By Justin M. Jacobson, Esq.
The expansion of new technologies and the domination of social media as a means for distribution and mass marketing have caused an explosion of independent fashion designers creating their own brands. From clothing to apparel and other related accessories, these new entrepreneurs are part of this new “do-it-yourself” movement, consisting of self-designed and managed clothing, jewelry and apparel brands that continue to spring up each day. These brands are typically run by independent designers, many with little to no prior business experience; and, as their brand’s notoriety grows, some end up grossing substantial sums of money. While there are many detailed aspects to successfully operating a business, this article provides a brief overview of some of the more salient legal points that a designer needs to be aware of.
Business Entity Formation – Corporation & LLC
The first consideration for a brand owner is whether they create a corporate entity, such as a corporation or an L.L.C. There are many benefits to creating a business entity for your brand and responsibilities associated with keeping it active that must be taken into account prior to its formation. One of the chief benefits is that these limited liability entities shield the owners from personal liability for any claims arising from any contracts or other agreements entered into on behalf of the individual entrepreneur through its business entity.
Another benefit is that having a separate corporate entity permits the brand to open a corporate bank account in an assumed name, write and receive checks as well as obtain a federal Employer Tax identification number. Such an account also facilitates easier tracking of your expenses and permits the deduction or “writing off” of relevant properly documented business expenses. Each state has different requirements and fees associated with them, so an attorney or tax professional should be consulted before deciding the best entity for your business. A partnership or company affords the same ease of record keeping and deducting of expenses; however, they are business forms lacking the benefit of limited liability.
It is also essential that the company follows any and all statutory procedures and guidelines, which vary in each state. Some of these corporate formalities include the preparation of annual corporate minutes to ensure the corporation is a real functioning entity.
Furthermore, an owner must be aware that every individual must file both their own personal federal as well as, possibly, state tax returns for the state they live in as well as federal and state corporate tax returns on behalf of their entity. Again, please consult an accountant or tax representative regarding the appropriate filings. Business entities need to file annual reports with the government (“tax returns”).
Intellectual Property Rights – Trademark & Copyright
One of the most important features of a brand is its intellectual property, its trademarks and copyrights. Trademark law provides an owner with the exclusive right to use a mark to differentiate the goods of one person or business from those of another. Trademark protection applies to a word, phrase, logo, sound, product packaging and design or a combination of these, which are used in relation to a particular good or service. For example, “Ralph Lauren” for clothing or “Rolex” for watches. Trademarks can be registered either at the state or federal level depending on whether the products are sold in one state or in interstate commerce. There are also international trademark considerations that need to be explored if one is creating an internationally distributed (or licensed) brand. Each country has different requirements that must be adhered to for a mark to obtain protection and an attorney specializing in this field should be consulted.
Typically, prior to preparing and filing a trademark application, a trademark screening search should be performed on all registered marks as well as pending marks to see if any confusingly similar marks exist that could potentially prevent the registration and use of a mark for a particular good.
There are many other benefits to registering a trademark or service mark, including a presumption of ownership and validity of the trademark or service mark after the first five (5) years of registration. Second, a registration can be used offensively to prevent others from adopting and using confusingly similar marks for the same or similar goods or services. Third, the (R) symbol is notice to third parties of your registered trademark or service mark rights. Additionally, a registration is a valuable commodity, permitting the licensing of the mark by third parties and enabling the protection of associated “goodwill” in the mark. It also facilitates the owner to stop counterfeit or gray market goods bearing the owner’s trademark from entering the United States. Furthermore, a valid registration also permits the owner to file infringement claims with various Social Media platforms, including Facebook, Twitter, Instagram and Tumblr, to retrieve or block potentially infringing accounts.
A brand’s copyrights are also an essential part of its business and must be adequately protected and policed. A copyright applies to a particular finished unique design or logo, including a brand’s logo, product designs and any associated media content such as images, videos, website or other promotional “look book” materials. However, purely utilitarian goods, including clothing are not copyrightable.
It is prudent to copyright a brand’s unique design and logo for a variety of reasons. First, prior to instituting a copyright infringement lawsuit when the owner believes that one of their copyrighted works has been infringed upon, the work must be registered with the U.S. Copyright Office. A valid registration certificate also constitutes prima facie evidence of valid copyright ownership in the work after five years. Also, if the owner has filed for registration prior to the infringement of the work, the brand owner may be entitled to recover actual damages incurred as well as statutory damages and attorney’s fees.
In addition to registering your works, it is important to ensure you have proper agreements in place with any third-party that contributes any work to your business, including agreements with any graphic or apparel designers, photographers, videographers and any models featured in any promotional advertisements. These agreements should ensure you have the right to utilize the finished material for commercial as well as promotional purposes as well as including the right of publicity to display a model or other person of note in the clothing.
While, running a successful business seems straight forward, there are a variety of legal considerations that should be discussed prior to forming and embarking on a business venture.
This article is not intended as legal advice, as an attorney and/or an accountant specializing in the field should be consulted.
© 2016 The Jacobson Firm, P.C.