Fashion Law and Business: Brands & Retailers

Since the mid 1990’s, the fashion industry has experienced a retail revolution.  Prior to 1995, most retailers had a single distribution channel – brick-and-mortar stores.  Beginning in 1995, with the launch of Amazon and eBay, and the creation of search engines such as Google and Yahoo, e-commerce became another viable distribution channel.  The launch of the Apple iPhone in 2007, and the rapid adoption of smartphones generally, followed by the subsequent development of the tablet device, spurred the growth of mobile commerce.  Many retailers began to adopt a multi-channel approach, selling products in brick-and-mortar stores, on-line and through mobile devices, but without integrating their data, inventory, processing and delivery systems.  The same product might have a different price in a physical store than on a website, and products purchased on-line could not be returned in a brick-and-mortar store.  Since 2010, retailers have been moving towards omni-channel retailing, which is aimed at providing a seamless customer experience, integrated across all channels both domestically and internationally.  Typically, this requires a restructuring of management and operational functions, as well as the adoption of new technologies that facilitate data sharing and interaction across the company.

At the same time, fashion brands are engaging in more direct-to-consumer retail sales, in their own brick-and mortar stores and through e-commerce and mobile commerce.  The launch of social networks, including MySpace in 2003, Facebook in 2004, Twitter in 2006, Tumblr in 2007, and Pinterest in 2010, created new ways for fashion brands to interact with consumers and build brand loyalty.  According to a recent study, globally more than a third of all consumers have purchased products directly from brands or manufacturers.[i]  This may be due to a combination of more favorable pricing, wider selection and brand loyalty.[ii]

Fashion brands and fashion retailers have also affected by the emergence of the millennial generation (also known as “Generation Y”), generally considered to be those people born after 1980.  Millennials are more ethnically and racially diverse, and more educated, than any generation in American history.[iii]  They are more fashion savvy (finding styles from a variety of off-line and on-line sources), are drawn to brands that embrace their voice and social agenda,  engage heavily on social media networks, and are  more selective about what they purchase.[iv]  This dramatically impacts the means by which brands design, produce, market and advertise their products, and the very nature of the retail experience.  There is a greater focus on curating collections specifically for millennials, delivering fast fashion, using sustainable materials and manufacturing processes, connecting through social media communities, and incorporating innovative technologies into the shopping experience.

The fashion industry, like most other industries, also is continuing to address the growth of emerging international markets and shifting global demographics.  Asia and, to a lesser extent, South America have become the growth markets for both luxury goods and more affordable products.  This has also generated renewed concern about corporate social responsibility throughout the global supply and retail chain.

Fueled by new technologies and new consumer markets, the fashion industry has now evolved to encompass a range of global industry participants.  These industry participants reflect the journey of fashion products from their point of origin, typically outside the United States, to the eventual consumer.  Fashion products now typically fall within the general categories of apparel and accessories (such as footwear, handbags, hosiery, headwear, scarves, belts, gloves and jewelry), but may also include other highly designed products, such as certain home furnishings.  They are sold at a range of price points, from couture to RTW to mass-market.  The fashion industry can be said to include the designers of fashion products, the textile suppliers and manufacturers involved in the production of fashion products, the retailers that sell these products to the consumer, and the innovative technology companies that facilitate or enhance the production, marketing and sale of fashion products.

The fashion industry is also inextricably linked to, and serviced by, other related industries and organizations.  In particular, the fashion industry is tied to the fashion media (including magazines and, increasingly, blogs and social media) that continually report and editorialize on, as well as advertise and sometime sell, fashion products.  The merging of editorial content and e?commerce has blurred the traditional distinction between the fashion industry and the fashion media, as retailers now generate their own fashion blogs and fashion magazines have e?commerce sites.  The fashion industry has also spawned a vast array of consultants (such as publicists, branding agents, and fashion forecasters) that specialize in advising and representing fashion companies.  The industry is supported by a large number of trade associations, such as the American Apparel and Footwear Association, the National Retail Federation, the Retail Industry Leaders Association, and the invitation only Council of Fashion Designers of America.

Fashion law has become as diverse, complex and global as the fashion industry itself.  Fashion law can be analogized to entertainment, art or sports law, in that it is circumscribed by the nature of a particular industry, but is comprised of many distinct substantive practice areas of law.  One way to describe fashion law is to say that it is the body of law and legal principles that governs the relationships among the various participants in the fashion industry, the relationships between such participants and the consumer, and the relationship between such participants and various governmental entities.

Therefore, the new PLI treatise — Fashion Law and Business: Brands & Retailers — is structured on the presumption that fashion law can be best examined in the context of an understanding of the business and operations of the fashion industry.  Each chapter focuses on an aspect of the fashion business and the related legal issues:

Chapter 1  “Starting a Fashion Company” discusses the many considerations involved in starting a company in the fashion industry.  It focuses on developing a business plan, determining the form and structure of the legal entity for the business, and then funding the growth of the business through equity and debt financings.

Chapter 2 “Trademarks and Trade Dress,” Chapter 3  “Patents” and Chapter 4 “Copyrights” discuss the evolving legal principles applicable to the types of intellectual property that are most commonly invoked in, and significant for, the fashion industry.  These chapters focus specifically on the ground rules for trademarks and trade dress, patents, and copyrights, and provide an overview of how these legal regimes have been applied with respect to fashion products, as well as the legal principles that make these doctrines particularly relevant to the fashion industry in some cases and limit their applicability in other cases.

Chapter 5  “Unfair Competition and Misappropriation” addresses the legal principles applicable to the common law torts of  unfair competition and misappropriation in the fashion industry, and the instances in which these doctrines may provide an applicable remedy in instances where traditional doctrines of intellectual property do not.

Chapter 6  “Counterfeiting” focuses on the pervasive fashion industry problem of counterfeiting.  It discusses the applicable legal principles and cases, as well as innovative strategies employed by the public and private sectors to combat global counterfeiters.

Chapter 7  “The Gray Market and the First Sale Doctrine” focuses on the issue of fashion goods that are manufactured and sold through particular channels and the legal doctrines that limit manufacturers’ ability to control those channels once products are released into the stream of international commerce.

Chapter 8  “Design and Manufacturing” addresses apparel design and manufacturing.  It considers the dynamics of the apparel manufacturing industry, the importance of luxury in the fashion industry, and the actual design and manufacturing process.  In addition, it discusses the contractual relationships and regulatory issues applicable to the design and production of fashion products.

Chapter 9  “Licensing Arrangements” focuses on the importance of licensing in the fashion industry.  It discusses the principal business and legal terms of license agreements in connection with apparel and accessories and retail stores.

Chapter 10  “Retail Sales” discusses retail sales, the final step in the delivery of fashion products to the consumer.  It addresses the dynamics of the retail apparel industry, as well as contractual matters applicable to transactions between apparel brands and retailers.

Chapter 11 “Antitrust” addresses the principal antitrust issues applicable to brands and retailers in the fashion industry.  It discusses the types of horizontal and vertical conduct in the fashion industry that may raise particular concerns under federal and state antitrust laws.

Chapter 12  “Real Estate” discusses the legal issues applicable to leasing and licensing brick-and-mortar retail stores.  It addresses both the significant contractual terms and the regulatory issues that should be considered in connection with such real estate transactions.

 Chapter 13  “E-Commerce and Mobile Commerce” addresses the growth of e-commerce and mobile commerce in the fashion industry.  It describes the process of launching e-commerce and mobile commerce businesses.  It specifically focuses on the significant legal issues associated with such businesses, particularly with respect to the collection, use and storage of consumer information.

Chapter 14  “False Advertising” discusses the legal issues associated with advertising and marketing fashion goods.  It also focuses on the specific legal issues relating to marketing through social media.

Chapter 15  “Labor and Employment” explores labor and employment law considerations as they relate to the fashion industry.  It addresses fundamental issues related to working conditions, wages and hours, and child labor.  It also discusses the use of independent contractors (such as sales representatives), developments in collective bargaining in the fashion industry, and social media usage in the workplace.

Chapter 16  “Employment Agreements” discusses the special considerations applicable to employment agreements in the fashion industry. It addresses the principal terms of such employment agreements, as well as the enforceability of restrictive covenants such as confidentiality provisions, non-competes and non-solicitation provisions.

Chapter 17  “Rights of Publicity” addresses publicity rights, and the issues that may arise in the case of fashion designers who are closely associated with their fashion brand.

Chapter 18 “International Trade and Customs Issues” addresses the relevant legal issues to be considered in connection with international trade and the international expansion of a fashion business.

Chapter 19 “Foreign Corrupt Practices Act” addresses the increasing importance of the Foreign Corrupt Practices Act and similar compliance issues for fashion brands and retailers, particularly in the international context, and provides a basic overview of the law’s requirements and application.

Chapter 20 “Going Public” discusses initial public offerings of companies in the fashion industry.  It describes the process of going public, the applicable disclosure documents, and the distinctive issues applicable to public companies in the fashion industry.

Chapter 21 “Selling a Fashion Company or Fashion Brand” addresses strategic transactions in the fashion industry.  It discusses the important structural, diligence and contractual issues involved in the sale of fashion companies and brands to strategic and financial buyers.

The book concludes with an assessment of the current state of the fashion industry and some thoughts about the future.

This book does not purport to cover every aspect of fashion law and business.  There are undoubtedly other legal and business issues that currently confront the fashion industry, and the fast pace of change in the fashion industry ensures that new business and legal issues will continue to arise with the passage of time.  The purpose of the book is simply to provide a helpful framework, for the lawyer, investor, brand owner or retailer who wishes to better understand fashion law and business.

About the Authors

Lois F. Herzeca and Howard S. Hogan are both partners in Gibson, Dunn & Crutcher.  Herzeca is a partner partner in the New York Office, while Hogan is a partner in the Washington, D.C.