolution processes. It is important dollar at the expense of home-grown traders or are they to realise that this regime is more than just a code of conduct injecting much needed renewal and confidence into a market and, for the most part, it is not possible to contract out. that is at the mercy of economic fluctuations? The regulatory overlay can make negotiating retail leases Vacancy rates in major Australian shopping centres are at the somewhat complex in Australia because of the need to lowest levels in years and owners continue to have a healthy understand how the statutes interact with and affect the appetite for renewal and redevelopment of those centres. common law rights and obligations, both in contract and Development of brand-new centres has slowed in recent tort, which govern commercial leases generally. It also can years due to the economic climate, but we are seeing a revival be more expensive for both landlords and tenants because of CBD retailing with Westfield Sydney and the soon to be of the need for state specific lease documentation and lease completed Melbourne Emporium. advice. On top of that and quite apart from the retail leases legislation, each state and territory in Australia has differing land title regimes, meaning sometimes leases are registered Challenges faced when entering and sometimes they are not. the Australian retail marketplace Australia is an obvious market for US, UK and European brands. There are few of the language or cultural barriers that are faced in entering other markets. But supply chain and reverse season issues are challenging, and several companies have faced difficulties with local distribution and licensing relationships.

www.dlapiper.com | 05 INDUSTRY INSIGHT with Arlene Tansey, Non-Executive Director of Pacific Brands

For this edition, we caught up with one of Australia’s leading company directors, Arlene Tansey. From growing up in New York as the daughter of two doctors (one of whom became an entrepreneur whose business manufactured aircraft parts), to her current role as a director of one of Australia’s iconic brand manufacturers, Pacific Brands, Arlene’s journey is a fascinating one.

Arlene, can you please tell us a little Customers still love quality brands that In your experience, what is the most about your role at Pacific Brands and reflect their lives and aspirations like significant change the fashion industry your career highlights so far? Bonds and Sheridan. has experienced? At Pacific Brands, I am one of five Before Pacific Brands, your experience The most significant change the fashion non-executive directors and a member was more in the banking and financial industry has experienced in Australia is of the Remuneration Committee. I met services sector. What has been the the ability to compare the best with the the former Chair and Managing Director most important thing that you learnt rest on a global basis and the access to of the company through business when from the fashion industry? purchase globally. I was still working full time as a banker. I come from institutional banking and Where do you see the retail sector The highlight of my Pacific Brands career the fashion industry has a more personal going, and how will this impact on the was to be invited to join the board after connection with the community. Like fashion industry? working through some challenging times retail banking, it is more about how we with the company. I think there are some positive signs live with our product. We run in our coming through in the economic cycle What do you see as the main Berlei bra, we relax in our Bonds hoodie, that will flow through to increased challenges for the fashion industry in we feel luxurious in our Sheridan sheets. discretionary spending. Having said the next five years? It’s all personal. that, I think consumers have become The fashion industry has changed more value conscious and that change dramatically and it is the rate of change is here to stay. This is great news for and the required speed of the response Pacific Brands because we deliver that I believe will continue to be the design, innovation and quality – the key greatest challenge for the industry. ingredients our customers want.

06 | Law à la Mode How is Australia performing compared of women moving from 14 percent On having children: I have two teenage to the rest of the world in terms of the to 17 percent of board directors daughters and they give me lots of tips fashion industry? in ten years. I believe the statistics on how to be a better parent! Actually, in Australia are similar. I also believe as they grow up they’re becoming great Australia is a leader in innovation and quotas can be an effective means to friends and fashion co-conspirators. design. For example, Pacific Brands, correct persistent under-participation. They’re great fun to shop with. particularly in some of our fabrics for The key is in the implementation. workwear and technology in bras, have First impression of Australia: I came to The main objection is that unqualified delivered year on year improvements. Australia in 1994. I was an investment women will be appointed to fill quotas Serena Williams – who could certainly banker at the time. My first impressions – if properly implemented, I don’t wear any sports bra in the world, were how beautiful Sydney was, believe that would be the case. chooses our Berlei bra. how much lower the density was and On growing up in New York: how few female executives I met when The under-representation of women in New York is a city of boundless energy I went to work. senior board roles is well documented. and optimism. I love living in Sydney but Do you think that quotas might be a Favourite Pacific Brand: Very hard. It’s always love being in New York. good way of redressing the balance? Bonds…no, Sheridan…no, Berlei…. I’m On your first trips overseas: I spent afraid I can’t choose! Quotas are a charged issue in a lot of time in Paris growing up and Australia today. I think they are not I have family there. Another great city, well understood. Sheryl Sandberg in particularly for fashion. I love the French her new book quotes a US statistic sense of style.

Pacific Brands has come a long way from manufacturing Dunlop bicycle tyres in 1893. Today, Pacific Brands is famous for marketing iconic everyday brands its consumers love including Berlei, Bonds, Clarks, Dunlop, Everlast, Grosby, Hard Yakka, Holeproof, Hush Puppies, King Gee, Mooks, Mossimo, Razzamatazz, Sheridan, Slazenger, Tontine, and Volley.

www.dlapiper.com | 07 One size does not fit all Options for structuring your business when expanding overseas

By Polly Owen (London and Hong Kong) and James Hickling (London)

The retail press has in recent times been Implementing the right operating model can be critical when expanding into new overseas markets. This article sets out, full of articles about UK-based businesses in high-level terms, the principal structures underpinning the expanding overseas. Expansion overseas can most common operating models and highlights some potential offer businesses a chance to compensate advantages, as well as pitfalls. for the current difficult conditions Concession and distribution experienced on British high streets. It can arrangements also provide access to untapped markets, Using a local distributor is one of the simplest ways to expand into new markets. Distribution can take the form of a such as the rapidly growing Asian, BRIC and concession arrangement (typically, a business operated under Middle Eastern markets, and exposure to a a contract or licence within someone else’s premises) or a wholesale model. more favourable business climate or simply Distribution is a relatively cheap and low risk way of testing a an opportunity to increase brand exposure new market and raising a retailer’s profile in a new location. and test new business propositions. Flagship department stores overseas may be seeking brands new to their market and may be attracted by product ranges not previously seen by shoppers in their country or location.

Franchising Franchising has been used as part of an international growth strategy by numerous companies including Marks & Spencer, Burberry and Zara. A franchise involves the grant of a right to use a product, trademark or logo held by the franchisor in return for the payment by the franchisee to the franchisor of a fee. The franchise model is fairly common; it represents a relatively easy and low-cost means of launching in a new market. Sometimes it is employed out of necessity since in some markets (such as the Middle East) other structures are not available to foreign-owned businesses. As with concessions, lack of control can be a disincentive to some franchisees. Progress is also heavily influenced by the identity and behaviour of the franchisor, for whom preserving brand reputation can be paramount.

08 | Law à la Mode Joint venture Mergers and acquisitions A joint venture – or JV – involves each partner bringing certain Building a retail operation overseas organically may present assets and/or expertise to the venture. As with franchising, the too many obstacles for some. Establishing a presence JV model is often used in countries where foreign entities are by merging with – or acquiring – a local retail chain may not allowed to own businesses outright. therefore be an attractive option. An example is the acquisition by Louis Vuitton Moet Hennessy of Sacks, Brazil’s A JV offers a higher level of control than franchising, involves leading beauty retailer. a relationship with a single local partner and provides access to the JV partner’s knowledge of their country and the ability Advantages include the retailer having full control of the to share cost and risk. undertaking from the outset, as well as giving immediate presence, market share and impact in the new territory. Practical disadvantages for a brand owner may include The acquisition process itself can, however, be an expensive relinquishing some control and flexibility (both financially and and time-consuming way to move into a new market and operationally) to the JV partner, tensions arising from the subsequent ownership can be high risk and can continue to legal JV agreement governing the relationship between the be costly. venturers – for example around consent or control rights – and a clash of corporate and national culture. Online expansion Organic growth This is a relatively low cost way of accessing a new market and testing local appetite for a brand. Retailers will need to Building an own-store retail portfolio afresh may be an option invest time and money in ensuring that they are compliant for some retailers. Launching a new brand and acquiring or with all local laws and regulations for the territory into which building a real estate portfolio is, however, an expensive and they are selling, that their website is translated into the local high risk way to enter a new market. language, that the currency options open to customers are While organic growth is an option which offers tight flexible and that their distribution infrastructure can support operational, brand and financial control for a retailer, the cost sales made. may prove prohibitive when weighed up against the benefits. Other considerations Numerous other matters need to be considered on a case-by-case basis, including local employment and real estate laws, brand protection, insurance and tax. The range of different operating models mean an appropriate solution should be available for all those retailers wishing to take the next step in the evolution of their business by expanding overseas.

www.dlapiper.com | 09 Management within management Employment issues arising out of concessions stores

By Katie Sweatman (Melbourne)

The operation of a concessions store within a department store can often be an attractive alternative to opening a stand-alone retail store for market entrants or retailers seeking to promote their brand in an established retail location. However, operating what is effectively a “store within a store” can create some interesting challenges around the management of staff, where the retailer as concession holder does not maintain full control over the environment in which staff work and the way in which staff perform their work.

Managing the employment relationship will rest with the retailer employer, and any proven allegation of discrimination will render the retailer employer In most cases, the concession holder will hire its own liable in respect of that discrimination. staff to operate the concession store, whether this is an internal business decision or a requirement imposed by the In the day-to-day management of staff employed in a department store under the concession agreement. concession store, the department store will generally require that concessions store staff comply with policies and Notwithstanding that staff are direct employees of the procedures of the department store. It is important that the retailer, there remains a strong element of control and retailers’ own policies and procedures with which staff are influence exercised by a department store over the presence expected to comply are not inconsistent with the policies of employees of the retailer, which will affect the ability of and procedures of the department store. the retailer to effectively manage employment relations. This may go so far as a department store requiring that final Where inconsistent requirements operate under competing approval be provided by it to any person being employed policy and procedure documents, the retailer risks a situation within its premises. whereby a particular policy or procedure may not be able to be relied upon in circumstances where non-compliance raises This control over who is employed by the retailer, disciplinary matters. including where the department store requires staff of a particular look can create issues around direct or indirect discrimination. In Australia, protected attributes around Maintaining a safe working which an employee or prospective employee may not be environment discriminated include (but are by no means limited to) As the employer of staff engaged in a concession store, gender, age, race, pregnancy and, in a number of states, the retailer has responsibility under workplace health physical appearance. and safety legislation to eliminate risks to the health and While a directive that a prospective or current employee safety of concessions store staff, so far as is reasonably does not fit a desired look may come from a department practicable, or if it is not reasonably practicable to store, any final decision not to employ a particular employee eliminate risks to health and safety, to minimise those risks so far as is reasonably practicable.

10 | Law à la Mode In a small working area within a broader department store, In determining whether a dismissal is harsh, unjust or it is important to ensure that concessions staff have proper unreasonable, the Fair Work Commission will have access to first aid facilities and other safety devices. regard to factors including, but not limited to: The concessions store retailer is not, however, alone in this ■ whether the employer can evidence that there responsibility. The department store itself will retain also a was a valid reason for the dismissal related to the particular obligation to eliminate any risks to the health and employee’s capacity or conduct safety of all workers within its store, including the staff of concessions holders that are not their own employees. ■ whether the person was given an opportunity to respond to the reason for dismissal and Department stores will generally have established policies and procedures around the safe performance of work ■ the size of the employer, that is, whether the as well as procedures around consultation to ensure the employer should have sufficient human resource ongoing identification and management of health and safety capabilities to follow a thorough process based risks and hazards. around procedural fairness. Australian workplace health and safety legislation varies from These considerations become particularly relevant in a case state to state, but is gradually becoming harmonised under in which an employee is excluded or otherwise banned uniform adopted legislation. Small, but important differences from a particular department store following allegations between each state do make it important for advice to of misconduct. While a department store will generally be be obtained in the particular state in which a concessions empowered to exclude an employee at its discretion, the store is to be established to ensure full compliance with risk retailer employer must undertake its own investigations, management and consultation obligations. provide the employee with a full opportunity to respond and consider whether termination of employment is appropriate When things go awry before proceeding to do so on the basis of allegations Under its concession agreements, a department store will presented by the department store alone. generally reserve the right to assert that a particular person is not welcome to work in its premises. Maintaining a great relationship Under Australia’s primary workplace relations legislation, The operation of a concessions store is a great opportunity the Fair Work Act 2009 , many employees are eligible to for a retailer and the department store granting the apply to the Fair Work Commission for a remedy if a concession to leverage off each other for the mutual benefit dismissal is unfair, that is, a dismissal that is harsh, unjust or of each business. unreasonable. Employees will be eligible to make an unfair Maintaining a strong working relationship with the department dismissal claim after completing a minimum employment store and working closely for the seamless integration of period of six months (12 months for a business with less concessions store staff with the staff and environs of the than 15 employees), if they earn up to a prescribed salary department store provides the best opportunity for a smooth threshold (currently AU$123,300, indexed annually) or if they and long standing working relationship. are covered by a workplace agreement or Tribunal made order setting minimum conditions (known as an award).

www.dlapiper.com | 11 The pitfalls of a parallel market By Melinda Upton and Jessie Buchan (Sydney)

The practice of parallel importing is a hot topic in Australia importance of ensuring that well-considered intellectual at the moment, particularly given the tough economic property protection and licensing strategies are in place environment for traditional bricks and mortar retailers and so as to maintain the status quo and preserve existing the strong Australian dollar. Price is an important factor for supply channels. many Australians, and the effect of the strong Australian dollar is two-fold: consumers are enjoying access to cheaper Keep your eyes open prices for a wider range of goods online, prompting a downturn in traditional sales; and the strong dollar has One of the most frequently cited arguments against made purchasing from overseas markets more attractive parallel imports is that they raise serious concerns about prompting many retailers to source supplies from outside of quality assurance and product safety. In addition, customs the official distribution channels. compliance, uncertainty in supply, defect and warranty issues and consumer protection concerns have all been raised Although the parallel importation and sale of goods in as potential risks of parallel importing from a consumer Australia is a legal practice (mostly), it gives rise to a whole quality perspective. host of issues for both importers and brand owners to consider. For brand owners, this has required an adjustment Questions for importers to keep in mind include:

to their overall commercial policies in order for them ■ Where have the product’s materials been sourced from? to maintain a competitive stance in the marketplace and to preserve their existing supply chain arrangements. ■ Under what conditions have the products been stored?

For importers, the high Australian dollar, local distribution ■ Have the products been tested and if so, under what and retailing overheads has created more price pressure conditions? and less incentive to maintain the existing status quo. ■ Have the products been manufactured for your country? This tension prompts consideration from both brand owners and importers alike. ■ Do the products contain ingredients which breach laws in your country?

Know your limits and remember – ■ How will the consumers obtain spare products/ consent is key replacements of the products?

Parallel importation of goods into Australia is not a practice ■ Do the products come with guaranteed warranties and if which should concern Australian brand owners alone. so, who is responsible for honouring them? For international companies who enter into exclusive The risks raised by the answers to these questions are even distribution agreements with Australian companies, more heightened for the genuine brand owners themselves. or establish subsidiary companies in Australia, parallel For companies who have invested a significant amount importation is a live issue which has real potential to affect of expertise and money in research and development of the bottom line, particularly in the form of licensing revenue. their products and brands, and take their commitment to In recent years, intellectual property holders in Australia deliver the highest quality products very seriously, parallel have sought to rely on either trademark or copyright imports can have a profound effect on brand integrity and infringement as a method of preventing the importation corporate reputation. of parallel goods, with a majority of cases being decided in favour of the importer. However, a recent string of cases It pays to check your Target in the Federal Court of Australia have created uncertainty for importers over whether or not products can be A recent and on-going case in Australia between one of the parallel imported risk free. world’s most iconic cosmetic brands, Estée Lauder, and one of Australia’s largest retailers, Target Australia, serves as a For importers, these recent decisions place the onus timely reminder of the importance of having good professional squarely on them to ensure that they make the necessary relationships with suppliers and manufacturers, and proves inquiries about the conditions of supply and consent prior that businesses should tread carefully when it comes to to importation. For brand owners, these decisions reinforce parallel importing. While alternative supply channels may the merits in having strong contractual terms regarding be more cost effective in the short term, importers should manufacturer and licence agreements, and highlight the be wary of the complex compliance issues associated with parallel importing and the potential risks involved. 12 | Law à la Mode Growing up A review of UK children’s retail sizing standards By Julie Brunn and Jean-Louis Kerrels (Brussels)

On 28 February 2013, Shape GB published the results of What – A two phase process: First the measurement of the first comprehensive measurement survey carried out 2,500 boys and girls aged 4-17 throughout the UK over on children, which aims to update the publicly available two years using 3D body imaging scanners. Second, analyzing British Standards Institution (BSI) standard based on 1978 the measurements of the target group of new-borns to data, and the 1990 children’s retail sizing (private) standards four year olds – results of which are expected to be published of Marks & Spencer. by Shape GB in Autumn 2013. Who – Shape GB is a collaborative project between six major Where – Because the Shape GB study focused on UK UK retailers – Tesco, Marks & Spencer, Next, Monsoon, children only and was initiated by UK retailers and universities, Shop Direct and George at Asda, jointly accounting for it remains to be seen whether this excellent initiative will 48 percent of the UK children’s wear market – five UK result in similar (harmonized) measurement projects within universities, and specialists in retail sizing surveys and continental Europe. 3D scanning (Alvanon and Select Research). Why – As the last standards for children’s wear measurements were based on data from 1978 and 1990, the participating UK retailers agreed there was a pressing need to update the existing standards, and to ensure that these new common standards accurately reflect body shapes of children nowadays. One of the findings of the study carried out by Shape GB is that while children have only slightly grown in height since the study carried out by Marks & Spencer in 1990, they have grown significantly larger in girth. The average 11-year-old boy, for instance, now has a chest measurement of 78.5 cm (10 cm wider than captured by the 1990 study), with a waist of 70 cm (8.5 cm wider) and hip measurements of 80.2 cm (7 cm wider); the average height of an 11 year old boy has gone up by just 3.6 cm since 1990. Similar evolutions in measurement were found for 11-year-old girls during the study. Another interesting finding is that there is less variation within sizes when children are grouped by height rather than by age: it is more likely that a 104 cm tall child will have a waist of X cm, rather than a 10 year old being 104 cm.

Ed Gribbin, president of fit solutions specialist Alvanon, expressed the advantages of the Shape GB study as follows: “Everyone will benefit. Manufacturers will have a single common standard for gauging fit, improving speed and accuracy in the quality control process and ultimately saving money. Retailers will have fewer returns due to fit, while consumers will find that children’s sizing is more accurate and consistent regardless of where they shop.”

The Shape GB report (phase 1), as released on 28 February 2013, is available to any interested brand, retailer or manufacturer and can be downloaded – upon payment –from www.shapegb.org.

www.dlapiper.com | 13 Developing a Legal Strategy to Protect Fashion in the United States Creativit y Required

By: Ann K. Ford (Washington, DC), Paul A. Taufer (Philadelphia), Michael Burns IV (Philadelphia) and James Stewart (Washington, DC)

Fashion designers in the United States have struggled to develop legal strategies that adequately protect their work while still recognizing that fashion is an evolutionary art that draws on what has come before it. As such, fashion does not fall squarely under the complete protection of any of the three statutory US intellectual property schemes: patents, trademarks, and copyrights. Consequently legal strategies for protection must balance creative combinations of these laws, with business goals, and, of course, budgets.

PATENTS Patents, an often overlooked area of protection for fashion, grant US designers the limited right to exclude others in the marketplace from making, using, offering for sale, or selling the invention or design. By specifically employing utility patents and design patents, designers can create new revenue streams through licensing, sale or enforcement of the patent. Utility patents, the most common type of patent in the United States, offer the strongest form of protection for functional features of clothing or manufacturing processes. Designers holding utility patents are able to prevent competitors from replicating their patented product and entering the market. For example, Levi Strauss uses its utility patented rivets to secure pocket openings on Levi Strauss clothing. Competitors could not use this method for a period of time to create pocket opening on clothes unless their competitor licensed the technology

14 | Law à la Mode from Levi Strauss. While utility patents all apparel). Therefore, it is key to work Nevertheless, recent case suggests that are a powerful tool, the expense and with a legal advisor when planning a larger logos can be protected when three year period of time to obtain trademark strategy. placed in a non-traditional location so them can be prohibitive. In light of the long as the public identifies that logo as Designers are increasingly adopting as market’s demand for seasonal changes, emanating from the designer. trademarks non-traditional elements securing a timely utility patent is a repeated throughout their collections. challenging form of protection because Consumers recognize and associate COPYRIGHT few designers enjoy the market success these repeated elements with a to justify the investment in a utility Designers’ inspirations for their creative particular designer. Through consistent patent. works (designs) derive from a myriad of use as a source identifier and consumer sources including daily life observations Design patents – a less costly and recognition of the same, designers may and the work of other designers from quicker alternative to utility patents be able to protect this element as a the past and present. Designers seeking – provide protection for novel, trademark through federal registration. copyright protection must therefore ornamental product designs. The key For example, women’s high heel shoes avoid infringing on another party’s rights here is that the design is in fact, novel. with red soles bring to mind the in a similar design. While design patents usually issue in designer Christian Louboutin. A designer about one year, they offer more narrow may adopt a colour as a trademark so US copyright law allows designers to protection. Designers are limited to long as the designer can show that the seek copyright protection for jewellery, the drawing of the product or feature colour is recognized by the public as fabric designs or patterns. Much as it appears in the patent application. a source identifier for the designer’s litigation swirls around the protection A familiar example of a design patent goods. A designer will not be given an of fabric designs and patterns, this is a for footwear is the shoes produced exclusive right to a colour or element if potent area of protection in the fashion by Crocs, Inc. Although a design patent it has a functional aspect (such as, the industry. Copyright protection does 1 offers more limited protection than a slimming function of black). For example, not extend to “useful articles” such as utility patent, designers find the more a trademark owned by a single designer clothing. If the purportedly useful article economical costs associated with in the colour black for use in connection design incorporates graphic or sculptural securing it very appealing. And design with dresses would unfairly prevent features that can exist independently patents can be a potent method for other designers from making use of the of the utilitarian aspects of the article retaining rights in unique designs. colour black and its “slimming” function. (clothing), then the designer may be able to obtain copyright protection. Another challenge for designers seeking TRADEMARKS federal registration of a non-traditional trademark is that it may be deemed DEVELOPING AN EFFECTIVE Designers create their commercial LEGAL STRATEGY identities through trademarks. ineligible because the proposed mark Trademarks allow designers to is merely ornamental or decorative. Developing an effective legal strategy distinguish their goods in the Designers, who attempt to feature a to protect a fashion line in the US marketplace and communicate unique large or atypically placed design, logo, (and, indeed, anywhere in the world) and distinctive value to the consumer. or other element on a product, often requires an investment of time, money Therefore, the fashion designer’s most find their applications rejected on the and creativity. Patent, trademark and valuable asset is the trademark, name, ornamental, decorative basis. The copyright provide varying degrees or logo which imbues designs with the difficulty for designers arises because of protection that each has its own power of their brand. Nevertheless, a bright line between trademark and costs and limitations. Nevertheless, trademarks offer limited protection. ornamental does not really exist. In developing and implementing a A trademark application must be determining whether the element can successful strategy can generate new tied to specific goods or services. function as a trademark, much weight revenue streams for designers and Consequently, if a designer procures will be given to the size, location keep the designer’s vision unique a US trademark registration for shirts, and dominance of the proposed and distinctive in the marketplace. the trademark protection does not trademark as it appears on the goods. Working with an experienced fashion automatically extend to other goods Consequently, smaller traditionally lawyer allows a designer to develop a (unless of course the registration also placed trademarks (e.g., a small logo on comprehensive strategy that properly covers other goods or one makes the the left breast of a collared shirt) have balances the protection offered by argument that the mark carries over to more readily been granted registration each of these legal tools with the as consumers have come to expect and market reality. recognizes trademarks in those places.

1 Defined in the Copyright Act 1976 (United States) as “an article having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information.”

www.dlapiper.com | 15 English High Court reaffirms importance of confidentiality Premier Model Management v. Bruce [2012] EWHC 3509(QB) By Vinita Arora and Stacey Holloway (London)

In our last article “Using a haute couture approach to protecting business secrets,” we explored methods that companies use to protect their confidential information. The issue has recently come to a head in the case of Premier Model Management Ltd v Bruce [2012] EWHC 3509(QB). In this case, Mr Bruce was a senior model booker for Premier. During the course of his employment, he was prevented from competing with Premier and from poaching staff and models. He was also subject to 12-month non-poaching covenants 3D post-termination. Lastly, Mr Bruce was bound by the common law duty of confidentiality which applies to all employees both during employment and indefinitely post-termination. printing After handing in his notice, Mr Bruce took sick leave for the majority of his notice period. In that time, he set up a rival agency with his partner and began sending confidential a designer’s friend information to his personal email address, including details of models, work opportunities and terms of business. As a or foe? result, Premier summarily dismissed Mr Bruce and sued him in the High Court for breach of contract. They also sued his By Rebecca Kay (London), Rohan Singh (Sydney) partner and their new company for inducing the breaches. and Dominic McKean (Liverpool) The High Court held that by sending confidential business information to his partner, Mr Bruce was clearly in breach of his duty of confidentiality. They also held that he was in breach of his obligation not to compete with Premier during In March 2013, burlesque star Dita Von employment, as his rival agency was incorporated some six months before his employment ended. The court held that Teese grabbed the headlines yet again, but Mr Bruce’s partner and company were both liable in tort for inducing these breaches. this time for modelling the world’s first This case demonstrates a robust approach and a willingness by fully articulated dress produced with a the courts to safeguard these critical business issues. However, 3D printer. While the concept might sound on a practical point, Premier was lucky that Mr Bruce had been careless, as it had a wealth of evidence to support its like the stuff of fantasy, the 3D printing claim. The penalties imposed by the court on this occasion age is closer than one might think and has are draconian, so in the absence of significant evidence, judges tend to be cautious about finding that an employee has engaged profound implications for retailers. in unlawful behaviour. Generally, employees who choose this path tend to be more careful and covert about their activities. What is 3D printing? As such, finding evidence to support a claim for breach of 3D printing (also known as additive technology) is the covenants is notoriously difficult and can be expensive if manufacture of three-dimensional objects from a computer forensic IT experts have to be brought in. file (CAD) using a specialised printer. Watching footage of Premier’s claim was also bolstered by the fact that Mr Bruce the process brings to mind the gadgetry of science fiction had been competing while still employed by Premier. As such, (YouTube has many examples), hence most people are his obligations towards his employer were beyond dispute. surprised to learn that the invention has in fact been around The court did find that the 12-month non-poach covenants since the 1970s. The main reason for its apparent obscurity is were valid and enforceable in this case (because that duration that, until recently, the costs of 3D printers and the underlying reflects the usual length of contracts in the industry), however software far transcended the reach of most of businesses, covenants must always be carefully tailored for each business let alone the average consumer. However, now prices are to ensure enforceability. Undoubtedly, competitive behaviour dropping rapidly, the number of brands investigating the post-termination will be harder to police and claims for potential of 3D printing is on the increase. breach will be more difficult.

16 | Law à la Mode 3D printing a designer’s friend or foe?

By Rebecca Kay (London), Rohan Singh (Sydney) and Dominic McKean (Liverpool)

Embracing change to overcome, providing free 3D files for a vast array of objects, The Von Teese dress was the creation of designer including fashion accessories, jewellery, spectacle frames, juicers Michael Schmidt, architect Francis Bitonti and printing firm and even a model Predator unmanned military aircraft. Shapeways. While this particular design was customised to In addition, 3D printing presents challenges for retailers in the model and made for purely promotional purposes (not the context of their intellectual property rights. If illegal film least because it was embellished with over 13,000 Swarovski or music downloading was a problem for copyright owners, crystals), retailers have already started using 3D printing for imagine the consequences of teenagers being able to “print” more commercial projects. At Paris this January, Nike trainers in their bedrooms. The Pirate Bay, a notorious Dutch designer Barend van Herpen’s eleven-piece collection file-sharing site in a music and film context, has already featured two 3D printed ensembles, including a form-fitting created a new category for files that allow 3D printers to dress. Meanwhile, in February 2013 Nike Inc unveiled its Nike create physical objects. Moreover, in many cases, IP regimes Vapor Laser Talon, a shoe incorporating a 3D printed plate will offer defences to copiers, whether on the grounds of enabling it to be contoured to the particular player and increase domestic use or exclusions for “must fit” designs or industrially efficiency. Even young designers are getting on the bandwagon, exploited copyright works. with 3D printers being installed at fashion schools such as the London College of Fashion. Friend or foe? The risks Creative genius or space-age nightmare, 3D printing is an With the price of 3D printers now falling (one brand of innovation which is unlikely to disappear soon. Retailers are domestic 3D printer in Australia currently retails for around therefore advised to add 3D printing to the ever-increasing AU$1,800), an obvious commercial risk for mass manufacturers watch list of IP exposures, to ensure they stay ahead of is that they are cut out of the supply chain. While consumers do the infringers’ game. At the same time, the concept offers need appropriate CAD files in order to print, websites such as a brave new world for creative business who capitalize www.thingiverse.com are making this an increasingly easy hurdle on the opportunity to produce highly complex and customized designs.

www.dlapiper.com | 17 Business round-up The news and the views

Unhappy news demonstrate that an infringement of concerned, the nature of the goods their trade mark rights also threatens or services protected by the mark, for trade marks in the country of destination of the and the territorial extent, scale and travelling goods and that the import of those frequency of use. goods may be prohibited under the through Brand owners who have taken the laws of the country of destination. Germany trouble to register a CTM must by Dr. Stefan Dittmer and ensure they have a strategy in place to Dr. Annemarie Bloss (Hamburg) ONEL/OMEL: maintain it, through genuine EU use on a sufficient scale. The German Federal Supreme “genuine use” of Court (BGH) determined in EU trade marks its “Clinique Happy” decision by Claire Bailey and John Wilks Pucci v. (BGH I ZR 235/10), that imported (London) Tucci: Latest counterfeit articles traveling through Germany intended for The Court of Justice of the EU developments in a sale in a foreign market (so-called has ruled that, where a European protracted legal “unbroken transit of custom Community Trade Mark (“CTM”) is saga sealed goods” – zollverschlossene, only used in a single EU country, the by Stefania Baldazzi and ungebrochene Durchfuhr von Waren) trade mark owner may still be able to Giulia Zappaterra (Milan) are not subject to the protection establish “genuine use” of that CTM in of German trade mark law, even if the EU. CTMs which have not, within At the end of 2012, the EU Court of the mark in question is registered five years of registration, been put to Justice rendered three decisions on in Germany or the EU. Such “genuine use” in the EU in connection the legal fight between El Corte Inglés marks are not being used as trade with the goods or services in respect S.A and the designer marks pursuant to the German of which they are registered may be Emilio Pucci, involving word trademark Trademark Act during the mere subject to revocation. “Pucci” and figurative trademarks transport of the articles through “Emilio Pucci” and “Emidio Tucci”. Hagelkruis Beheer applied for a Germany to a foreign destination Benelux registration for the word The passionate legal saga started in market. Furthermore, the principle mark OMEL. Leno Merken, owner of 1977, when El Corte Inglés elected to of territoriality foreign trademark a Community word mark ONEL for operate in Spain, with an imaginary law in connection with German two of the same classes, opposed the Italian name Emidio Tucci. Emidio Tucci tort law does not grant protection registration. In response, Hagelkruis was a trademark intended to be more to marks merely travelling requested that Leno provide proof attractive to consumers in conveying through Germany. of use of the ONEL mark. Leno had an image of Italian elegance. The BGH made it clear that proved use of the earlier mark ONEL Despite the opposition of Emilio Pucci, counterfeit goods, protected by in the Netherlands, but not in the rest the trademark was finally granted as a German trade marks and merely of the EU. Spanish trademark to El Corte Inglés, travelling uninterrupted through The Court rejected an arbitrary rule on the ground of lack of similarity Germany do not violate German on territorial scope of genuine use, between the names. trade mark law as it does not stating territorial borders should be constitute a required “use in The fight re-ignited when both disregarded. commerce”. Furthermore, the companies sought to register their court also denied protection The Court concluded that an trademarks at the community level. against this transit under German assessment of genuine use should tort law. As a result, to claim take account of “all relevant facts for preliminary injunctive relief, and circumstances”. These include trade mark owners must now the characteristics of the market

18 | Law à la Mode Creating links in the fashion chain DLA Piper has joined the IAF, the International Apparel Federation, generating exciting opportunities for DLA Piper’s clients and IAF In the first round, the EU General members Court (sentences T-357/09 and By Marchien Hoogenrad (Amsterdam) T-373/09) refused the registration of figurative trademark “Emidio Tucci” in classes 3 and 21 due to its detrimental impact on the exclusivity of the reputed trademark

which was well known in Italy and used to cover high-quality and luxury goods. DLA Piper’s Fashion, Retail and the improvement of social, health Design group covers an interesting and safety, and environmental In the second round, the EU General and broad group of clients worldwide conditions relating to the apparel Court (sentence T-39/10) confirmed who focus on optimising their playing chain worldwide. the registration of the word field and on combining their forces in ■ The IAF aims to be the premier community trademark “PUCCI” for the apparel industry. This approach worldwide knowledge network original classes 3, 9, 14, 18 25 and 28, matches the objective of the dealing with a variety of apparel International Apparel Federation notwithstanding the opposition of El industry issues including design, (“IAF”). The IAF is a federation Corte Inglés. The Court stated that manufacturing, distribution, founded in 1972 in Williamsburg, the likelihood of confusion between sourcing, trade, technology and Virginia, in the United States, whose trademark “PUCCI” and figurative education. The development of current headquarters are in Zeist, trademark business contacts worldwide near Amsterdam, the Netherlands. remains a main target of the IAF. DLA Piper recently joined the IAF as an The IAF also offers trade missions associate member. We spoke with the worldwide which members can join. IAF’s secretary general, Han Bekke, to ■ As an associate member of the IAF, find out what this new cooperation can has to be evaluated through DLA Piper provides legal services offer our clients. consideration of the overall to the apparel supply chain. In impression given by the signs to ■ The IAF’s mission is to develop addition to this, and to the various the public and suggested that the business contacts to foster national trade associations which two trademarks are visually and dialogue and knowledge exchange represent apparel manufacturers in phonetically different. between individuals active in the their respective countries which are world apparel value chain, and in IAF members, there is an option to How will the saga unfold? Could international practice by promoting become an individual member. This there be more to come? Follow us in common business interests. is useful when your core business future editions. For instance, the IAF encourages involves the design, marketing and/or best practice and the support manufacturing of apparel products. of apparel manufacturers and ■ Once a year, a large convention marketers worldwide. Members is held for all members. The next of the IAF can share information convention will be in Shanghai from on recent developments regarding 23 to 27 September 2013. DLA Piper the advancement of technology will attend that convention and will and the promotion of its use, the give a presentation on legal issues. encouragement of innovation and More detailed information on this new ways of thinking and the growth convention can be found in the next of apparel trade worldwide. Further, Law à la Mode edition. the IAF provides market information to its members. A relevant topic For more information see www.iafnet.com that has been covered by the IAF is

www.dlapiper.com | 19 Calendar Our round-up of what’s on where you are… Compiled by Tessa Kelman(Sydney)

March

Stall Wars! The Retail Brunch at MIPIM 2013 The London office of DLA Piper recently held a On 13 March 2013, DLA Piper hosted The Retail Brunch Corporate Social Responsibility event to raise money for at MIPIM, the world’s leading real estate conference. Barnado’s charity. Entitled “Stall Wars”, the event saw The event was very well attended and provided an different teams within the office setting up “stalls” in excellent opportunity to network with international the auditorium and competing to see which could raise investors and developers and to reinforce our the most money in a two hours, Lawyers and support commitment to the retail sector. staff took on the task with gusto, with creative stall concepts including a “DVD lucky dip”, a mini fairground and a classic British “White Elephant” stall. The event raised over £2000 – thanks to all who participated.

April Audi Fashion Festival Singapore – Singapore May 15 – 19 (http://audifashionfestival.com/calendar/) Mercedes-Benz Fashion Week Australia – Sydney, Australia Milan Seminar: Global expansion of retail brands April 8 – 12 On 20 May 2013, DLA Piper’s Fashion, Retail and Design (http://australia.mbfashionweek.com/home) team is hosting a seminar at the Four Seasons Hotel (Milan), which will give an insight into the legal issues Mercedes-Benz Fashion Week Mexico – Mexico City, surrounding the global expansion of retail brands. Mexico DLA Piper experts from Europe, Middle East, Americas April 15 – 18 and Asia will be joined by a distinguished panel from (http://www.mercedes-benzfashionweek.mx/mbfwm/) leading International fashion brands. If you would like to Aurora Fasion Week, St Petesberg, attend this event, please email [email protected]. Russia Modaprima – Florence, Italy April 15 – 21 May 24 – 26 (http://afwrussia.com/en/) (www.pittimmagine.com)

Rio de Janeiro Fashion Week – Brazil, May Rio de Janerio May 30 – June 4 INTA’s 135th Annual Meeting – Texas (http://www.fashiontv.com/fashionweek/rio-fashion-week- May 4 – 8 spring-2013) (http://www.inta.org/2013AM/Pages/Overview.aspx)

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