Friday, August 10, 2012

The Fashion Cycle

I just returned from a trip to Hong Kong and Beijing where we studied international arbitration. It is 2AM and I am suffering from a serious case of jet lag. I am definitely going to feel this later in the day. Thank goodness it's Friday.

Anyway while I was in Hong Kong and Beijing, the issue of counterfeiting was always in the back of my mind as I toured the city and enjoyed some major retail therapy. China, of course, is infamous for its enormous counterfeiting market. Just about anything that can be copied is duplicated and sold for a "discounted price just for you." This includes clothing, jewelry, bags, electronics and shoes. I spent about 45 minutes in the silk market near our hotel and this sign greeted me at the entrance:

Which raised an eyebrow because once I turned toward the first rows of stalls, all I saw were Burberry, Dolce & Gabbana, Chanel, Dior and Abercrombie & Fitch knock-offs. I bit my lip, rolled my eyes and looked around the first floor. I glimpsed pictures of outfits from the runway hanging above the counterfeits. One vendor muttered to me that she would sell me a pink Chanel dress for 800 yuan, which roughly estimates to 100 US dollars.

(This reminds me of a friend of mine who commented at the Forbidden City that the Chinese must be very rich because she constantly saw women sweating through Chanel outfits and carrying LV bags. Honey, those aren't real.)

Many people may scoff at China for being the largest manufacturer of counterfeits but we must remember that America used to be the land of counterfeiters not too long ago. Paris used to be the center of haute couture and its fashion was brought over to America to be duplicated and sold to Americans. This illustrates what is called the Fashion Cycle:

A designer would create a beautiful outfit for her wealthy client. This client would show off this outfit at social events, catching the eye of other women who would want the same outfit. More women of the upper class would begin wearing either the same or a variation of the outfit. This trend would trickle down the social ladder until it reaches the poorer classes. By this time, the wealthy woman who had initiated the trend has moved onto another piece by the designer. It used to take a great amount of time for the design to reach the lower classes and the original designer would have made a great profit from the design. Back then, each outfit was made one at a time by seamstresses and took time to distribute to the masses. The original designer would not be hurt by the sales of counterfeits.

Today, with the advent of smart phones and efficient factories, a 360 degree picture of a dress coming down the runway in Milan can be taken in a few minutes, sent to a factory in Shenzhen in a few seconds, and then recreated by the time the designer takes their bow at the end of the same fashion show. The designer does not have the time to enjoy the profits of their creation because it is already being copied and shipped to America and Europe at a cheaper price. The designer receives zero credit nor royalties for the design that was painstakingly made at a higher cost.

It took some time for America to turn into a fashion hub itself. It still struggles with the issues of counterfeiting and has yet to pass a fashion design protection act because certain organizations continue to fight it. However, America has come a long way. Similarly, there are signs that China is ever so slowly changing from a nation of counterfeiters to a nation of high-end consumers. The Chinese government is aware of the problems that counterfeiting causes, which probably explains the sign above.

Counterfeiting seems to be a natural part of fashion. By this, I do not mean that counterfeiting is okay and should be allowed. Designers today are seriously hurt by the loss of profits from stolen designs. I believe that the Innovative Design Protection and Piracy Prevention Act should be passed in America to protect designers for three years. I believe that designers who register intellectual property in China should be readily defended by its government. However, I also believe that a designer should pick their battles. Too much time and energy -- not to mention costs -- can be spent on battling counterfeiting, which will inevitably happen. A designer should focus on long-term goals, building relationship with a foreign counterpart and heavily promote the image of their brand name so consumers will seek the originals and not the knock-offs. A joint effort can be made with other designers to push for design protection, formulated in a way to benefit the Chinese economy to give the Chinese government an incentive to assist in intellectual property protection.

Thus concludes my jet-lagged 2 cents worth on counterfeits in China.

Friday, July 6, 2012

5 Things a Fashion Lawyer Needs to Know About Arbitration

After receiving a few recommendations, I finally buckled down and watched a recently concluded Korean drama called "Fashion King" on hulu. It is the story about aspiring designers who start working penniless in Dongdaemun (Korea's Santee Alley but on a much larger scale where they specialize in knock-offs and cheap clothes) and collaborate to make it big in New York, then the rest of the world. Like in many Korean dramas, there is the girl who is the sweet, innocent victim and is achingly bland. Like in many Korean dramas, she is involved in a love triangle with the ambitious guy from her neighborhood and the mega rich jerk of a guy who never takes no for an answer. Like in many Korean dramas, there is the "evil" girl who wants the rich guy and tries to sabotage the innocent, bland girl. Like I have done at the end of many Korean dramas -- aside from historical dramas -- I reacted with a "what the heck was that" and glared darkly at the TV screen for a good ten minutes.

I did, however, notice that a few times I had tears rolling down my cheeks, but then I realized that it was from the yawning. I digress.

So why am I furiously ranting bringing this up in this blog? The story touches upon the world of fashion. (I use the word "touches" because I am a little skeptical about the accuracy of the depiction, given that it was in said Korean drama.) Although the clothes were very conservative ready-to-wear styles and not haute couture as they keep claiming, it reminded me that it is crucial that an up-and-coming designer arms themselves with both a capable lawyer and business/finance person from the start. The financial analyst will help create a business plan for the designer so the designer will maintain a healthy budget and not go bankrupt within the year. The lawyer protects the designer from being swallowed up by corporations and perhaps losing their own name. The lawyer also makes sure that the designer's rights and designs are protected.

Which leads me to arbitration clauses in contracts. Should an arbitration clause be included in a contract?

Alright so what is an arbitration clause? An arbitration clause states that disputes arising from the contract will be resolved through arbitration instead of litigation. An arbitration clause can be a few paragraphs long but basically should state the parties' intention to arbitrate, which arbitration rules the parties will adhere to, whether they will be relying upon an arbitration institution to manage the arbitration, and the jurisdiction. I briefly wrote in my previous post the benefits of arbitration so here I am to list the top 5 reasons why arbitration is preferable over a court case. (These are not in any particular order.)

1. Party Autonomy

An arbitration can only occur if both parties agree to it. It is in a contract so unless they both sign the contract, the arbitration clause does not work. The parties have power to decide how many arbitrators they want (usually 1 or 3), who the arbitrators will be or how they will be selected, which arbitration rules they want to follow, confidentiality, what is arbitrable, and/or who will be orchestrating the arbitration. Before the actual arbitration, the parties will also have to agree on the location, duration, witnesses, expert witnesses, the amount of discovery, the type of award (judgment) they prefer, expenses and so on. The parties have the power to create an arbitration procedure together instead of having the Court schedule everything. They have control over the procedure. However, both parties must understand that once the arbitration begins they concede that power to the arbitrator.

2. Arbitrator Selection

The ability to choose the arbitrator is significant. Judges are smart and knowledgeable but they are not experts on all fields. They usually have to be given a crash course teaching of the industry to understand the dispute better. Parties in a fashion dispute would want and adjudicator who understands the nuances of the fashion industry -- who appreciates the merits of the dispute to a greater degree. Selected arbitrators tend to be experts in their respective fields. Given that the fashion world is very expansive in what is involved in it, an arbitrator who has been in the field for a long time can appreciate the facts and the parties will not have to waste time explaining the manufacturing process of shearling jackets.

The arbitrators, as a default, must be neutral and are required to disclose to both parties their professional backgrounds and any relationships they have or had with any member of the parties. If they do not, the arbitration award can be set aside/appealed. A party has a right to ask for another arbitrator should they feel that the arbitrator might be biased. Parties have a right to a neutral and fair forum.

3. Worldwide Recognition of Awards

Due to the 1958 New York Convention (NYC) -- so named because it was promulgated in the New York office of the United Nations -- an arbitration award is enforceable in all countries that are signatories of this international arbitration treaty. There are currently 146 signatories. Even if the arbitration was held in a country that is not in a signatory, if the arbitration law selected is from a signatory then the award is still enforceable in any signatory country.

Fashion is a global industry and disputes can arise from worldwide locations. For example, if a fashion house in Italy wins an award against a Japanese manufacturer for counterfeiting, the fashion house can seize assets in Japan through that award -- even if the arbitration took place in London under the arbitration rules set forth by the Paris International Chamber of Commerce. How sweet is that?

4. Time and Costs

As mentioned above, the duration of the entire arbitration process can be set by the parties. This means that a large commercial case will not drag on for 6 years as it might in litigation. Discovery, being a uniquely American phenomenon, takes up most of the years. In the meantime, the parties are being billed by the attorneys. Attorneys costs probably measure up to about 80% of the lawsuit expenses. Arbitration can cut back on both time and costs, especially through limited discovery.

This is also very relevant to the fashion industry since a season's line will be a long, lost memory by the time the case goes to court many years later.

5. Preservation of Business Relationships

After a judgment is made, rarely do the parties stay in a great relationship. Litigation is very adversarial, especially if the attorneys practice a scorched earth policy. Arbitration is not as adversarial as litigation, although some people may think otherwise. There is an award (judgment) issued by the arbiter (judge), but the parties need to collaborate with eachother, which may encourage negotiation. Court cases can be widely publicized, where confidentiality can be agreed upon by the parties in arbitration. Arbitration is a privatized process, and there are less chances for publicity damage, slander, defamation, information leaks, and whatnot.

In an industry with endless networks and connections, parties to a fashion dispute would not want to make lasting enemies. Or at least I would not think so. I will not divulge what happens in "Fashion King" in case you want the pleasure of experiencing it, but bitter enemies can sure ruin careers.

So what say you? Would you opt for arbitration?

Saturday, June 9, 2012

The League of -ations

I think it is about time I explain the purpose of this blog and the meaning behind "The Fashion Neutral." Generally there are four different types of dispute resolution processes in America: Litigation, Arbitration, Mediation, and Negotiation. My negotiations professor at the Straus Institute calls it "The League of -ations." I will be explaining in a nutshell what each is. Future posts will focus more on one and how it can be beneficial to fashion law.

Americans are not strangers to litigation. We see it from the popularity of Judge Judy and the "Caution, Hot!" warning written on coffee cups at Starbucks. America is (in)famous for being a highly litigious nation. However, people who have been involved in lawsuits have realized how expensive and time consuming it can be. Courts are backlogged with cases that can last for years and it is no secret that attorney's fees are overwhelmingly high. I will cover in-depth later the pros and cons of litigation, but for the purposes of this post these negative aspects of litigation have lead to the recognition and growing popularity of alternative forms of dispute resolution.

The dispute resolution spectrum looks something like:

Negotiation ---- Mediation ------||||------- Arbitration ---- Litigation

Arbitration is a step down from litigation. Both are similar in that they are adjudicative, meaning that a neutral third party hears the case and makes a judgment for the parties. In arbitration, the judge is called the arbitrator and the judgment is called an award. The award, like a court ruling, is binding and enforceable by law. What makes arbitration different from litigation is that arbitration is a voluntary, privatized litigation. This means that the parties can dictate the process of arbitration as long as they are in agreement. To keep a potential dispute out of the court system, parties to a contract can add an arbitration clause  that states that dispute arising from the contract will have to be arbitrated. More on this later.

Different from arbitration and litigation where a neutral third party makes a decision, the parties themselves have the power to solve the problem in mediation and negotiation. Like arbitration, mediation and negotiation is voluntary -- the parties will have to agree to participate. Mediation involves a neutral third party that helps facilitate a conversation and ultimately an agreement between the parties. What is told to the mediator in confidence stays in confidence unless the party gives the mediator permission to tell the other party. The mediator is the go-between who interprets and offers different perspectives. Should any or both of the parties decide that the mediation is not working, they can end it.

Negotiation involves the parties without a neutral third party. The parties work to reach an agreement using tactics and investigation. Generally, negotiating parties can either be competitive (win-lose) or collaborative (win-win). Parties attempt negotiating, if that fails, they have the option to move across the spectrum where litigation is the last resort. The processes become more expensive and time consuming as you move further across the spectrum.

So, guess why I chose to call this blog "The Fashion Neutral"? Ta-da!!

My next post will be on five reasons why arbitration trumps litigation.

Sunday, June 3, 2012

The Fashion Law Institute

Is the first of its kind in the U.S. In Europe, fashion lawyers are called luxury lawyers but this course focuses more on apparel and accessories. "Luxury" can also mean travel and leisure. We studied intellectual property in the field of fashion from the inspiration of a design to its life in retail. We spoke to designers, models and groups whose goals are to preserve and support those involved in the fashion industry. This is mostly centered in New York but is relevant to all involved in fashion domestically and internationally.

How do we battle counterfeits? How can a designer lose their own name to a corporation? What should be addressed in contracts between a model and the model agency?

The fashion industry is the second largest money-maker in the country. It is perplexing how fashion law has yet to become a large field of practice in the U.S. such as entertainment law and sports law. This is what the Fashion Law Institute aims to do. Our class was the second fashion law boot camp. I urge other burgeoning and practicing lawyers to recognize this important field. There is also an added benefit of studying and appreciating fashion through purchases!

So it starts

Just came back from the Fashion Law Bootcamp at Fordham Law School. Professor Susan Scafidi was amazing as was all the guest speakers. I also met some cool people I will defintiely be staying in touch with. I will be busy with classes this fall so I will try to complete my thesis during the summer. It will be a collection of blog posts that will tie in fashion law with alternative dispute resolution (negotiation, mediation and arbitration). The next month and a half will also be devoted to the internation commercial arbitration class I am auditing plus looking for a new place to live in Malibu.

Anyway, happy launch day The Fashion Neutral.