Global law firm Baker & McKenzie on the basics of identifying, protecting and monetising intellectual property (IP) assets and why luxury fashion players in particular need to remain alert and informed.
Last year, the Luxury and Fashion practice group of international law firm Baker & McKenzie launched the Global Legal Guide for Luxury and Fashion Companies, the first-ever comprehensive global guide to all legal matters relating to the $254 billion industry. It includes contributions from more than 225 lawyers and economists across its global practices.
In the fourth instalment of this ongoing and exclusive series with Luxury Society on luxury legal issues, Baker & McKenzie summarises a detailed chapter, included within the Guide, explaining the intricacies of intellectual property in the context of luxury fashion.
“ Who would innovate or create if the invention could be quickly copied or re-used without repercussions? ”
Fashion and IP have always been inextricably linked. For as fashion emanates from an individual’s creativity and vision, IP — in the form of copyrights, trademarks/service marks, trade dress and patents — provides the legal framework to protect companies’ innovations and creativity, and to encourage people to create unique offerings.
Laws protecting such rights were originally introduced in an effort to spur creativity — for who would innovate or create if the invention could be quickly copied or a confusingly similar brand or name be used without repercussions? Why rally the resources and take the necessary steps to build the brands, goodwill, reputation and products themselves without compensation to the person who actually had the artistic vision?
As a result, IP can serve as a very valuable backbone of the luxury and fashion industry. Once created, IP generates customer loyalty and adds to the commercial value of the organisation via profits realised from the exploitation of the IP assets – either directly by the company or through licenses and similar agreements between the company and third parties.
“ Exclusive rights in inventions, creative works, designs and brands are afforded to IP owners ”
Exclusive rights in inventions, creative works, designs and brands are afforded to IP owners through various international treaties and national laws governing the protection, registration and enforcement of IP. However, each form of IP must meet certain requirements in order to qualify as a patent, copyright, a trademark/service mark or a protectable design. In the fashion and luxury industry, the nature of and scope of IP protection available can vary greatly.
For example, IP rights can exist in a host of creative elements in an article, such as repeating patterns, fabric designs, colours, the overall design or shape of an article, innovative design elements such as zippers, ornamentation and specially designed or technical fabrics.
When analysing IP assets, companies should weigh the benefits one form of protection may have over another. For example, trademarks can potentially last forever (if continuously used), but patents and copyrights will eventually expire. Also, in certain jurisdictions, registration authorities do not conduct a substantive examination of the validity of designs (such as Registered Community Designs in the EU); therefore, these forms of protection may be a weaker form of IP protection from an enforcement perspective.
This article summarises the types of IP, and ways to protect and monetise your company’s IP.
There are main types of IP:
• Copyrights: These protect original works of authorship, such as writings, music, and works of art, that have been tangibly expressed by the author. Copyright exists automatically at the time of creation.
In the fashion and luxury space, the cut or shape of garments, accessories and furniture (all of which are categorised as useful articles) will not be protected by copyright. However, certain useful articles may contain features that may qualify for copyright (and even patent) protection. For example, if the article has some form of applied art (i.e., design or decoration applied to everyday objects to make them aesthetically pleasing) or ornamental quality, and this portion of the work can be identified separately and exist independently from the utilitarian aspects of the article, it can qualify as sufficiently “original” to obtain copyright protection. In the U.S., copyrights have been registered for ornamental decorations on belt buckles and watch faces.
• Trademarks/service marks: These are words, phrases, symbols, and/or designs (including trade dress, i.e., the overall look and feel of a product) used to identify and distinguish the products/services of one party from those of another. Examples of trade dress registered in the U.S. are shown below:
These valuable IP assets protect the owner’s investment in the goodwill and reputation attached to the mark, protect consumers from confusion regarding the source of the goods/services and signify all goods and services sold or provided under the mark are of an equal level of quality.
• Patents: Generally, these protect inventions which are new, useful and non-obvious. Invented materials used in the manufacture of fashion items or luxury goods and innovative methods of manufacturing these goods could also qualify patent protection. Outside the U.S., certain countries provide protection for industrial designs/designs, which are similar to U.S. design patents.
“ Licensing in the fashion and luxury space mostly relates to trademarks, including designer names as well as brands ”
Licensing in the fashion and luxury space mostly relates to trademarks, including designer names as well as brands. Design and/or patent rights are mainly licensed to third parties for manufacturing purposes only, whereas marketing and distribution is often reserved to the brand owner. While a company usually reserves specific “core” categories of products for itself, it will commonly resort to licensing to broaden the use of its trademarks in territories or product lines not currently served by the brand owner, such as fragrances and cosmetic products, jewellery and home furniture.
Benefits of licensing include spreading the risk and cost of development and distribution, achieving a quicker and wider market penetration, differentiating your company’s products from those of competitors, earning license fees and/or ongoing royalty income, as well as tax benefits. However, licensing also presents some risks, notably the difficulty in recruiting, motivating and retaining qualified and competent licensees and the administrative burden of monitoring and supporting the operations of a licensee’s network.
Your company’s entire reputation and goodwill may be damaged or destroyed by the act or omission of a single licensee. Therefore, before entering into a license, it is essential your company conduct due diligence on licensees: verify their reputation in the license-relevant market and that they possesses the necessary skills, market experience and technical equipment. Carefully analyse what is going to be licensed (e.g., which marks for which products), where (e.g., the territory of the license), on what basis (e.g., exclusive or non-exclusive; if exclusive, can licensor also exploit the IP?) and for how long (e.g., term of the license, including renewal provisions and taking into account the length of protection for each IP right).
“ Parallel imports and counterfeits are a significant concern, particularly in the luxury and fashion industry. ”
Moreover, appropriate provisions relating to how the trademark may/may not be used (e.g., prohibitions against co-branding, repackaging/relabeling) and maintaining the image of the brand (e.g., retailing conditions, quality of retail stores, distribution network, supply chain, etc.) should be included in the agreement. Other important provisions include:
• the amount of royalties;
• termination rights;
• whether a particular designer constitutes an essential term of the contract; and
• quality control. The licensor should have the right to periodically audit and inspect the licensee’s premises, use of the mark, quality of goods and the manufacturing and/or distribution process. Such provisions are crucial as the level of control often directly affects the reputation and goodwill of a brand. In certain jurisdictions, including the U.S., absence of quality control in a trademark license can constitute an abandonment of your company’s trademarks.
Parallel imports and counterfeits are a significant concern, particularly in the luxury and fashion industry. The agreement should include provisions and representations and warranties by the licensee prohibiting these actions. A breach of such provisions, as well as any quality control standards noted above, should be tied to financial penalties and/or termination rights.
“ Substantial resources are required to create, register, enforce and license your company’s IP ”
Substantial resources are required to create, register, enforce and license your company’s IP. By following the steps below, your company will be on its way to maximising the value and mitigating the risks associated with using its IP assets.
1. Identify and Clear IP Rights: Develop procedures to identify IP assets. Prior to using any IP, conduct appropriate clearance searches and obtain opinions of counsel on availability or related legal issues.
2. Register Your IP: Registration is the first step to protect your IP. Registration is required in most countries in order to enforce your rights against third parties. Moreover, licensees generally want the IP they are licensing to be registered.
3. Enforce Your IP: Be proactive in enforcing your IP rights when others try to copy designs or inventions or ride on the coattails of the goodwill created by your company in its brand. Enforcement actions include:
¥ sending cease and desist letters;
¥ pursuing administrative proceedings/remedies (e.g., oppositions, invalidation hearings, cancellation actions, etc.);
¥ seeking injunctions;
¥ filing civil and criminal lawsuits; and
¥ partnering with customs authorities to seize counterfeit goods.
Failure to take appropriate action against infringers or unauthorized users of your IP may lead to diminishment of the value or abandonment of your IP.
4. Monetize your IP: Analyze when and how to expand your brand via licensing arrangements. Carefully pick your licensees and monitor their activities. Budget for costs associated with registering additional IP – either for additional licensed goods or in new jurisdictions into which your company is expanding.
To learn more about the IP challenges in the luxury and fashion industry, download your copy of the Global Legal Guide here.