Some Additional Fashion, Beauty & Apparel Legal Considerations
By Justin M. Jacobson, Esq.
We will now explore some other related legal matters that fashion business entrepreneurs should be aware of. This article expands on our initial one wherein we discussed some initial business considerations for clothing, beauty and apparel brands.
As previously mentioned, it is prudent to have properly drafted and executed agreements in place with any third-parties that contribute any work to your business. This means it is practical to have signed documents with any graphic designer, photographer, videographer, apparel designer, product packaging or sales tag designer and any other individual (e.g., model) featured in any promotional or commercial advertisements. This includes media or other content that is publicly posted on a brand’s social media platform or distributed through traditional promotional outlets, including television and radio advertisements. Essentially, a guiding principle for a business owner should be that an executed agreement is needed with any individual who creates or otherwise contributes work to the owner’s product, the design, packaging, and/or advertisements. In particular, the execution of such agreements should ensure that the business owner has the rights that they need.
Generally, these transfers may be structured as “works for hire” or as an assignment or license of the rights possessed by the original creator. In these situations, an owner should ensure that they aim to acquire the entire “bundle” of rights provided by the U.S. Copyright Act (17 U.S.C. § 106) from this creator. Some of the important rights a fashion business should acquire include the right to reproduce the work, such as making copies of the product which contains a product label or name, distributing the product containing the logo, the right to make the product available for public sale as well as the right to license the goods to others for sale and distribution. Therefore, it is wise to confirm that any agreement ensures that the brand’s owner can utilize the finished materials for potential commercial as well as promotional purposes.
Furthermore, when working with notable individuals, such as a celebrity or other prominent influencer, it is important to obtain the appropriate rights to utilize this person’s likeness, image and/or name. To do so, an agreement, license or release confirming these facts should be in place. This is typically referred to as the individual’s “right of publicity” and is a right that must be contracted for by the company in order to legally mention or otherwise publicly associate the notable talent with the product.
It is also important to ensure that an agreement with any individual, whether a notable talent or not, includes the right of attribution (the right to mention the individual by name). The fashion company’s agreement should also try to secure the sole right to edit or otherwise alter the finished content featuring the talent. This is important as otherwise the featured individual might be required to approve any promotional or commercial materials bearing their name, image, or likeness. That is generally a problem due to practical considerations such as timing.
In addition to agreements related to a third-party’s rights, a fashion business entrepreneur should also be familiar with the use and applicability of licensing agreements. This includes situations where the brand is acting as the licensor and is licensing its assets, such as a clothing design, to a third-party. There are also situations where the company is acting as the licensee and is licensing another party’s assets for the brand’s use. Generally, in these agreements, one party grants the other party the right to use its intellectual property for a specific purpose within a selected territory for a definitive time period.
There are many considerations for a licensing agreement. Some of these include the duration of the agreement, which can range from several months to a year or more, as well as the type of products that the license encompasses. Thus, the agreement should state what the licensed property is, including any registration numbers for any registered trademarks or copyrights.
Another important aspect to include is whether the deal is exclusive or not as well as which territory (or territories) are licensed. A “territory” can include one country, many countries, or just a few select ones. In this context, exclusive licensing rights mean that no other party has the same rights in the same territory; meanwhile, non-exclusive licensing indicates that others might already have the same rights as those contained in the new document or that these rights may be granted to another party at a later date. Furthermore, the agreement should outline the type of sales channels that the licensee is permitted to sell the goods in, such as retail stores, digital and/or mail-order. It should also include information on whether any upfront license fee is due and what residual royalty payments the licensor is entitled to for licensing the product, if any.
In addition, it is essential to include provisions regarding the quality of the licensed product as well as ensuring that the licensor can inspect or otherwise maintain control over the quality of the created goods. Samples of manufactured goods should be provided. So, the agreement should include a description of the licensed merchandise, including any colors, specific materials, and dimensions needed to replicate the goods. A licensing agreement could also list which manufacturer(s) must be used for creation of the production, which retailer(s) must or must not sell the products, and/or which wholesaler(s) must be used for selling the product. Finally, these agreements typically include provisions related to the inspection of manufacturing facilities prior to entering into a license as well as listing various conditions under which a party may terminate the agreement. Child labor concerns are a new consideration.
Another agreement that a fashion brand owner should be familiar with is a product distribution agreement. Generally, a distribution agreement is between a fashion company and a third-party distributor in which the distributor purchase existing goods from the company. The distribution company then sells those products to retail stores within the distributor’s territory.
A distribution agreement can be either domestic or foreign. This means that the document should list which country or countries the distributor is entitled to dispense the products in. It also should list what channels of commerce the distributor is permitted to sell the goods in and which channels are reserved and are not part of the distributor’s territory.
Similar to a licensing, a distribution contract should cover the duration of the distributor’s rights as well as delivery and payment terms, including potential residual royalty payments. It should also list which intellectual property assets are included as well as the right to terminate the agreement if certain specified events occur. For example, if the distributor goes bankrupt or is very late on an owed payment, the agreement might provide the other party with the right to cancel the deal if a specific breach is not cured within the proscribed period of time listed in this agreement.
As a fashion or beauty brand grows, new opportunities, including displaying products in a showroom, may present themselves. In these instances, the showroom is responsible for displaying and introducing the brand to the fashion buyers and influencers that frequent the showroom. Therefore, it is important to enter into an agreement with the showroom prior to placing the goods to ensure that all parties are on the same page.
Showroom agreements should generally include what items are being displayed as well as the payment terms. Typically, the showroom charges a flat-fee, such a monthly or weekly fee, or merely takes a commission, a set percentage of any sales they are responsible for. In some cases, the showroom might be entitled to both a fee as well as commission on sales. Since these situations differ from place to place, it is important that the exact specifics, including the amounts and percentages, are agreed to in a written agreement prior to beginning the relationship.
Additionally, a showroom contract also should include the duration of the agreement, the obligations of the showroom as well as addresses liability for lost, stolen, or damaged goods. It is essential to ensure that each party’s obligations are listed and that there is a specific protocol for dealing with any lost or damaged property. This could include the showroom deducting the cost of the missing goods from any fees owed by the brand or having the designer and showroom share the cost of the lost merchandise or some other agreed upon procedure. This is especially important, as failing to address these points in advance, can cause a much larger issue if things do go wrong and no defined remedy exists or was agreed upon in advance.
Finally, beauty and fashion brands may also work with “pull letters” or “pull requests.” This is where a specific item is requested from the brand for a specific purpose. This could be for the use of a garment in a music video or for a photography shoot for a magazine or other media piece. In these instances, it is essential to enter into an agreement delineating the parameters of such a request.
One of the primary purposes of a “pull letter” is to determine and allocate each party’s responsibilities, including who is financially responsible if the borrowed goods are damaged, lost, stolen, or otherwise misplaced. In some situations, the letter will also require that the responsible party, generally the magazine, stylist or photographer requesting the piece, put a credit card or some other deposit or form of payment in case of any issues regarding the product’s return.
When creating this type of agreement, it is essential to include the names of the parties involved, such as the names of the model, photographer, designer, publication or stylist involved in the “pull.” The document should also list the obligations of each individual as well as the details of the shoot, such as the time, place, and how long the items will be kept for and any other pertinent information. It is also smart to ensure that an itemized list of all the goods borrowed is include as well as include the retail price so all parties are aware of the cost to replace the product. Finally, a designer should aim to include language providing them with credit on any photographers or other content, including social media posts, featuring the work.
Overall, there are many factors a fashion, beauty or apparel designer must take into consideration as their business grows and prospers. In addition to the initial business entity and intellectual property protections, there are also many agreements that should be utilized to adequately protect the business, including agreements with third-parties, licensing and distribution agreements as well as showroom deals and “pull letters.”
This article is not intended as legal advice, as an attorney specializing in the field should be consulted.
(c) 2019 The Jacobson Firm, P.C.