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28 April 2023
Metabirkins NFTs sold by Mason Rothschild. In February 2023, a federal court in the United States ruled in favour of Hermès in the trademark infringement case it filed against Rothschild.
In the fashion industry, trends are a constant. Some lead to long-term business and industry evolution and growth, which bring new challenges, including legal risks. Espie Angelica A. de Leon explains why it is important for fashion companies to identify these challenges and risks as soon as possible.
In February 2023, a federal court in the United States ruled in favour of Hermès in the trademark infringement case it filed against California artist Mason Rothschild.
Rothschild was found to be selling 100 non-fungible token (NFT) images carrying the design of the Birkin design in the metaverse. Birkin is Hermès’ famous line of leather handbags. By selling the NFT images called MetaBirkins, Rothschild was infringing on the luxury brand’s rights over its trademark and trade dress for the Birkin bags. Damages totaled US$133,000, including estimated profits from the sales of MetaBirkins, amounting to US$110,000.
In the same month, the iconic fashion house scored another triumph when one of its “H” logos was declared a well-known mark by the Delhi High Court.
Thi Kieu Hoa Tran, special counsel, Baker McKenzie, Hanoi
“Strong IP protection would greatly benefit well-known fashion brands that want to expand internationally but are worried about the potential for irreparable damage to their reputation if their IP assets are copied or otherwise misappropriated,” said Thi Kieu Hoa Tran, a special counsel at Baker McKenzie in Hanoi.
Fashion, IP and technology in Asia
Cases of online counterfeiting are increasing. According to Tran, this poses new challenges in Vietnam.
“Vietnam is the leading ecommerce market in Southeast Asia, where counterfeiters have easy access to consumers. Fashion companies’ pain point is the increase in cases of online IP infringement and counterfeits as a result of infringers’ complex strategies and the lack of a robust legal framework,” she said.
“Counterfeiting and infringing activities also pose a significant barrier to IP rights enforcement, especially given Vietnam’s proximity to China, a known hub for trading counterfeit fashion goods,” Tran added. “These problems are compounded by the lack of strict sanctions and proper supply chain control.”
Vietnam’s problems with regard to fashion and IP do not stop with counterfeiting and infringing whether online or offline. Its laws and regulations are not as robust as they should be.
Trade dress regulations are not detailed, making it challenging for fashion companies to protect their designs. On the other hand, industrial design protection in Vietnam provides stringent criteria for novelty and creativity. This prevents fashion houses from enhancing their IP rights and portfolios, commercializing their innovative products and leveraging their competitive position in the market.
Ling-ying Hsu, partner, Winkler Partners, Taipei
In Taiwan, IP laws offer protection to traditional and non-traditional marks such as three-dimension marks, colour marks, audio marks, scent marks and others. Yet, there may be issues with regard to distinctiveness.
Ling-ying Hsu, a partner at Winkler Partners in Taipei, explained: “The fashion brand owner wishing to register a non-traditional trademark to protect their design very likely faces the objection that their to-be-registered design lacks distinctiveness. Look no further than Hermès’s Kelly bag and Birkin bag designs and the red-lacquered sole of Christian Louboutin’s high heels. Even if these designs were successfully registered as trademarks, the court may find that the counterparty is not using the design as a source indicator and is therefore not infringing upon the brand owner’s trademark.”
Brand owners choosing copyright over patents to protect their design due to budgetary concerns may face another dilemma.
In Taiwan, the problem starts when a court determines whether the design of a fashion product meets the requirement for originality in a copyrighted work.
“If a product’s design serves mainly a certain function, it may not be copyrightable. For example, a Taiwan court found that the designs of Celine’s luggage bag and Givenchy’s Pandora and Antigona bags are not copyrightable. Another found that Shiatzy Chen’s clothing style is not copyrightable,” Hsu said.
Add to this the emergence of fast fashion, a business model characterized by the rapid, low-cost mass production of huge bundles of trendy apparel. These are immediately made available in retail outlets to reach consumers as quickly as possible while the styles are still in style.
Irene Calboli, professor of law, Texas A&M University School of Law, Fort Worth, and visiting professor, Nanyang Business School, Nanyang Technological University, Singapore
According to Winnie Tham, director of Amica Law in Singapore, there is an increasing number of allegations made against fast fashion brands for copying existing artworks and designs. It is a major challenge among fashion industry players in Asia in general and also those in the United States.
“In the U.S., the biggest challenge is fast fashion and how to make the consumers understand they have to buy sustainable fashion. In Singapore, the biggest challenge is how to make consumers look at quality instead of brands’ status symbols,” said Irene Calboli, professor of law at the Texas A&M University School of Law in Fort Worth and visiting professor at the Nanyang Business School, Nanyang Technological University in Singapore.
The fact that fashion lines may only be around for one season is also an issue. Because they begin to fade after only a short period of time, it becomes impractical for fashion companies to take steps to prevent their designs from being copied.
“One of the challenges, which is relevant to any jurisdiction, is how best to ensure fashion companies are able to better access IP regimes so as not to be stifled out of the market by unethical practices in the industry. This can be difficult for smaller outfits which may not have the means to take action,” said Tham.
“In Asia, perhaps introducing an unregistered design right may be helpful particularly for the fast fashion industry where designs have a high turnover. This form of protection can be further calibrated to offer a shorter period of protection in order to reflect fast fashion trends and the short shelf life of fashion designs,” she added.
Fast fashion isn’t the only thing that’s in vogue in the fashion world. As in other industries, the use of artificial intelligence (AI), the metaverse and other groundbreaking technologies is also the trend. These technologies are revolutionizing fashion.
In May 2021, Gucci became one of the first, if not the first, brands to set foot in the next-level virtual world when it launched Gucci Garden inside the metaverse and gaming platform Roblox. Gucci Garden was the virtual version of Gucci Garden Archetypes, which simultaneously took place in Florence, Italy. For two weeks, Gucci Garden allowed Roblox users to buy Gucci virtual items they can wear inside the game. One of the sold items was the virtual counterpart of the Dionysus bag. The price tag was a staggering US$4,115.
Also, in 2021, RTFKT Studios collaborated with teenage crypto-artist FEWOCiOUS to launch its virtual sneakers brand featuring three styles. RTFKT, which Nike acquired in December 2021, develops sneakers and digital collectibles for the metaverse by using the latest innovations in game engines, NFTs, blockchain authentication and augmented reality. The virtual sneakers brand allowed people to try on the virtual items using SnapChat filters and then bid on the shoes if they liked the pair. Winners then get to redeem the real physical pair. More than 600 pairs were sold in just seven minutes, netting over US$3.1 million.
Forever 21 has also made its way into Roblox with its Forever 21 Shop City, where users can build, own and manage their store. Ralph Lauren followed suit and launched Ralph Lauren Winter Escape in Roblox. Other fashion behemoths that have taken the road to the metaverse include Prada, Zara, Adidas and Balenciaga.
Asian brands, including those engaged in fast fashion, are no exception. Not only have several fashion labels in the region gained a footing in the metaverse, they have also been exploring AI to reach consumers and enhance their shopping experience, thus leading to the rise of virtual showrooms, dressing rooms and fashion shows. Industry players are also turning to AI to create new marketing channels and revenue streams such as the opportunity to trade NFTs.
Although most local fashion companies in Taiwan have yet to proactively engage in the metaverse, AI and other modern technology in their businesses, Hsu believes Taiwan’s fashion industry is ready for these developments.
“Certain fields within fashion, such as apparel businesses, have started to avail of technologies like augmented reality (AR) and virtual reality (VR) to promote their products or to implement a virtual ‘try-on’ experience for clothing. Some tech companies in Taiwan provide AI services to the fashion industry, helping them match products with consumers’ preferences. Given Taiwan’s strength in advanced technological innovation, where there is a will for a local fashion company to implement a new technological solution, there is likely a way for a tech company to make it happen,” she shared.
“Currently, the fashion industry’s foray into the metaverse is still in the nascent stages,” said Tham. “However, it is proving to be promising to both fashion brands and consumers. It will be exciting to see Asian fashion brands enter this space. There is so much potential in terms of providing virtual accessories, tokenization of fashion items and new forms of advertising in the fashion world.”
Fashion brands including Gucci Prada, Zara, Adidas and Balenciaga have all started to embrace the metaverse
The world’s fashion houses encroaching into metaverse territory does sound exciting. Yet, legal risks are always around the corner. According to Tran, recent disputes between brand owners and third parties raised concerns about these potential legal risks and the need for more established legal regulations.
“With the far-reaching innovations and evolution of many modern technologies, fashion companies are still on the run to fully expand their potential for virtual business while they anticipate more well-grounded regulations on how to best protect their IP rights and thrive in the virtual space,” said Tran.
Calboli said that the fashion community in Asia is certainly using these modern technologies in the fast fashion business to create fast-running microseasons. She noted that this causes the problem to become bigger because it accelerates the cycle even more.
“I think Asia is neither less prepared nor more prepared than the rest of the world. To some extent, no one is prepared yet, and we are seeing technology leaping ahead from legal protection, which perhaps is the correct trend now. Let it develop in full, see the actual problems it may create and then intervene,” said Calboli.
Tips for SMEs and startups
According to Calboli, IP is often a barrier for newcomers, and is mostly used by established businesses due to costs and lack of awareness by others.
Our interviewees recommend the following measures for SMEs and startups to safeguard their IP:
Trademarks, copyrights, trade dress, industrial designs and patents are the key IP assets for every fashion company.
Registering the brand as a trademark is an important first step. If the business would like to use the trademark system to protect its product design, it should also market and promote its products extensively to establish the distinctiveness of its design.
“Also, startups and SMEs should understand that a simple design serving primarily a utility or a function cannot be protected as a copyrighted work. Therefore, only the design of a product that is considerably creative and distinguishable from its utility function would be copyrightable,” said Hsu.
She added that where appropriate, SMEs and startups may also register a design patent to protect their flagship product. “Protection afforded by a design patent may overcome the challenges raised under a copyright claim,” she said.
Conducting IP audits is also crucial because it helps rights owners to identify impediments and reduce risks.
Along with trademark and design, unfair competition is a less expensive right, according to Calboli.
Technologies, such as labels and QR codes may be used to help consumers verify that the product they are buying is authentic.
An association will enable members to pool their resources together and to exchange information to better protect their IP.
“Fashion brands should encourage consumers to change their choices and behaviours as well as reduce their demand for illicit goods. Consumer awareness campaigns aimed at increasing brand recognition and highlighting key harms attached to counterfeit goods can be effective,” said Tran.
Above all these, however, Calboli reminds startups and SMEs to prioritize product quality. “Quality products are the first and most important thing they have to create,” she said. “IP comes next, the product comes first.”
Fashion and IP: The next trends
More is yet to come for the trillion-dollar industry.
“Globally, we have observed certain trends that may result in a rise in IP rights protection, including trademark filings, in various new areas,” Tran revealed.
These “new areas” are the following:
Environmental responsibility and the closed-loop economy. “Brands tend to adopt trademarks to promote the sustainable nature of their products. Take for example Prada’s Re-Nylon line of bags that are made with recycled nylon, Louis Vuitton’s adoption of an Upcycling logo for products made from upcycled and bio-sourced materials and others,” said Tran.
NFTs for customer loyalty programs. The growing number of fashion establishments entering the metaverse has caused an uptick in the volume of NFTs for customer loyalty programs as well as a jump in demand for virtual clothing trademarks and brands.
Application of AI technologies to physical garments. Companies such as Amazon are moving a step beyond AI and digital apparel as they’ve begun applying AI technologies to design their physical garments. “In fact, we have already seen some semblance of AI designer programs as early as 2016, with Google’s Project Muze which used a produce design engine to generate designs based on inputs by fashion experts. This can greatly increase the output of designs, enhance company profits and bring a wider selection to consumers,” said Tham.
Clothing rentals in a new market. Clothing rental platforms like Hurr, My Wardrobe HQ, DressYouCan and others are booming, proof that such services are no longer merely associated with special occasions. Rather, rentals for shirts, blouses, pants, dresses, jackets, even maternity clothes and others are now in vogue.
Apart from these, Hsu said that AI, 3D scanning, AR, VR and other modern technologies may continue to meaningfully contribute to the industry in various ways. These include R&D initiatives for eco-friendly textiles, assessment of customer preferences and shaping of consumer purchases.
“The need to protect fashion designs via digital means is growing in importance along with the high demand for online shopping and the ease of copying designs.Consumer data protection will become increasingly important as the fashion industry collects and uses more data about consumers,” said Tran.
Also, cross-industry cooperation in the fashion industry may become more frequent because of the metaverse.
“IP protection for these new businesses – such as patent registration for a new technology and registration of a mark for NFT use – are thus likely to become trends in the near future,” said Hsu.
IP licensing for product designs could also be the next big thing in the metaverse.
Meanwhile, Calboli sees the big names in the fashion world increasingly fighting over designs and shape marks. She sees more mergers and acquisitions happening as well.
According to McKinsey, fashion enterprises allotted about 1.7 percent of their income for the use of emerging technologies in 2021. McKinsey expects these enterprises to increase this allocation to between 3 and 3.5 percent by 2030.
In any industry, trends are a constant. But, not all of these are passing fads. Some of these trends, including modern technologies that outpace our laws, lead to long-term business and industry evolution and growth. And with these come new challenges, including legal risks.
What is important for fashion companies is to identify these challenges and risks as soon as possible and then implement the necessary measures including those related to IP protection. After all, safeguarding of IP is not just a passing fad; it will always be in vogue.
