Fashion Apparel Law Blog

Reasonable Minds Differ On Whether A Zip Code Is "Personal Identification Information" Under The Song-Beverly Act

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 10 Nov 2008 12:27:47 -0500

Over twenty major retailers have been sued in class action lawsuits in California for allegedly violating the Song-Beverly Credit Card Act. The claimed offense involves requesting and recording their customers’ zip codes at the point of sale. The issue is whether a zip code constitutes “personal identification information” as that term is defined under the Song-Beverly Act. Recently, for the first time in California, Superior Court Judge Ronald Prager agreed with the defendant retailer[1] that a zip code is not “personal identification information,” and held that requesting and recording zip code information in connection with a credit card transaction is not a violation of the Song-Beverly Act. Pineda v. Williams-Sonoma Stores, Inc. (Oct. 3, 2008) No. 37-2008-00086061.[2]

Song-Beverly provides that no corporation “that accepts credit cards for the transaction of business shall. . . . [r]equest, or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to provide personal identification information,” which the corporation then records. Cal. Civ. Code § 1747.08(a). The Code further provides: “For purposes of this section ‘personal identification information,’ means information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder’s address and telephone number.” Cal. Civ. Code § 1747.08(b).

Judge Prager analyzed the Song-Beverly Act and reasoned that a zip code is not “personal identification information” for the following reason:

1. Language of the statute does not include zip codes:

Zip codes are not unique to the cardholder or his or her household;
Zip codes are unlike addresses and phone numbers; and
Accepting plaintiff’s interpretation that information which is not personal to the cardholder, but leads to information which is, would require the court to read language into the Act which is not present.

2. Legislative history does not include scenario alleged:

The purpose of Song-Beverly, as articulated in Florez v. Linens ‘N Things, Inc., (2003) 108 Cal.App.4th 447, was two-fold: (a) to protect very specific and personal information about a consumer’s spending habits that was being made available to anyone willing to pay for it with increased use of computer technology; and (b) to prevent acts of violence and harassment committed by store clerks;
The Legislative history does not address the scenario of requesting information, which might lead to the discovery of “personal identification information” through reverse data searches, as the plaintiff alleged; and
There was no allegation that any violence or harassment of consumers occurred.

3. Absurd result if zip codes were included within the meaning of "personal identification information":

Such an interpretation would improperly broaden the scope of the Song-Beverly Act to include information not specific to an individual, like an area code, city, state, etc.; and
Such an interpretation would prohibit retailers’ common practice of requesting zip codes to protect consumers against the unauthorized and fraudulent use of credit cards.

The issue is currently pending in the Fourth District of the California Court of Appeal on a writ in Party City Corp. v. Superior Court, No. D053530, but Judge Prager’s decision provides a clear explication of the statute and why he held that requesting and recording zip codes does not violate the Song-Beverly Act.

[1] Defendant retailer Williams-Sonoma Store, Inc. was represented by Craig Cardon and Elizabeth Berman of Sheppard, Mullin, Richter & Hampton LLP.

[2] Judge Prager was also the first judge to rule that gift cards need not be redeemed for cash in California, before the California Legislature confirmed his analysis.

Flower Power: How Poppies Started Popping Up Everywhere and Why Marimekko Was Smart to Register its Unikko Trademark

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 04 Nov 2008 13:26:49 -0500

The Finnish textile and clothing company Marimekko announced recently that it reached a settlement with Dolce & Gabbana S.r.L. and Dolce & Gabbana Industria S.p.A. over the use of its trademarked Unikko floral design pattern.

Marimekko's Unikko Design - (photo courtesy of Marimekko)
D&G Dolce & Gabbana Poppy Print Dress - (photo courtesy of Bergdorf Goodman)

Earlier this year, Marimekko claimed that Dolce & Gabbana had used the Unikko floral design on its products without permission. Dolce & Gabbana responded with a proceeding before the EU's Office for Harmonisation in the Internal Market (OHIM) seeking nullification of Marimekko's Unikko trademark, which was withdrawn.

Marimekko also had filed suit against Dolce & Gabbana in the District Court of Hamburg to stop it from selling products with the Unikko trademark. Marimekko successfully obtained an injunction, preventing Dolce & Gabbana from selling and marketing certain products in Germany. The two companies have now agreed, as part of the settlement, to drop all legal proceedings regarding the Unikko trademark.

Marimekko's Unikko poppy pattern was created in 1964 by Marimekko designer Maija Isola. The trademark became one of Marimekko's most popular source-identifying designs, and is still highly sought after.

Marimekko filed for trademark registration for its Unikko design with the OHIM on May 20, 2003. Its Unikko "Community Trademark," or CTM, was registered on March 27, 2006. A CTM is protected for a period of ten years from the date of filing for registration and can be renewed indefinitely for periods of 10 years. Unikko also is a registered trademark in Norway and the United States. In 2008, Groth & Co. awarded Marimekko the 2008 SIGNUM Prize for its excellent trademark management and protection.

This case illustrates the numerous advantages and protections that trademark registration affords fashion textile and apparel designers. Not only was Marimekko able to obtain an injunction against Dolce & Gabbana for the selling and marketing of certain products in Germany, but it also was able to pursue other legal remedies based upon its registrations, which ultimately led to the final settlement between the companies.

By registering a United States trademark, designers and textile manufacturers can strengthen their rights in trademark infringement actions brought in federal court. Registrants are given a legal presumption of trademark ownership. Registering trademarks with the United States Customs Service also facilitates the seizure of illegal counterfeit goods at the United States borders.

FASHION and CONTEMPORARY ART: an interesting liaison

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 16 Sep 2008 16:25:07 -0500

The liaison between fashion and contemporary art has been continuously growing changing over the years. Painters, photographers, visual artists, illustrators, performers and creative artists, are commissioned by top luxury brands of fashion and trendy stylists to create new collections, to design their websites, to redesign the concept of their stores, to bring elements of innovation to their catwalks, showrooms and fashion show or to contribute to publications.

This attraction between art and fashion is not totally new. In 1930, the late-futurist painter Lucio Venna was commissioned to draft the sketches of the advertisement of Ferragamo' shoes. Gianni Versace used to commission works of art from artists such as Alighiero Boetti and Roy Liechtenstein for the launches of his collections. But these were rather isolated events.

What has changed in recent years are both the dimension and the structure of the phenomenon. The connection between contemporary art and fashion is more and more widespread. In other words, we are watching the “industrialization” of the relationship between contemporary art and fashion.

The immediate and more visible outcome of the transformation of this connection is the continuous birth of foundations dedicated to the arts and established by the owners of the top fashion brands. The creation of these foundations is also thanks to the tax advantages derived from operating through a foundation and investing in the arts.

Beside the long time established foundations of top fashion luxury brands as Cartier, Prada, Fendi and Trussardi, new foundations linked to very well known fashion brands have recently appeared. On the occasion of the first Contemporary Art Festival held in Faenza last May, a new Furla Foundation for Art was launched, as the natural development and the completion of a project started with the Furla Price for Art, established in 2000. Located in a magnificent palace of the 18th century in Bologna, restored with contemporary solutions, the foundation hosts works of art of famous international artists, such as Kiki Smith and Joseph Kossuth, and of emerging Italian artists, such as Lara Favaretto, Eva Marisaldi and Sabrina Mezzaqui. The foundation will be operational by the end of 2009, when the Biennale of Venice will be held.

Furla is one of the top Italian brands in the leather industry, a producer of handbags, shoes, small leather goods and belts handcrafted in Italy. It is present in 64 countries with its 196 free-standing stores and in 9 countries with its subsidiaries (United States, Japan, China, Hong Kong, Australia, France, Spain, Germany and UK).

Another foundation, Fondazione Claudio Buziol, was also born last May. Directed by Renzo di Renzo, the former director of Fabrica (the communication and innovation research center of the Benetton family) it is located in Venice, in an ancient historical building of the 18th century facing the Grand Canal. It was founded by the family Buziol, creator and owner of the brand Replay, one of the top Italian brands for casual wear, reinterpreting the 50's American style.

Perna Foundation, established in 2006 by Giovanna Palumbo Perna, the wife of Tonino Perna, businessman and collector, owner of IT Holdings, which controls top fashion brands such as Ferre' and Malo, made its public debut in the exclusive halls of Villa Ruffolo at the Ravello Festival, on the Amalfi Coast, last June. The exhibition, entitled "Mediterranean 2008", showcased works of art of 17 artists, all coming from Mediterranean countries, which narrate the richness and the complexity of their geographic area.

The dedication of the Perna family to the project is evident from the names of those on the committee for the foundation: Alanna Heiss, Director of P.S.1. Moma in New York, Vincente Todoli, Director of the Tate Modern in London, Marc Mayer, Director of the Musee d'Art Contemporain in Montreal, Paolo Colombo, former curator of the MaXXi in Rome and currently consultant for the Istanbul Modern and the Museum in Athens.

If industrialization of the relationship between contemporary art and fashion keeps on growing, the long time established foundations linked to the top brands of the fashion industry will likely changing their structure, aware of the importance of both creating new form of expressions and performing groundbreaking initiatives to promote their name and image.

As to the Prada Foundation, it is planning within 3 years to build a museum area covering more than 17,000 square meters in Milan, where the Luna Rossa's headquarter offices are now located, through an investment of 25 million Euro. This area, thought of as a showcase for any sort of work of art, will host new projects and works of art of the existing Prada collection, also related to cinema, design and architecture. The architect Rem Koolhaas has been commissioned to lead the project and the artistic direction has been assigned to world famous curator Germano Celant.

As to Fondazione Trussardi, it set up an unusual temporary exhibition in Piazza del Duomo in Milan last July. For a month, two hours a day, videos and films of the most interesting emerging international artists have been projected on the hugest led screen in Europe, the led wall of 500 square meters of Palazzo dell'Arengario. The installation of temporary exhibitions in the city streets has in fact become the distinctive feature of this young and innovative foundation.

As to Fondazione Fendi, it staged a theatrical comedy in the marvelous frame of Circo Massimo in Rome last spring. The Village People too performed on the stage.

On a separate but related note, new connections between fashion and art have shown up both on catwalks and in the collections of high fashion. Many fashions designers, always looking for new inspirations, try to find them in arts, by using works of art to make their fashion shows unforgettable events and to turn their clothes into a work of art.

If the designer is going to use works of art protected by copyright to create its collection and sell the corresponding items within a certain territory for a certain duration, it could be necessary to enter into a license agreement with the artist or with the owner of the economic rights, if they are different. It may be necessary to obtain the artist's previous consent in connection with its moral rights on the art work anyway, depending on the applicable law.

If the designer is going to use one-off works of art protected by copyright (especially for a fashion show or clothes), it could be preferable to sign a simpler agreement, setting forth only the amount to be paid to the artist and the general conditions for use of this work of art ( possible authorized alteration, quoting the name of the artist and so on).

Copying famous sculptures and placing them along the catwalks or reproducing on artwork images (famous paintings or photographs) on branded t-shirts without the previous consent of the artist are acts of infringement of the artist' s copyright in those works of art, provided that these rights are still effective.

Sometimes having been too late to sign a license agreement or obtaining the right to use the work of art, designers have been forced to sign settlement agreements to avoid the bad publicity of a criminal or a civil action, not to mention the bad publicity should the outcome of any such action be a finding of infringement against the designer. Normally the settlement requires the designer (i) to pay a lump sum to cover moral and economic damages of the artist and legal costs; (ii) to destroy the infringing goods and (iii) not to make any further use of the infringing items. Needless to say, damages paid for previous unauthorized use are normally much higher than the fees that the designer would have paid had he requested a copyright license before reproducing the artworks.

In this regard, the assistance and the consultancy of specialized copyright attorneys are fundamental. New contractual forms have to be shaped and customized for these new realities. Contracts need to be both more flexible and more clear in setting out the respective rights, consents and authorizations.

As to the foundations, traditional forms fit for traditional foundations have to be modified and reinvented according to the different purposes of the foundations established by the fashion industry to work with and in arts.

Selecting a copyright attorney with experience in these specific matters can help to avoid annoying surprises, save high costs for damages and avoid the risk of bad publicity.

Please visit Studio Legale Jacobacci & Associati for more information.

FutureFashion

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 29 Aug 2008 12:33:30 -0500

The Sheppard Mullin Fashion & Apparel team represented Inform Ventures, producer and niche marketing/advertising agency that works closely with the fashion industry, in connection with the production of the documentary. The documentary called "FutureFashion" showcased top designers presenting cutting-edge, eco-friendly fashions. The documentary was underwritten by Lexus.

Click here to view the documentary.

Court Decision On Meal Periods, Rest Periods And Off-The-Clock Work Is Absolutely Attention-Getting

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 30 Jul 2008 20:12:53 -0500

Click here to view a PDF copy of the article.

S.D.N.Y Holds eBay Not Liable in Closely Watched Trademark Case

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 14 Jul 2008 19:59:27 -0500

In a July 14, 2008, decision addressing the issue of who bears the burden in policing counterfeiting on online auction sites, Judge Richard J. Sullivan of the Southern District of New York held that "it is the trademark owner's burden to police its mark and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring on their websites." The decision was rendered in Tiffany (NJ) Inc. v. eBay, Inc., No. 04 Civ. 4607 (RJS) (S.D.N.Y). The district court held that Tiffany had failed to meet its burden to hold eBay liable for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution.

The following are the key holdings:

eBay's use of the Tiffany marks on its homepage and with respect to online advertising is protected under the nominative fair use doctrine. The district court held that eBay's practice of purchasing sponsored links of Tiffany trademarks also is protected by the defense of nominative fair use;
eBay's internal use of the Tiffany mark as a key word to trigger the display of sponsored links is not a use of the mark in a trademark sense under 1-800 Contacts v. WhenU;
Contributory infringement in this case is evaluated under the second prong of the Inwood Laboratories test -- which recognizes contributory liability when a manufacturer or distributor continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement. This test applies in cases such as this one where eBay is analogous to a flea market, like those in Hard Rock Cafe and Fonavisa. eBay had sufficient control over its website so that the Inwood test applies;
Generalized knowledge of infringing activity is not sufficient to meet the "know or reason to know" standard regarding contributory infringement set forth in Inwood. Courts require a showing that a defendant knew or had reason to know of specific instances of actual infringement;
Tiffany demonstrated that eBay had general knowledge of infringement, but Tiffany's allegations of counterfeiting failed to provide eBay with the specific knowledge required under Inwood. Demand letters and the presumption that any listing of five or more Tiffany items was counterfeit, along with buying program evidence of infringements, notices of counterfeit auctions and buyer complaints, were not considered specific notice or sufficient in volume to create a duty to act and, to the extent that there was specific notice, the district court held that eBay responded appropriately;
The district court concluded that eBay was not willfully blind to evidence of infringement on its website because the evidence established that, when eBay had general knowledge of counterfeiting on its website, it took reasonable steps to investigate and stop that wrongdoing through general anti-fraud measures. The district court also concluded that Tiffany failed to demonstrate that eBay continued to supply its service to those whom it knew or had reason to know were engaging in infringement and that eBay took appropriate steps to cease making its website available in those instances where Tiffany brought objectionable conduct to its attention. The burden of policing the Tiffany mark rests with Tiffany;
The district court rejected the remaining causes of action asserted by Tiffany for unfair competition; false advertising and trademark dilution.

It remains to be seen whether this decision will be appealed to the Second Circuit, but this case will no doubt set a template for anticounterfeiting claims against auction websites in the Second Circuit and, in light of the recent developments in Europe regarding auction websites, may result in forum shopping overseas in similar cases.

Click here for a PDF copy of the opinion.

You're Either In or You're Out, New York Tells Online Retailers

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 11 Jul 2008 13:30:08 -0500

On June 1^st, 2008, New York lawmakers put into effect a law that narrows the online tax exemption and sends a clear message to online retailers: You’re either in or you’re out. New York wants retailers "in" so that they can collect NY sales tax. Retailers want to remain "out" in order to keep the online tax exemption and avoid the costs associated with collecting sales taxes from customers.

Prior to the New York law, an online retailer had to do more than just sell goods in a state in order to be responsible for collecting sales taxes on goods sold in that state. In 1992, the US Supreme Court held a retailer must have a “physical presence” within the state in order to be responsible for collecting sales taxes. Quill Corp. v. North Dakota By and Through Heitkamp (1992) 504 U.S. 298. The Supreme Court explained that a retailer must have a "substantial nexus" with the state in order to have a "physical presence." This traditionally has meant that retailers have some physical operations, such as its headquarters, a warehouse, or a distribution center, in the state.

With the advent of the internet, retailers can open an online store based in one state, and customers from the other 49 states can browse its selection and make purchases tax free. Thus, the "physical presence" standard created an online tax exemption that benefited online retailers and consumers, alike.

The NY law substantially narrows this online tax exemption. The NY law eases the Supreme Court’s definition of “physical presence” and makes it more likely that an online retailer will be found to have a “physical presence” in New York. The law targets online retailers’ relationships with affiliate sites based in New York. If an online retailer uses affiliate sites to promote its online store, the NY law deems that retailer to have a "physical presence" in New York. Affiliate sites are any internet sites that receive some form of commission for directing sales to an online retailer. For example, a fashion blogger that directs its readers to an online retailer that sells handbags becomes an affiliate when a reader buys a purse and the online retailer pays the fashion blogger a commission. According to E-tailing Group Inc. of Chicago, many online retailers have affiliate programs that account for 9% of online sales.

The New York law has made online retailers nervous for two significant reasons. First, one of the major draws to shopping online is getting the sales tax break. In many instances, the break on sales tax balances out the cost of shipping. Without this tax break, online shoppers may abandon their online stores and return to their local shops. Second, online retailers will have to create an infrastructure and adapt technology in order to collect the sales tax. This means increased costs.

The combination of potential decreased sales and unavoidable increased costs have made online retailers scramble over the past few months in order to maintain the online tax exemption. Online retailers have essentially three options: 1. Remove New York-based affiliates from their affiliate programs in order to maintain their "out" status; 2. Change the terms and conditions of their affiliate contracts in order to satisfy an exception to the New York law; or 3. Accept "in" status and collect sales tax. Additionally, some online retailers who have taken one of these routes have also sued the state of New York alleging the law is unconstitutional.

The New York law raises some complicated legal issues and challenges online retailers to determine what it means to be "in" and to find ways to maintain being "out."

Designer Hotels Are In Fashion: But Care Should Be Taken To Avoid A Major Faux Pas

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 05 Jun 2008 12:53:11 -0500

Click here to view a PDF copy of the document.

A Change Of Custom For Customs: The Proposed Change To The First Sale Rule

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 16 Apr 2008 14:55:43 -0500

U.S. Customs and Border Protection ("Customs") is proposing a change to the First Sale Rule that, if made, will force U.S. companies to pay millions of dollars in additional duties on the products they manufacture in foreign countries and import to the U.S.

For the past 20 years, duties have been calculated based on the First Sale Rule, which provides that the value of an item may be set at its first price in the supply chain. Usually, this is the sale from the factory to the wholesaler. As a result, the mark-ups that occur as an item advances through the supply chain are not included in the calculation, and duties are kept relatively low. An importer is allowed to use the value under the First Sale Rule if the sale was negotiated at arm's length and involved goods clearly destined for export to the United States. Synergy Sport International, Ltd. v United States, 17 C.I.T. 18 (1993).

Customs cites many difficulties with the application of the First Sale Rule as the reasons for the proposed change. These difficulties include the need for extensive fact-finding to determine whether the goods are "clearly destined" for export to the U.S., lack of information to determine whether the sale was a bona fide arm's length transaction, and lack of access to books and records for purposes of post-entry audits, verifications and declarations.

The proposed change to the Rule would result from a new interpretation of the phrase "sold for exportation to the United States." Customs is proposing that the value of the duties should be calculated based on the price of an item in the last sale prior to the introduction of the goods into the U.S. Generally, this is the actual wholesale value. Therefore, if the proposed change is accepted, duties on these items will increase, cutting into company profits.

Additionally, the change will likely prompt many industries to redesign their models of international trade so that they introduce their goods into the U.S. at an earlier point in the supply chain. That way, the determination of the duties they must pay will be based on a lower price than under the current model.

Many apparel and textile importers who will be seriously impacted by a change to the First Sale Rule, have been longtime partners with Customs on many voluntary security initiatives. Some feel betrayed by this proposal, which has the potential to jeopardize their profitability.

Before Customs decides whether to actually implement the change, it set a public comments period on the proposal ending April 23, 2008. Several apparel brands and retailers are urging a withdrawal of the proposal. After the comment period, Customs will review the comments and follow up with a notice in the Federal Register of its decision.

Gift Cards: The Good, The Bad And The Fraudulent

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 25 Feb 2008 17:27:58 -0500

It is estimated that consumers spent almost $100 billion on gift cards in 2007. From the consumer's perspective, a gift card is an attractive alternative to an actual gift because it is easy to obtain and reduces the hassle and guess-work of gift-buying. From a retailer's perspective, gift cards are a great way to attract new customers, strengthen brand loyalty, generate sales, provide an easy means of data-gathering, and reduce the costs of credit card processing.

Companies banking on capitalizing on the gift card market, however, are also seeing an increase in gift card fraud. There are many types of gift card fraud scams, but all of them leave consumers vulnerable and cause losses to retailers. One example of gift card fraud is found when a person returns stolen goods in exchange for store credit on a gift card. This gift card is then sold anonymously online. The buyer of the gift card then may end up with a card with little value left, or one that has been cancelled and is worthless. Moreover, the consumer is left with almost no recourse—it's buyer beware at its worst.

California laws with respect to gift cards are among the most restrictive in the nation. Therefore, most national retailers apply California law to their gift card policies. The framework of the laws in this area, however, highlight the tension between protecting consumers and encouraging sales, and enabling fraud and money laundering. For example, in California, a gift card may not have an expiration date so that consumers never lose the value on the card. Expiration dates, however, are one way retailers can protect themselves from gift card fraud, since they do not have to tolerate unredeemed gift cards floating in the market indefinitely. Additionally, California law requires a cash refund if the value remaining on a gift card is under $10. This system has resulted in successful money laundering schemes for those engaged in organized crime.

Retailers have very few defenses to such fraud. One defense is to print terms and conditions on the face of the gift cards, providing that the card is not for resale and invalid if resold. Further, when a fraudulent seller advertises or markets a gift card by using the retailer's logo, for example, the retailer may bring an action for copyright or trademark infringement to deter that type of activity. However, such defenses are of little help if the fraudulent seller cannot be located.

While gift cards have been of great benefit to retailers bottom-line, it is a relatively young system replete with challenges. Until these challenges are addressed and overcome, fraudulent gift card schemes will continue to plague retailers and consumers alike.

Patent Your Patent Leather: Patent Protection For The Fashion Industry

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 28 Jan 2008 20:10:08 -0500

In an age of "knock-offs," patent protection is an avenue that can be used by the fashion and apparel industry to protect products. Every week, the United States Patent and Trademark Office grants dozens of patents on a diverse range of apparel and fashion accessories (for example, shoes, hats, handbags and clothing among other items). Most of these patents are "design patents." Under United States Patent Law, there are two broad categories of patents: "utility patents," which protect the way an invention is used and works, and "design patents," which protect the ornamental appearance of a useful article.

Obtaining a design patent is generally a far easier process than obtaining a utility patent. An application, typically prepared by a patent attorney, is filed with the United States Patent and Trademark Office. The application is examined by the Patent Office for novelty (has someone else done the exact same design before) and obviousness (is the new design so similar to a prior design that it would be an obvious modification) and if, as most, it passes scrutiny, the patent issues.

Infringement of a design patent is determined by the ordinary observer test. Infringement exists if the accused design is so similar to the patented design that an ordinary observer would purchase the accused design believing it to be the patented design. If infringement is found, the patent owner will likely be entitled to and injunction and either monetary damages or a recovery of the infringer's profits.

Less frequently, utility patents are also granted in the fashion industry to protect the functional aspects of products. Common areas for utility patent protection in the fashion and accessories industries include useful improvements in brassieres, shoes, umbrellas and the like. The remedies for infringement of a utility patent are similar, but not identical to, a design patent.

Although creativity is deeply rooted in the fashion industry, many in the industry remain unaware of the benefits that they can derive through the patent system. Knock-offs of successful designs are a serious problem. Creators of new designs should consider filing for patent protection to curb rampant imitation.

What's in a Name?: PerfumeBay v. eBay Trademark Litigation

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 24 Jan 2008 11:51:58 -0500

The Ninth Circuit addressed the practical issues and challenges concerning the rights associated with domain names and trademark rights on the World Wide Web. In Perfumebay.com Inc. v. eBay Inc., No. 05-56794, the Ninth Circuit affirmed the District Court's broad injunction preventing Perfumebay from using the conjoined form of the word because such use created a likelihood of confusion with eBay. Perfumebay.com Inc. v. eBay Inc., No. 05-56794, 14521 (9th Cir. Nov. 5, 2007).

In Perfumebay.com, the Ninth Circuit found the marks were similar because "Perfumebay" incorporates "eBay" in its entirety, especially when it is spelled "PerfumeBay" as it is sometimes, and also because the domain name perfumebay.com necessarily incorporates eBay's mark in its entirety. Perfumebay.com, No. 05-56794 at 14516. A domain name is an identifier, which corresponds to a particular webpage, much like a street address or telephone number. Brookfield, 174 F.3d at 1044. Each web page has a unique domain name. Id. Further, a domain name cannot have any spaces or hyphens between words—they must be conjoined. See, e.g., Perfumebay.com, No. 05-56794 at 14530. Further, the Circuit Court found the goods were related because both sites sell perfume, even though eBay offers an additional auction component to its website. Id. Finally, the Court found that both use the Internet for marketing and advertising. Id. (quoting Brookfield Communications v. West Coast Ent., 174 F.3d 1036, 1057 (9th Cir. 1999)). In the context of the Internet, this factor exacerbates the likelihood of confusion because competing marks can be encountered "at the same time, on the same screen." Id. at 14517 (quoting GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1207 (9th Cir. 2000)).

The Ninth Circuit found non-conjoined use of the words ("Perfume Bay" or "Perfume-Bay"), on the other hand, did not create a likelihood of confusion. See id. The Ninth Circuit reasoned that the non-conjoined form reduces the likelihood of consumer confusion because it does not encompass all of eBay's trademark. Id. at 14529. However, non-conjoined words or phrases cannot be used as domain names on the Internet. The result of this decision is that Perfumebay.com, Inc. can continue to call itself "Perfume Bay," but it is in effect enjoined from using its own name as its web domain name because it cannot use the conjoined version. Since a significant purpose of a domain name is to "identify the entity that owns the website," a domain name that mirrors a corporate name is a valuable corporate asset. See Panavision International, L.P. v. Toeppen, 141 F.3d 1316, 1327 (9th Cir. 1998). If the injunction stands, Perfumebay.com could be barred from capitalizing on that valuable asset.

As fashion and apparel companies increasingly turn to the Internet to market their goods, it is important to consider whether their chosen domain name is in any way similar to the trademark of another company that sells similar goods.

Crimes of Fashion

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 08 Jan 2008 15:47:01 -0500

The LAPD and the Los Angeles County Sheriff's Department coordinated the largest raid ever on the Santee Alley downtown LA shopping district in late 2007, confiscating $8 million in counterfeit goods and arresting 26 people. Among the confiscated merchandise were designs copied from labels such as Prada, Rolex, Fendi and Gucci. The LAPD wants to send the message that selling counterfeit goods will no longer be tolerated.

The sales of counterfeit goods on the streets of Los Angeles presents a special problem in the city because, according to City Attorney Rocky Delgadillo, there is evidence that some of it is funding street gang activities. It is a lucrative alternative to other illegal activities, without the same level of danger or tough penalties. Some gangs, for example, charge "rent" to street merchants, or extort counterfeit merchandise from businesses to sell themselves. Consequently, according to Kris Buckner of Investigative Consultants, the involvement of gangs in the counterfeit market is making "law enforcement take a second look" at these types of crimes, as a means to disrupt gang activity.

Other countries have dealt with similar issues. The United Kingdom, for example, saw an explosion of funding for organized crime and international terrorism in 2004 from sales of counterfeit goods. To address this problem, U.K authorities hired 4,500 additional "copyright police" to increase the frequency of surprise raids, the level of intelligence, and criminal prosecutions to keep the "crimelords" off the street.

This growing connection between merchants of counterfeit goods and street gangs is putting pressure on local law enforcement to enforce the anti-counterfeit laws with more vigor. As enforcement improves, losses to legitimate designers and manufacturers caused by the sale of counterfeit goods in the city should decrease.

New Trucking Rules Could Make Goods Fashionably Late

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 19 Dec 2007 14:47:02 -0500

In a recent decision, the U.S. Court of Appeals for the District of Columbia overturned the Federal Motor Carrier Safety Administration (FMCSA) truck diver Hours of Services ("HOS") rule that regulates the amount of time commercial truck drivers can operate their vehicles (Owner-Operator v. FMCSA, 494 F.3d 188 (D.C. Cir. 2007)). The current HOS rules, which were adopted in October 2005, provide for a daily driving limit of eleven hours followed by a ten hour rest period. Also, pursuant to the current rules, truck drivers may restart their weekly count of hours after they have taken a break of thirty-four hours. In its decision, the court reduced the maximum driving time to ten hours a day followed by an eight hour rest period and vacated the thirty-four hour restart provision in order to ensure highway safety and protect driver health.

With the arrival of the critical holiday season, this change in rules could impact trucking companies, fashion retailers, and consumers alike. A reduction of the daily driving limit could force trucking companies to hire new drivers in order to deliver goods on time and could require trucking companies to buy new equipment to maintain delivery deadlines for goods which would perish if they do not reach their final destination on time. Increased cost to the trucking companies will likely get passed on to their customers. Therefore, for fashion retailers, a significant increase in shipping and inventory costs could mean reduced profits. Not all companies in the fashion industry can afford to pay more to make sure that goods are delivered on time. Further, a reduction of driving hours could result in shortages of product and could impact inventory selection for consumers.

The lawsuit was initiated by safety organizations that argued that after the FMCSA increased the number of hours commercial truck drivers could be on the road in 2005, more people were killed and injured in large truck crashes. One of the plaintiff organizations, “Parents Against Tired Truckers,” noted that “the trucking profession has become ‘sweatshops on wheels’ because of the excessive and unsafe hours of work and driving time required of truck drivers.” The American Truckers Association (“ATA”), a trade group that represents commercial trucking fleets as well as private trucking fleets, and the U.S. Chamber of Commerce have sought to stay the decision pending further rulemaking action by the FMCSA.

The FMCSA issued a statement stating that the agency will determine the agency’s next steps to “prevent driver fatigue, ensure safe and efficient motor carrier operations an save lives.” The agency has until December 27, 2007 to implement the new rules or to demonstrate that the existing rules are safe.

Faking It: What Designers Should Know About Piracy, Purse Parties, and Parking Lots

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 16 Nov 2007 19:02:52 -0500

Piracy is not just a problem on the high seas or the internet: fashion designers have fallen victim, too. Current copyright laws protect only the artwork of a design, such as labels, logos, prints and embroidery. Leave off the label or change the logo slightly, and manufacturers and copy-cat designers have free reign to duplicate the cut, shape, style, and silhouette of an item of clothing or an accessory. This widespread practice of design piracy by popular retailers is legal…for now.

Under current copyright law, the practical difference between a pirated copy and a counterfeit is very slight. Designer Diane von Furstenberg told the LA Times that design piracy is essentially "counterfeiting without the label." The Design Piracy Prohibition Act, a bill that would amend the Copyright Act and is currently pending in the Senate, would extend protection to the appearance as a whole of an item for three years.

If the bill passes, it could have a profound practical impact on the way the fashion industry operates in this country. Trends on the runway trickle down through all levels of retail, until they end up in every closet in America. If it were illegal to imitate high fashion trends, lower-tiered retailers and designers would have to draw inspiration from somewhere else. And if they do not, the bill may only spawn more litigation over whether a design is an exact pirated copy without the label, or merely inspired by a major fashion trend in the industry.

Both designers and scholars in Los Angeles have articulated the paradoxical concerns design piracy implicates: on the one hand, copying propels trends forward, promotes creativity in the industry, and democratizes fashion; while on the other hand, a pirated design can be so close to the original that it can wreak all the financial havoc on a company that a counterfeit design could.

Selling pirated or counterfeit goods is big business, and it not only impacts the elite international fashion houses such as Gucci and Chanel, but it also hits premium Southern California denim and sportswear brands such as Ed Hardy and 7 For All Mankind. For example, counterfeiting costs Ed Hardy an estimated $20 to $25 million per year in global sales. Counterfeit footwear, clothing and handbags valued at $62.89 million accounted for 57% of all seizures made by U.S. Customs from October, 2006 to March, 2007 alone. That is over a 200% increase over the same period the previous year, and more than half comes in through the ports of Los Angeles and Long Beach.

Some of these companies are fighting back with more than cease-and-desist letters—they are hiring private investigators to pursue leads, build cases, and document and compile evidence to arm law enforcement and prosecutors with all they need for an arrest and a conviction of the offenders. This is necessary because sellers of pirated and counterfeit goods will organize covert "purse parties" in someone's home, or set up a meeting in a Starbuck's parking lot to conduct a quick transaction out of the trunk of their car, making it hard for local law enforcement to keep up. If the Design Piracy Prohibition Act passes next year, fashion companies will be armed with one more tool in their toolbox with which to help protect their designs and their profits.

Authorities Clearing The Air In The Counterfeit Fragrance Market

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 06 Nov 2007 18:02:49 -0500

A drive past the corner shops of downtown Los Angeles or Manhattan will give anyone an idea of how flagrant counterfeiters of fragrances can be, and how necessary enforcement has become. Unlike counterfeit handbags or apparel, fake perfume is applied to the skin and poses a special health risk to consumers, since some counterfeit fragrances include additives such as urine and antifreeze.

Recently, six foreign nationals were arrested and charged with trademark counterfeiting after the NYPD raided Price Right Perfume and Watches in Manhattan. Bottles bearing the names of leading brands, including Armani, Ralph Lauren, Chanel, Kenneth Cole, Liz Claiborne and Davidoff were seized.

Sources close to the investigation said this is the first criminal counterfeit case involving fragrances in Manhattan, and more arrests can be expected. According to Martin Ficke, former special agent of the Department of Homeland Security and chief of operations for a consulting firm, most arrests of this type involve civil litigation; however, this particular case could first be tried as a criminal matter. He explained one of the reasons why these type of cases end up being tried civilly rather than criminally is because the government does not have the resources to handle anti-counterfeiting matters. Ficke is working with the Fragrance Foundation, the NYPD, and a number of leading fragrance companies to make up for this gap in resources and help the prosecution build a criminal case against the defendants.

A major issue for the fragrance industry and enforcement of trademark counterfeiting will be determining how the counterfeit fragrances are brought into the United States. Authorities suspect, although have not confirmed, that most of the items were manufactured in China or Dubai. This is an issue not only for the fragrance industry, but the fashion and apparel industry as a whole, as the industry continues to fight against the siege of counterfeit goods flowing into the United States. This recent enforcement of the anti-trademark counterfeiting laws is a step forward in this fight.

New Cargo Screening Requirement Could Import High Costs To Fashion And Apparel Industry

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 15 Oct 2007 13:28:38 -0500

Congress gave final approval to legislation that requires stricter screening of sea cargo containers bound for the U.S. at foreign ports. The bill will implement many of the recommendations of the 9/11 Commission to strengthen national security and help to prevent terrorist attacks (click here for full text of this bill). The bill has been opposed by large U.S. importers, the U.S. Chamber of Commerce and the American Apparel and Footwear Association, which pointed out that the cargo screening requirement will do little to increase security, is impractical and could have negative impacts on global trade and the U.S. economy.

The new legislation mandates foreign port authorities to inspect all U.S.-bound cargo containers for nuclear devices by radiation detectors and X-ray machines before loading. The bill sets deadlines for small and large ports to be in compliance with the new regulation. Specifically, the bill includes a phased-in application of the radiation scanning technology at large foreign ports within three years and at small foreign ports within five years. The Department of Homeland Security is authorized to extend the deadline for two years at a time, if a port has difficulty complying because the port does not have room to install the equipment.

Supporters argue that the measure was important to prevent the catastrophe of a ship entering a U.S. port with a nuclear device. Speaker of the House Nancy Pelosi pointed out that implementing the recommendations will make the U.S. more unified and effective because “the bill closes loopholes and weakens terrorists seeking to exploit and leave Americans vulnerable”.

However, retailers and vendors in the fashion and apparel industry, who imported $89.5 billion worth of apparel and textiles last year, strongly opposed the one hundred percent scanning requirement. They argue that one hundred percent scanning is probably not feasible from a technological point of view. Therefore, the impact on the flow of commerce could be enormous for retailers and vendors as even the slightest delay in clearing customs in a foreign or U.S. port could interrupt the entire supply chain. Consequently, the bill could result in lower profits and higher transportation cost for U.S. importers in the fashion and apparel industry. Furthermore, opponents say that the current bill does not explain how the screening will be done, who will pay for the necessary equipment and what kind of data will be collected. Further complicating matters, it might be difficult to make foreign governments comply with the scanning requirements and doing so could cause trading partners to impose similar requirements on U.S. exports. Fashion and apparel industry representatives supported an alternative model, that would require increased inspection of cargo only at high-risk foreign ports.

Even though the bill provides for flexibility in delaying the implementation of the screening requirement in certain cases, Stephen Lamar, executive vice president of the American Apparel and Footwear Association, concluded that the bill “still creates a hard date” for compliance at foreign ports which could result in a “big dose of uncertainty” for the fashion industry.

New EU Chemicals Regulation Could Peel Away Fashion and Cosmetic Industry Profits

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 10 Sep 2007 13:51:24 -0500

On June 1, 2007, the controversial new EU Regulation for the Registration, Evaluation and Restriction on Chemicals (“REACH”) came into force to regulate the use of chemicals in consumer products, including apparel, fragrances and cosmetics. The regulation’s most important goals are to improve the protection of human health and the environment while enhancing the innovative capability of the EU chemicals industry. Although European companies will be primarily hit by this regulation, US manufacturers exporting in the EU market must be in compliance as well.

REACH will create a single legal system for all chemical substances. Since 1981, new chemicals have undergone obligatory tests before being placed on the market. Under REACH, the burden of proof for demonstrating the safe use of chemicals is placed on the chemicals industry. Hence, companies will now need to prove the safety of thousands of chemicals previously not regulated.

Specifically, manufacturers and importers will be required to gather comprehensive information on the properties of more than 30,000 identified chemical substances produced or imported in quantities higher than one ton per year in the EU. In addition, REACH calls for the registration of such information in a central database run by the newly established European Chemicals Agency in Helsinki (http://ec.europa.eu/echa). The Agency will manage the databases necessary to operate the system, co-ordinate the in-depth evaluation of the chemicals and run a public database where consumers and professionals can find hazard information. Registrants also have to identify appropriate risk management measures and communicate them to the Agency. The registration procedure will involve the submission of a dossier containing information on the chemical substances used and guidance on how to handle them safely. The time period in which manufacturers and importers of chemical substances must register depends on the quantities of substances produced or imported. Manufacturers and importers who fail to register in time will no longer be able to manufacture in or import that substance to the EU market.

Many players in the fashion and beauty industry, which lobbied the legislation for years, view REACH as a good compromise. For instance, France’s Federation des Industries de la Parfumerie, an organization representing 250 beauty companies, pointed out that “such regulation can only reinforce consumer confidence in today’s consumer products, including cosmetics”. Other supporters in the fragrance industry said that REACH was an important step to sustain the industry’s future. Opponents argue that it will be costly for the fashion and beauty industry to comply with REACH and “for the smaller players, it’s a nightmare”. Furthermore, REACH could affect product pricing and the availability of certain substances for existing beauty products, particularly fragrances where a scent formula consists of 200 to 400 ingredients. The European Commission estimated that it would cost the chemical industry between EUR 2.3 billion and EUR 5.2 billion over the next decade to comply with its new obligations under REACH.

Senate Goes Fashion Forward With Latest Version of Design Piracy Prohibition Act

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 10 Aug 2007 12:36:19 -0500

On August 2, 2007, Senator Orrin Hatch announced S. 1957, a bill intended to provide protection for fashion designs. In his comments introducing the draft legislation, Senator Hatch noted that the goal of the legislation "is to ensure that those who spend their time and money developing new and innovative fashion designs are able to secure and enforce adequate copyright protections for their hard work." Senator Hatch noted while introducing S. 1957 that the current bill is "not perfect" and that "some areas of the bill that need to be improved are: the standard for liability, the definition of designs in the public domain, and the secondary liability provisions." Co-sponsored by Senators Clinton, Feinstein and Schumer, among others, the bill is the latest rendition of the proposed Design Piracy Prohibition Act which was twice previously introduced in the House by Representatives Goodlatte and Delahunt as H.R. 5055 (109th Congress, 2d Session) and H.R. 2033 (110th Congress, 1st Session). Although not yet available, S. 1957 is reported to mirror the content of the prior bills which are available at: http://frwebgate.access.gpo.gov/cgiin/getdoc.cgi?dbname=109_cong_bills&docid=f:h5055ih.txt.pdf and http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h2033ih.txt.pdf

Under U.S. Copyright law, copyright protection generally does not extend to fashion designs, such as the dimensions, style, cut or shape of a fashion item like clothing. However, original patterns or images that are imprinted or stitched on fabric are protected by copyright. H.R. 5055 and 2033 sought to change this statutory framework. The bills aimed to extend copyright protection to clothing (including undergarments, outerwear, gloves, footwear, and headgear); handbags, purses, and tote bags; belts; and eyeglass frames. Protection would extend to the appearance of the article of apparel as a whole, including any ornamental elements of the article.

The protection under H.R. 5055 and 2033 would be short -- a period of three (3) years, which could not be renewed. The rationale for this shorter period is that market demand and prices for a design are highest during the design's initial period on the market. Unlike most other protectable works, registration would be mandatory. The time frame to apply for a registration would likewise be short -- filing an application is required within three months of the design being made public. A design would be "made public" when it is offered for individual or public sale. Thus, showing a design to potential buyers at fashion shows would, presumably, trigger the date, as well as a more private showing to a single buyer.

After registration of the design, the copyright owner would have the exclusive right to "make, have made, or import, for sale or for use in trade, any useful article embodying that design; and (ii) sell or distribute for sale or for use in trade any useful article embodying that design." The owner would have the right to prevent any other person from infringing on those rights and to seek remedies for such infringing acts. H.R. 5055 and 2033 would extend "acts of infringement" to both primary and secondary liability, including for instance, acts of contributory infringement, vicarious liability, and inducement of infringement. However, H.R. 5055 and 2033 also provide a possible "out" to alleged infringers. An act would not be considered infringing if the alleged infringer did not have "reasonable grounds to know that protection for the design is claimed." Copyright owners could address this by, perhaps, consistently adding copyright notices to the hang tags or point of sale materials with specific reference to the design as being protected by copyright. Cease and desist letters to unauthorized users might also be helpful, at least with respect to unauthorized uses occurring after the demand letter is received.

The fashion and apparel industry should continue to pay close attention to the progress of the Design Piracy Prohibition Act legislation. The bills introduced in the House, and now Senate, would make it easier to protect intellectual property in designs, which is currently very difficult under existing laws. On the other hand, the proposed legislation may substantially curtail the ability of designers to emulate the designs of others and could affect the way the industry does business. For instance, internal systems to apply for and monitor copyright registrations of new designs would be needed to take advantage of the legislation's benefits. Careful copyright clearance screenings of new designs would be needed to reduce the risks of suit.

Only time will tell whether the Senate's latest proposal will be enacted into law. However S. 1957 proceeds, the fashion and apparel community will be watching the latest season's version of the Design Piracy Prohibition Act with keen interest.

Fur Labeling Violations Dog The Clothing Industry

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 31 Jul 2007 17:18:50 -0500

Recent discoveries of unlabeled real fur from raccoon dogs used in garments have spurred discussions surrounding proper labeling methods of fur coats. According to the Humane Society of United States, the unlabeled faux fur found on jackets sold by DKNY, Rocawear, Baby Phat, Sean John and by retailers like Macy's and J.C. Penney is actually dog fur, taken from raccoon dogs who are skinned alive. In 2005, Macy's pulled coats from its shelves containing raccoon dog fur labeled as raccoon after the Humane Society raised the issue with the chain.

The Federal Products Labeling Act (FPLA), which outlines the labeling rules for fur garments, has a massive loophole which allows clothing trimmed with fur which is $150 or less to be sold without labels. In addition, products that contain dog or cat fur are also exempt from the FPLA. However, the Dog and Cat Protection Act of 2000 prohibits importing, exporting, selling, trading, advertising, transporting, or distributing of any products made with dog or cat fur. In addition, California criminal law prohibits selling dog or cat fur in that state. Activists argue that raccoon dog is still a type of dog and its use in garments is illegal in the United States.

In general, violations of the FPLA are subject to monetary civil penalties of up to $11,000 for each violation. Each instance of mislabeling is considered a separate violation.

To avoid such costly penalties, fur product manufacturers should be aware of other labeling requirements specified by the FPLA.

The information provided on labels should include whether the fur is composed of natural, bleached, pointed, dyed, or artificially-colored fur and whether the product is composed of pieces. The label must also indicate the country of origin of the product. The country of origin must be stated separately from the animal name, and be preceded by the words "Fur Origin" (for example, "Fur Origin: Ukraine"). According to the FPLA, in the case of fur products manufactured in pairs or groups, only one label is required if all units are made of the same fur and have the same country of origin, are firmly attached to each other when marketed and sold and if the information on the label is applicable to each unit in the pair or group. The product must contain the name or registered identification number (RN) of the manufacturer, importer or other seller, marketer or distributor of the fur. The law prohibits marketers from furnishing any false guarantees about the origin or nature of their fur products as shown on invoices, and requires them to keep product records for three years.

In addition to the FPLA, following the recent instances of mislabeling, the New York State Assembly introduced a law this summer according to which any person, firm, partnership or corporation that knowingly imports, sells, manufactures, distributes or markets articles of clothing that include fur not correctly labeled as "faux fur" or "real fur" faces up to a $500 fine initially and a $1,000 fine for each subsequent violation.