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Lawsuits that pit fashion brands and their intellectual property against one another are filed almost every day (and in some cases, such as when sportswear giants are involved, these disputes are seemingly only increasing frequency). In light of the large number of fashion intellectual property cases on courts’ dockets across the country (and internationally), some certainly stand out more than others in terms of the potential ramifications they will have for the companies at play and the fashion industry at large.
Here are five currently pending or recently decided cases that are worth keeping a close eye on, as they could serve to impact the fashion industry in a big way …
1. Chanel Files Ugly Suit Against What Goes Around Comes Around, Citing Fakes
Luxury resale is contentious business. According to Chanel, which filed a strongly-worded lawsuit against What Goes Around Comes Around in March, the well-known vintage retailer is selling a significant array of second-hand Chanel goods, some of which were fake. Maybe even more troubling for the 109-year old Paris-based brand: The way in which What Goes Around Comes Around is allegedly piggybacking on the reputation and appeal of Chanel, one of the most esteemed fashion houses in the world, for its own financial gain.
The lawsuit, which is currently underway in federal court in New York, sheds light on the still-largely-unsettled relationship between luxury brands and resale companies. It also serves to boldly embody what no shortage of luxury brands have voiced concerns about behind the scenes, namely, that there is more at play with such luxury resale business models than individuals merely reselling their used handbags.
As Chanel alleges in its recently-filed lawsuit, What Goes Around Comes Around’s business model relies heavily on the leveraging of the appeal and esteem of the world’s most famous luxury brands and their valuable intellectual property, including brands’ trademark-protected names and logos, which fashion’s most established brands have spent over a century and hundreds-of-millions (if not billions) of dollars in marketing costs and legal fees to establish and maintain.
The outcome of this lawsuit could serve to shed some light on the bounds of permissible uses of luxury brands’ names in the context of resale, particularly as luxury brands continue to police the usages of their names.
2. Another Court Allows Luxury Brands to Ban Sales by Unauthorized Retailers
Luxury brands are notoriously controlling. A landmark ruling from the European Union’s highest court late last year – which held that U.S. cosmetics company Coty Inc. may legally block retailers from selling its products on online platforms, such as Amazon and eBay – served as a reminder of just how far many of these sought-after names are willing (and legally able) to go to hold on to their carefully crafted auras of exclusivity.
Brands in the upper echelon of the market now have yet another court ruling to rely on. In April, the Düsseldorf Higher Regional Court held that Japanese luxury cosmetics company Kanebo may limit where its beauty products are sold. Specifically, the court held that Kanebo may prevent real – the European equivalent of Walmart or Target – from offering authentic versions of both Kanebo’s namesake brand products and those from sister brand Sensai, for sale in its brick-and-mortar locations, as well as on its website.
The decision is striking, as in the past, German courts have generally only made exceptions to the principle of exhaustion (i.e. the First Sale Doctrine, which states that once a trademark owner, such as Kanebo, releases its goods into the market, it cannot prevent the subsequent re-sale of those goods by their purchasers) and allowed brands to limit sales when the physical condition of the goods in question had been altered or impaired.
3. The Supreme Court Said to Have Dealt a Blow to #MeToo With Class Action Waiver Decision
The Supreme Court “dealt a potential blow” to the #MeToo movement against sexual harassment late last month. In its ruling in connection with three separate wage and hour dispute cases, the court held that employers can legally require – as a condition of employment – that potential employees waive their rights to participate in class action lawsuits.
This means that employers may keep employees from joining together in wage and hour disputes, and instead, force them to deal with such matters via arbitration (an alternative dispute resolution) or in court as an individual, not part of a group.
In a 5-4 decision authored by the newest Supreme Court Justice Neil Gorsuch, the court held that “Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.”
As for exactly how common arbitration clauses and class action waivers are in fashion, it is difficult to pin-point. However, it is absolutely worth noting that no shortage of industry cases – ranging from those filed against Nasty Gal for gender and pregnancy discrimination and Forever 21 for transgender discrimination to American Apparel and its founder Dov Charney for sexual harassment, just to name a few – have been dealt with by way of mandatory arbitration. These cases are likely representative of a much larger number pool of cases and a truly expansive number of fashion brands, publications, and other industry companies, such as PR firms and model management companies, that make use of such provisions.
4. To Tax or Not to Tax: The Supreme Court to Decide the Future of e-Commerce Sales Tax
Every now and then the Supreme Court takes cases that stand to directly impact the fashion industry and those within its periphery. South Dakota v. Wayfair, Inc. is one of those cases. After making its way through the lower courts, the South Dakota v. Wayfair, Inc. case has found itself before the United States’ highest court. As arguments between the two parties are slated to take place, let’s take a look at how the case stands to affect fashion, the retail industry at large, and e-commerce consumers, alike.
In plain English, the South Dakota v. Wayfair, Inc. case came about in response to a 1990’s court ruling (Quill v. North Dakota) that a state could only require a business with a physical presence in a specific state to collect sales taxes on a purchase. In that same vein, businesses without that physical presence – such as Quill, a mail order company with offices and warehouses in Illinois, California, and Georgia – could not be required to collect taxes on sales in any state but Illinois, California, and Georgia.
Now, 26 years later, the game has changed. With the rise of e-commerce giants, such as Amazon (which only recently began collecting taxes), the Supreme Court’s holding that retailers are not required to collect sales taxes unless they have a physical presence in a state is up for debate.
So, what does this case mean for you, brand owners and consumers? Well, it depends. Assuming that the court sides with South Dakota, the ruling could serve to add backing to other states’ sales tax laws aimed at imposing tax obligations on online retailers (assuming they satisfy the “substantial nexus prong” of the dormant Commerce Clause test). A court decision in favor of Wayfair would lead to even more questions.
What we do know is this: By agreeing to hear the Wayfair case (the Supreme Court is not required to hear all of the cases that cross its desk taking), the Court has verified that, at a minimum, a change to the decades-old “physical presence standard” is worthy of discussion in the Amazon age.
5. Samsung Must Pay Apple $539 Million for Infringing 5 iPhone Patents
In April 2011, Apple sued Samsung Electronics and argued that certain design elements of Samsung’s smartphones infringed Apple’s patents for design elements in the iPhone. Samsung was found liable for patent infringement in a 2012 jury trial, but the parties clashed over the amount of monetary damages that Samsung would pay.
While Apple believed that it should be awarded all of the profits that Samsung made for phones containing the patents at issue, Samsung argued that it should only be on the hook for a portion of the profits because the patents at issue only applied to components of the phone and not the whole thing.
In March 2016, America’s highest court agreed to take the case, ultimately deciding that for the purpose of calculating damages in a patent infringement action, the infringing “article of manufacture” may be defined as either an end product sold to a consumer or as a component of that product. The Supreme Court then referred the case back to the trial court to determine damages, and the trial court decided last month that Samsung must pay Apple $539 million for infringing five patents with Android phones it sold in 2010 and 2011.
The bulk of the sum – or $533,316,606 – coincides with Samsung’s infringement of three Apple design patents. The remaining $5,325,050 is for infringing two utility patents.
It is unclear exactly how the Apple v. Samsung verdict will affect the larger landscape of measuring damage awards for design patent infringement. After all, as design patent professor Sarah Burstein puts it, “This is just one jury applying one test.” What is perfectly apparent, though, is the extent to which design brands are looking to patent protection, particularly design patents: It is significant and does not appear to be waning.
No shortage of designers and brands have looked to patent protection over the past decade, in particular. Sportswear giants like, Nike and adidas, maintain significant arsenals of both design and utility patents, which tend to see them locked in bitter battles. Also, brands like Louis Vuitton, Saint Laurent, Alexander Wang, Bulgari, MaxMara, Marc Jacobs, and Gucci have taken to seeking protection for some of their staple accessories as a safe haven against copyists.
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