Welcome To
The Fashion Knowledge Report

I’m very excited to have Beverley Dei, founder of the fashion legal consultancy The LOFT UK {The Law of Fashion Theories} ™ which offers a bespoke service for emerging and established designers, creatives, stylists and models to share with us on this issue of The Fashion Knowledge Report™! This regular publication will provide you with ideas, strategies and information to help you succeed in your fashion business.

 

1) What are two most common legal disputes between brand owners and the shop owners who they wholesale or consign theirs goods to?

The majority of our brand owner (or fashion designer) clients seek advice on how to settle (i) disputes pertaining to brand misrepresentation and (ii) fees and profits.

It is imperative that as a company the brand owner’s brand is hermetically sealed as it evolves from its inception and begins to resonate with consumers. This is because the said company’s brand and its products can be distinguished from its competitors, other important stake holders within the relevant market and the world at large; additionally a number of various messages are presented to the consumer pertaining to that brand.

A brand may develop significant goodwill and will gain recognition as an indication of quality, monetary value, luxury or status. Thus, if a brand is well established within a number of territories, it will be deemed to be of great value to the consumer it is trying to target. In the first instance it is advisable that as a brand owner it is beneficial to put in place a wholesale agreement as opposed to one of consignment. Consignment arrangements entail a brand owner/designer loaning their products to a retailer, in the event that a particular product sells, the brand owner will then be entitled to a percentage of the sale price. If a brand owner wholesales their product, this involves directly selling their product to a retailer at reduced price (typically 50% of the retail price).  With a wholesale arrangement a brand owner will be remunerated for their products in their entirety in contrast with consignment you will only get paid when an item sells. This means that a brand owner is at risk of not generating any income from the items sent out, if at all.

  1. ii) Fees and Profits

The agreement that a brand owner enters into on a wholesale or consignment agreement can also cause disagreements with regards to the percentage of fees/profits for both parties. If a retailer is stocking a variety of brands, and a designer decides to pay them a flat rate, how can the designer be assured that the retailer is actively promoting and representing their brand to full capacity?

Commission – if they get paid on commission of some sorts then at least there is a guarantee that it’s in their best interest to sell your products to the best of their ability

2) How can these legal disputes be prevented?

Effectively constructed contracts which outline the obligations of both parties in order to avoid any ambiguity will enable the parties (in principle) to clearly understand their rights and obligations from the outset.

We suggest the following agreements {including a description of these key clauses}

  1. Distributor Agreement
  • Include what territory the agreement will cover and whether or not either party shall have exclusive rights to that territory
  • The specific products that the agreement relates to
  • Restrictions on sale as they pertain to competing products
  • Mutual responsibilities in relation to the promotion of a product, making sales and fulfilling orders
  • Rights and restrictions pertaining to a brand owners intellectual property
  • Rights of termination
  1. Licencing Agreement
  • Nature of licence – an exclusive licence, this excludes the brand owner from using its own IP rights, in most cases this will not be ideal as the owner may want to license its rights to other parties to retain its own rights to use them; sole licence binds the licensor to one party only but allows the licensor to continue to use of the licensed IP rights; a non-exclusive licence does not limit use of licensor or third parties and allows the licensor to license its rights to an unlimited number of parties; scope of licence – the license should define – in which territories the rights may be used; and the products in relation to which IP rights may be used.

iii.          Consignment Agreement – Ownership of Products.  Title to, and property and ownership in, all Products shall remain with the Consignor until such time as their removal may be directed in writing by the Consignor or until such time as they may be disposed of by bona fide sale by or to the Consignee or as may otherwise be hereinafter provided; Payment – The Consignor shall invoice the Consignee for all Products shipped to the Consignee pursuant to the terms of this Agreement; and Risk of Loss –  All risk of loss in the Products shall pass to the Consignee upon shipment of the Products to the Consignee.  The Consignee shall insure the Products against all risks against which such goods are customarily insured and shall provide evidence of such insurance coverage to the Consignor upon request, from time to time.

3) For active wear brands that their garments have unique functions and features and so on, can these functions and features be protected?

Unique functions, features and logos fall under trademarks, which are territorial in nature and must be acquired by filing trade mark applications with the relevant trade mark offices in the country that the trademark is sought.  There are two categories: registered trademarks, if we look to the UK as an example, brand owners are able to protect trademarks by either registering a sign as a national UK trade mark or as a European Union Trade Mark (EUTM) that covers all EU member states (incidentally, it will be interesting to see how Brexit will impact on this).

Unregistered trademarks: In the UK, where a sign has not been registered but is distinctive and has been used for a period of time, it is possible that unregistered trade mark protection arises. Reliance on an unregistered trade mark exposes a brand owner to risks that are not found when a trademark is registered. Owners of an unregistered trademark must successfully prove in a court of law (by way of documentary evidence) that it has acquired goodwill in the goods or services in the mark in the UK.

4) For selling online directly to consumers, what are the top 3 tips you will give to web shop owners to avoid potential legal disputes?

  1. In UK, Consumer Rights Act 2015 – this recent legislation which has overhauled the rights of the consumer and how they can return goods should be understood by on-line retailers. The requisite minimum information that should be provided to on-line consumers include:
  • the on-line retailer must provide full identification and contact details of the company, including VAT number and email
  • full terms and conditions relating to the use of website and sale of goods online
  • a full and accurate description of the goods or services being sold (including sizes, in the case of fashion items such as garments)
  • information about the price, ordering prices, additional delivery charges, arrangements for payment, return of goods and cancellation
  1. Data Protection – on-line retailers must ensure that they implement measures to protect the sensitive personal data of their consumers and familiarise themselves with the General Data Protection Regulation (EU) 2016/679) regulation which will apply from 25 May 2018 after a two-year transition period. When the GDPR takes effect it will replace the data protection directive (officially Directive 95/46/EC) [2] from 1995. The regulation was adopted on 27 April 2016.
  2. Licenses – as previously referenced above, must be correctly acquired and in force to avoid any legal dispute

Beverley, thank you very much for your sharing!

We will be sending out this report about every two weeks.  If you are facing some challenges on your fashion business then just email me at vincent@thefashionknowledgenetwork.com !

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