Fashion Apparel Law Blog

@theForefront: The Celebrity Fashion Tweet

Sheppard Mullin — Wed, 02 May 2012 10:56:45 -0500

Perhaps the most remarkable feature of the current hyper-digital age is the ever-shrinking gap between the celebrity and everyman. Nowhere is this phenomenon more apparent than in the realm of the celebrity tweet. Twitter, the pervasive microblogging website, promises thrilling accessibility to prominent public figures, particularly in the entertainment realm. By providing seemingly unrestricted access in 140 characters or less, Twitter affords a “candid” glimpse into the day-to-day life of a celebrity that previously had been reserved for publicist-controlled edited interviews. Twitter purports to permit celebrity access that is both instant and raw, in form and in content.

From its inception in 2006, Twitter has become an important promotional vehicle for public figures and businesses alike. With followers of many A-list celebrities soaring well into the millions, the commercial impact of Twitter is undeniable. Recently, Madonna and Britney Spears traded genial tweets about one day reuniting for a performance in an exchange that might have been intimate had it not occurred in front of a Twitter audience of nearly sixteen million (their combined number of followers) – their conversation strategically coinciding with the launch of Madonna’s new "Truth or Dare" fragrance.

In addition to strengthening consumer loyalty, Twitter offers retailers a unique mass marketing tool to reach specific untapped demographics. Meanwhile, for celebrities, Twitter has heralded the arrival of a new endorsement revenue stream. The Kardashians have reportedly received thousands of dollars per tweet to endorse anything from Old Navy products to the services of ShoeDazzle.com, a fashion start-up whose affordable Shoe-of-the-Month business model is appealing to fans aspiring to attain a Kardashian-like lifestyle.

While Twitter may generate significant consumer awareness and business, it also raises important legal issues. For example, relying on the fact that the relationship between advertiser and celebrity is nearly indistinguishable, the FTC found that Twitter presented an unprecedented risk to consumers by way of deceptive advertising practices. Therefore, celebrities must comply with the FTC’s disclosure requirement, ensuring that their relationship with an advertising retailer is clear, even if such disclosure merely includes a hash symbol and the word “ad” at the end of their endorsing tweet such as "#paid ad", "#paid", or "#ad". Such a disclosure must be made when a celebrity endorses a product in exchange for compensation in any form, whether monetary or not. From a retailer’s perspective, this all but defeats the intrigue that once attracted fashion-marketing visionaries to utilize Twitter in the first place, turning away from the traditional path of discreetly providing celebrities with free products in the hopes their products would be captured in the following week’s tabloids. For a celebrity, the onus is, for the first time, on them to comply with FTC Endorsement Guide.

Despite the aforementioned marketing requirements, which may limit its potential, Twitter has dramatically altered business as usual in the fashion, apparel, and beauty sphere. In the transactional context, recent celebrity appearance agreements now contain clauses in which Twitter use is a negotiated deal point, requiring an attending celebrity to not only mention but to excitedly endorse an event, often with contractually-specified language and certain subject hashtags determined beforehand. Indeed, Twitter provides a new form of brand promotion through the use of celebrity that remains unparalleled to date. Perhaps the most evocative illustration of this power arrived at the 2012 Academy Awards, in the form of an Atelier Versace-clad Angelina Jolie, glamorous to the point of caricature, stylized and posing. The Twitter handle in homage to her look, @angiesrightleg, amassed 10,000 followers within its first hour.

The National Football League Decides to "Just Do It"

Sheppard Mullin — Mon, 09 Apr 2012 16:13:28 -0500

Though the news of Nike's exclusive deal with the NFL broke some time ago, the agreement will officially go into full effect this month and the look of Monday Night Football is about to change. Replacing adidas, this will be the first time that Nike, who was a NFL supplier in the mid-nineties and has maintained individual deals with players, will exclusively supply all 32 teams. The deal, for which Nike reportedly paid $1.1 billion dollars, covers the entire player's uniform including jerseys, belts, pants, socks and gloves.

Nike recently made some very innovative changes at the college football level and is hopeful to bring the same positive change to the professional arena. Major redesigns to the former uniforms are taking place and it was from the players that Nike got both suggestions and inspiration, for example many of the uniforms will feature a more formfitting design allowing the players better mobility. Earlier this year, Nike pitched each team methods of improving their jersey though some teams were unable to make many changes because of the NFL rule that states a teams jersey can only be changed every 5 years. For teams not bound by this rule, including the Seattle Seahawks, the players of the 2012 season will look noticeably different when running onto the field.

Fans will be able to buy the newly designed jerseys at the end of April, timed perfectly to coincide with the NFL draft. As of February 29th, Nike has already seen a 16% jump in apparel sales and this deal is estimated to yield Nike over $350 million dollars in profit. We have all heard the adage "the cloths make the man," and this fall we will see if Nike has found the key to the uniform making the football player.

Louis Vuitton Achieves Genuine Victory Over Flea Market's Phony Sales

Sheppard Mullin — Mon, 26 Mar 2012 11:52:29 -0500

By Tyler Baker

Luxury brand titan Louis Vuitton recently achieved a significant victory over counterfeiting of its designer products. In an action brought in the U.S. District Court for the Western District of Texas, Louis Vuitton sued the Eisenhauer Road Flea Market, its owner, Bruce L. Gore, and its manager, Patricia D. Walker, for contributory trademark infringement, alleging that the defendants had failed to prevent vendors from selling fake Louis Vuitton goods at the flea market. See Louis Vuitton Malletier v. Eisenhauer Road Flea Market, Inc., No. SA-11-CA-124 (W.D. Tex.). Louis Vuitton stated that counterfeit “LV” products were abundant at the flea market and that Louis Vuitton had given Gore and Walker sufficient opportunities to discipline their vendors that engaged in phony sales. Louis Vuitton alleged, notwithstanding this notice, that Gore and Walker chose to be “willfully blind” to such infringing activity. Gore testified that he warned market tenants not to sell counterfeit goods, only to have those vendors nonetheless engage in distribution of bogus items after they said they would not.

On January 12, 2012, a unanimous jury found in favor of Louis Vuitton, deciding that nine trademarks were infringed, and awarded $400,000 for each mark. On January 31, U.S. District Court Judge Harry Lee Hudspeth entered a judgment in accordance with the jury verdict which was, if nothing else, comprehensive in its scope of remedying the situation for the present and future. In addition to finding the defendants jointly and severally liable for $3.6 million in compensatory damages, the judgment also permanently enjoined the defendants from further acts of contributory trademark infringement with respect to the Louis Vuitton trademarks. Specifically, the defendants were ordered not to lease space to tenants whom the defendants know, have reason to know, or have been presented with credible evidence that are selling or distributing products bearing counterfeit Louis Vuitton trademarks. The defendants themselves also were banned from selling Louis Vuitton counterfeits and engaging in any conduct which would contribute, directly or indirectly, to counterfeiting of Louis Vuitton trademarks by flea market tenants. The Court’s order went further, requiring the defendants or their agents to conduct periodic inspections of the booths maintained by flea market tenants to guard against Louis Vuitton counterfeits, and to post signs at each market entrance warning lessees and the public that the tenants were not authorized to sell Louis Vuitton merchandise, and that doing so was a criminal offense. The judge also required that all future lease agreements for the flea market expressly prohibit the sale of Louis Vuitton counterfeits, and permitted Louis Vuitton representatives or agents to conduct unannounced random inspections during normal flea market business hours to search for Louis Vuitton fakes.

In response to the Court's order, the flea market accused Louis Vuitton of forcing the flea market to do the luxury brand’s job, i.e., enforcement of Louis Vuitton trademarks, and that the company had other means by which to police counterfeiting, e.g., by alerting law enforcement agencies or by pursuing the vendors directly in civil or criminal court. Louis Vuitton responded that the flea market was infested with counterfeit merchandise and that the defendants simply turned a "blind eye" to the counterfeits.

This case should send a powerful message to commercial landlords of flea markets who suspect or have been warned that phony designer merchandise is being sold on their premises. While Louis Vuitton noted that suing the flea market was an extreme measure taken only once such measures are deemed necessary, this case should serve as a warning that established luxury brands, such as Louis Vuitton, police their marks vigilantly against contributory infringement, whether it be in the physical world or cyberspace.

Louis Vuitton already secured an important victory against online contributory trademark infringement where the defendant provided web-hosting for numerous websites that sold counterfeit Louis Vuitton products. See Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936 (9th Cir. 2011). In Akanoc, Louis Vuitton sued the defendant for contributory trademark and copyright infringement and counterfeiting after the defendant failed to end service for the infringing sites, despite eighteen notices of infringement from Louis Vuitton. The trial and appellate courts found the defendant liable for contributory copyright and trademark infringement because of the way it had guided web users to the infringing sites and exercised direct control over and monitored the websites. The Akanoc case is analogous to the Eisenhauer Road Flea Market case in that both cases demonstrate that neither the real world nor the world wide web are safe havens for trademark infringement.

IFRA Regulations Bring About a Change of Scent

Sheppard Mullin — Tue, 20 Mar 2012 17:51:07 -0500

We all remember the sweet scent of our first perfume and only need a simple whiff to propel us back to our youth. Studies show that scent memory is the longest lasting of all of our five senses, meaning you will always be able to instantly recognize the scent your grandmother wore when you were a child. But what if one day that perfume you hold so dear suddenly smelled slightly different? Recently, the perfume industry has become subject to stricter standards forcing longtime perfume makers to abruptly change their ingredient and formulas.

The International Fragrance Association (IFRA) was founded in 1973 in Geneva and its members create over 90% of the world's fragrances. The IFRA serves to regulate the perfume industry in order to promote the safe use of perfumes worldwide. Two years ago, IFRA restricted the use of oakmoss extract, found in several top selling men's and women's perfumes, after it was found to cause a rash for some consumers similar to poison ivy. This restriction is forcing perfume makers to overhaul the makeup of several well known perfumes, including fragrances by Dior and Lacoste. Many perfume makers are concerned that this will cause an uproar, with consumers claiming they will easily be able to tell a change in the scent that they have worn for years.

Opponents and proponents of the new IFRA restrictions fall within the classic divide in the perfume world. Those who oppose the ban see perfume making as an expressive art whose history extends back hundreds of years. To them, the ban significantly limits creativity and resources in creating new scents. Those who support the IFRA see the restrictions as a way to avoid health or public relations trouble that skin rashes and outbreaks could have on the $2 billion dollar perfume industry. They see perfume making in the global business sense, with a popular scent leading to an entire line of products.

Synthetic scents are nothing new to the perfume industry and today they make up the majority of components of most fragrances, but natural elements such as oakmoss serve to add richness to the scent. Problems can arise when synthetic chemical combinations try to replace the natural elements. Not only is it a complicated process to recreate fragrances, but it also allows others to easily analyze the formula and duplicate the scent. In an industry that closely guards the chemical make up of famous and successful scents as though they were state secrets, this poses a huge threat both creatively and financially. In order to combat this, perfume companies are now trying to mimic the individual natural scents which would make the chemical makeup of the perfume harder to detect and thus allow them to keep their formulations and ingredients secret. Unfortunately, this is a slow going process so most perfume makers are instead forced to work without the natural scent in order to protect the secrecy of their scents.

While some see these restrictions as a hindrance, others see it as a challenge to create new scents by using innovative scientific methods. Over time, consumers may adapt to the new synthetic smells and scents that seek to replace oakmoss or other restricted elements, but until then we may just have to get used to the fact that some of our favorite perfumes no longer smell the way we remember.

Battle of the G's Rages On: Gucci's $124 Million Trademark and Trade Dress Infringement Lawsuit Against Guess? Withstands Summary Judgment

Sheppard Mullin — Thu, 15 Mar 2012 16:44:26 -0500

By Shannon King

The multi-million dollar trademark and trade dress dispute between Italian fashion label Gucci and American designer Guess?, Inc. ("Guess?") marches on toward trial as Judge Shira Scheindlin of the United States District Court for the Southern District of New York largely rejected Guess?'s motion for summary judgment to dismiss Gucci's claims on February 14, 2012. The Court granted summary judgment and dismissed Gucci's claims for monetary relief on the basis of federal trademark dilution as to two designs but left the majority of Gucci's infringement claims untouched.

Gucci filed suit against Guess? and certain Guess? affiliates in 2009, claiming that Guess? was copying six of Gucci's registered and unregistered designs as part of an elaborate scheme to trade upon the GUCCI marks and trade dress. Examples are depicted below:

Gucci Shoe Guess? Shoe

Gucci seeks an accounting of Guess?'s profits on the alleged copycat products (estimated to be over $98 million) as well as damages in the form of a reasonable royalty (estimated to be $26 million). In its summary judgment motion, Guess? argued that Gucci's infringement claims based upon post-sale confusion failed as a matter of law because Gucci failed to proffer evidence that any purchaser actually bought an allegedly-infringing Guess? product instead of an authentic Gucci product in order to take advantage of post-sale confusion (i.e., that an unconfused purchaser bought a Guess? product in order to benefit from post-sale confusion with Gucci products). The Court rejected Guess?'s argument that evidence of actual confusion is required to prove infringement based upon post-sale confusion. Instead, the Court held that claims for post-sale confusion are subject to the standard likelihood of confusion analysis under the relevant Polaroid factors. In summary, the absence of actual confusion does not necessarily preclude post-sale confusion.

The Court also ruled that a reasonable inference could be drawn that Guess? acted in bad faith by "meticulously copying" Gucci's trade dress although Guess? recognized that consumers might confuse the two patterns. Based upon such bad faith evidence, the Court rejected Guess?'s arguments to preclude Gucci's claims for monetary relief on the basis of lack of evidence of actual confusion. The Court also rejected Guess?'s motion for summary judgment to preclude monetary damages on the basis of laches stating that such an equitable defense is fact intensive and not typically amenable to summary judgment.

The Court did grant summary judgment in favor of Guess? in connection with some of Gucci's trademark dilution claims. The Court applied the pre-Trademark Dilution Revision Act higher "actual dilution" standard in assessing claims related to two of the allegedly infringing marks first used in commerce by Guess? prior to October 6, 2006. The Court found that Gucci failed to provide credible evidence of actual dilution with respect to these claims and, thus, dismissed Gucci's pre-October 6, 2006 dilution claims. On February 21, 2012, the Court issued a clarification stating that while the lack of actual dilution prevented monetary relief as to such dilution claims, Gucci could still seek injunctive relief.

The final pre-trial conference in this case is currently set for March 13, 2012.

For a full copy of the February 14, 2012 opinion, click here. For a full copy of the February 21, 2012 clarification, click here.

Louis Vuitton Sets A New Standard In Federal Trademark And Copyright Law

Sheppard Mullin — Tue, 17 Jan 2012 15:33:14 -0500

By Alona G. Metz

In the recent landmark case of Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936 (9th Cir. 2011),[1] the Court of Appeals for the Ninth Circuit held that a web-hosting company that owned and operated servers was liable for contributory copyright and trademark infringement when it failed to take steps to curtail alleged infringement committed by Chinese websites that used its servers. Louis Vuitton sued Akanoc Solutions, Inc. (“Akanoc”), Managed Solutions Group, Inc. (“MSG”), and Steven Chen (the owner of both companies) for contributory copyright and trademark infringement under the Copyright and Lanham Acts, respectively. MSG leased servers, bandwidth, and IP addresses to other companies, such as Akanoc, who then operated the servers and otherwise ran the business. Louis Vuitton alleged that some of Akanoc’s China-based customers directly infringed on Louis Vuitton’s trademarks and copyrights. Louis Vuitton sent the defendants eighteen Notices of Infringement documenting the infringements occurring on websites hosted by defendants, yet the defendants were unable to identify any action taken in response to the notices sent by Louis Vuitton and the websites continued to operate. Louis Vuitton alleged that defendants had actual knowledge of the website's activities, that defendants knowingly avoided learning of the full extent of infringing activities, and that defendants knowingly enabled the infringing conduct by hosting the websites and permitting them to display the counterfeit products.

A jury found that all three defendants were liable for willful contributory trademark infringement and willful copyright infringement. It awarded statutory damages on both claims for each of the three defendants. The trial court set aside the verdict as to MSG because there was no evidence that MSG did anything other than own and lease the hardware operated by Akanoc and Chen. However, it entered judgment against Chen and Akanoc and awarded statutory damages against each of them.

The Court of Appeals for the Ninth Circuit affirmed as to the issue of the defendants’ liability, but reduced the statutory damages award by half because a plaintiff can only recover one set of statutory damages where two defendants are jointly and severally liable. On the issue of liability, several of the Court’s observations in the opinion are noteworthy: First, with regard to the contributory trademark infringement claim, the Court noted that “websites are not ethereal; while they exist, virtually, in cyberspace, they would not exist at all without physical roots in servers and internet services. . . . Appellants had direct control over the ‘master switch’ that kept websites online and available.” Therefore, the servers themselves, as distinct from the infringing websites, were a “means of infringement” under federal trademark law. Second, with regard to both claims, the Court held that defendants' assertion, that "contribution to infringement must be intentional for liability to arise", was without merit. Rather, proof that defendants had actual or constructive knowledge that the users of their services were engaging in infringements or knowingly failed to prevent infringing actions is sufficient. Third, with regard to the contributory copyright infringement claim, the Court maintained that, as is the case with trademark law, "intent may be imputed" because of the knowing failure to prevent infringement and “there is no question that providing direct infringers with server space” constitutes a material contribution to direct infringement because this "substantially assists" direct infringement.

Neither side has petitioned the Supreme Court for a writ of certiorari. The deadline for filing is January 17, 2012. Given that this is an important precedent for third party liability for copyright and trademark infringement, it remains to be seen whether certiorari will be sought and what actions by web hosts will be considered sufficient to avoid liability where the hosted website is infringing.

[1]Ninth Circuit Decision

ZIPped Back Up: Williams-Sonoma Gains Federal Dismissal Of New Jersey Consumer Privacy Claim in Feder

Sheppard Mullin — Wed, 12 Oct 2011 07:19:50 -0500

In Feder v. Williams-Sonoma Stores, Inc, the United States District Court for the District of New Jersey joined the New Jersey Superior Court in weighing in on the issue of whether a retailer violates consumer privacy state law by requesting a customer's zip code at the point of purchase. Feder was brought by the same plaintiff’s lawyers and with claims similar to those in the state court case Imbert v. Harmon Stores, Inc.(Bed, Bath & Beyond). Imbert was decided last month, but without any written decision, and permitted that case to proceed past the pleading stage. The District Court in Feder, however, issued the first written opinion under the New Jersey statutes, finding that allegations that a zip code was verbally requested could not support a claim under New Jersey law.

Both Feder and Imbert involved plaintiffs suing under New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”), alleging that a store’s requirement that customers provide their zip codes during a credit card transaction violates their rights under the TCCWNA. The TCCNWA prohibits a seller from "offering, entering into, giving or displaying a written consumer contract or notice that violates a clearly established right of the consumer." N.J. Stat. Ann. 56: 12-15. As a predicate for the TCCNWA claim, both Feder and Imbert relied on the Restrictions on Information Required to Complete Credit Card Transactions ("Restriction Statute"). The Restriction Statute prohibits a retailer from requiring a customer to provide "personal identification information" to complete a credit card transaction, thus providing the basis for violation of a "clearly established consumer right."

Senior District Judge Walls in Feder granted Williams-Sonoma's Motion to Dismiss, finding that the plaintiff failed to sufficiently allege conduct that violated the TCCWNA because she failed to identify a particular provision of a written consumer contract that violated her rights. Feder pled that the credit card transaction form constituted the written consumer contract. Judge Walls, skeptical of this assertion, reasoned that even if the form qualified as a contract, plaintiff's recorded zip code and verbal request for the same did not constitute a contract provision. Consequently, Judge Wales found that plaintiff failed to satisfy the elements of TCCNWA because "[t]he alleged requirement that plaintiff provide her zip code would only violate the TCCWNA if it was a provision of a written contract." Plaintiff also alleged that her rights were violated under the Restriction Statute -- not by the recording of her zip code -- but by the requirement that she provide her zip code. However, the Restriction Statute does not provide for a private right of action, and, as discussed above, a claim under Plaintiff’s proposed private vehicle for enforcement, the TCCNWA, failed.

Williams-Sonoma also argued that if the credit card transaction was considered a written consumer contract, the court must consider all terms of that “contract” including the point of sale signage at Williams-Sonoma stores expressly stating that when a zip code is requested it is used for marketing purposes, and that providing it is voluntary and is not a condition of processing the transaction. The Restriction Statute differs critically from California’s Song-Beverly in that New Jersey’s Restriction Statute only applies to information being “required,” whereas Song-Beverly also applies to a “request.” This issue was not presented in Imbert. However, since the District Court ruled on the TWNCCA, it did not need to reach this issue.

One additional anomaly between the Feder and Imbert cases is that in Imbert the state court permitted the plaintiff to proceed with an invasion of privacy claim. However, when presented with Williams-Sonoma’s Motion to Dismiss, Feder abandoned her invasion of privacy claim in her Opposition because the Motion revealed she had previously provided her contact information to Williams-Sonoma. Feder also filed a cross-motion for leave to file an Amended Complaint, which the District Court denied as futile.

Craig Cardon, Elizabeth Berman; and Sean Kirby of Sheppard Mullin Richter & Hampton LLP represented Williams-Sonoma.

UnZIPped in New Jersey?

Sheppard Mullin — Thu, 22 Sep 2011 07:06:04 -0500

A New Jersey state trial court has initially weighed in on the issue of whether a retailer violates state law by requesting a customer’s zip code at the point of purchase. In a case fashioned after the California Supreme Court's decision in Pineda v. Williams-Sonoma, 51 Cal.4th 524 (Feb. 10, 2011), New Jersey Superior Court Judge Stephan Hansbury has denied a motion to dismiss brought by Harmon Stores, Inc. (Bed, Bath & Beyond), finding that the plaintiff Robert Imbert adequately pled a claim for violation of New Jersey's Truth in Consumer Contract, Warranty and Notice Act, N.J.S.A. 56:11-17 (“TCCWNA”). The Court's ruling allows plaintiff to proceed beyond this initial stage, but no liability has been found.

In the matter of Imbert v. Harmon Stores, Inc., plaintiff Robert Imbert filed a complaint against Harmon Stores, Inc., alleging that Harmon Stores violated the TCCWNA by requesting his and other customers’ zip codes at the point of sale. The allegations in the complaint (which are virtually the same as the allegations set forth in California cases) assert that Harmon Stores’ practice of requiring a customer’s zip code at the point of sale violates the New Jersey Restrictions on Information Required to Complete Credit Card Transactions (the “Restriction Statute”), which prohibits a retailer from requiring a customer to provide “personal identification information” to complete the credit card transaction. The Restriction Statute is only directly enforceable by the state Attorney General. However, plaintiff has alleged that a violation of the Restriction Statute, in turn, violates the TCCWNA’s prohibition against “enter[ing] into any written consumer contract or giv[ing] or display[ing] any written consumer warranty, notice or sign . . . which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller, lessor, creditor, lender or bailee as established by State or Federal law . . .” which does provide for a private right of action. In issuing his ruling from the bench, Judge Hansbury held that, as pled, the transaction appears to qualify as a written consumer contract within the meaning of the TCCWNA. The judge's reasoning in reaching this limited conclusion is not specifically known as no written opinion was issued. This decision appears to be the first decision outside of the State of California where a court has held that a retailer could potentially be held liable under state law for requesting a customer’s zip code at the point of sale.

One important difference between the Restriction Statute and California's Song-Beverly is that a "request" does not violate the Restriction Statute -- only "requiring" the information does. This issue is before a federal court in a different case alleging violations of the TCCWNA for requesting a zip code. That case against Williams-Sonoma Stores, Inc. (“Williams-Sonoma”) is currently pending in the District Court for the District of New Jersey. Williams-Sonoma has filed a motion to dismiss the plaintiff’s claims and is awaiting a ruling from the Court. That motion addresses the fact that Williams-Sonoma requires the posting of a sign at the point of purchase which explains that a zip code is requested for marketing purposes and that providing it is voluntary.

REALITY BITES - Brand Protection, Reality TV Style

Sheppard Mullin — Mon, 22 Aug 2011 06:46:30 -0500

THE SITUATION IS ASKED NOT TO COVER HIS SITUATION WITH ABERCROMBIE ANYMORE

Abercrombie & Fitch issued a press release offering The Situation (of MTV's The Jersey Shore fame) "substantial payment" to stop wearing Abercrombie's clothes. The company's main concern is brand dilution. The press release explains the company is worried that The Situation's "association with our brand could cause significant damage to our image" and that this association "is contrary to the aspirational nature of our brand, and may be distressing to many of our fans." Whether this was a clever public relations strategy to generate publicity about the brand during the important back-to-school season or whether it is a legitimate branding issue that had something to do with the dip in Abercrombie's stock following the press release remains unclear. What is clear, however, is that people are talking about it. Common wisdom is there may be no such thing as bad publicity; however, it cannot be ignored that Abercrombie's stock fell sharply the day following the press release.

THE KARDASHIAN – SEARS MARRIAGE CAUSES THE GIRLS TO END UP IN COURT

Kim Kardashian filed a lawsuit in the United States District Court for the Central District of California against Old Navy for using a model/actress that allegedly looks like her and calls her to mind in its commercials. Some speculate that the reason Kim filed the suit was to protect her apparel licensing deal with Sears because Old Navy's lookalike campaign could allegedly harm Sears' Kardashian Kollection campaign, which hadn't yet launched at the time she filed suit. Others speculate that the real reason is because the lookalike model/actress is now dating Kim's ex-boyfriend and football player, Reggie Bush. Either way, it will be interesting to see whether Kim can prevail in her claims for unfair competition under the Lanham Act (15 U.S.C. § 1125-a), and violations of the common law and statutory rights of publicity.

Soon after the Kardashian Kollection debuted at Sears, handbag designer Monica Botiker sent a cease and desist letter to the company, alleging a faux leather handbag from Sears' Kardashian Kollection resembles one of her bags. Sears promptly pulled the Kardashian bag from its website. Given the Kardashian's fiercely protective stance over their brand (which is entirely appropriate and smart), it is interesting to see them on the other side of the fight. If a fashion company wants to be taken seriously when it wields the trademark laws as a sword, it should take care not to unfairly encroach on and have respect for others' rights.

Court Denies Louboutin Preliminary Injunction: Holds Fashion Blind to Single Color Marks

Sheppard Mullin — Mon, 15 Aug 2011 13:07:51 -0500

On August 10, 2011, Judge Victor Marrero denied Christian Louboutin S.A.'s motion for a preliminary injunction to enforce its U.S. trademark (Registration No. 3,361,597) for "lacquered red soles on footwear" covering "Women's High Fashion Designer Footwear" in International Class 25. The Court held that "[b]ecause in the fashion industry color serves ornamental and aesthetic functions vital to robust competition, the Court finds that Louboutin is unlikely to be able to prove that its red outsole brand is entitled to trademark protection, even if it has gained enough public recognition in the market to have acquired secondary meaning." The decision not only concluded that the Lanham Act does not "exten[d] protection to a trademark composed of a single color used as an expressive and defining quality of an article of wear produced in the fashion industry," but also established a new precedent by concluding that trademark protection under the Lanham Act for the fashion industry differs from that in other industries.

In his thirty-two page decision, Judge Marrero compared fashion designers to painters and noted how creativity for both is dependant upon using color as "an indispensable medium" that "plays a unique role." The Court observed that: "The law should not countenance restraints that would interfere with creativity and stifle competition by one designer, while granting another a monopoly invested with the right to exclude use of an ornamental or functional medium necessary for freest and most productive artistic expression by all engaged in the same enterprise."

The Louboutin decision is remarkable in that it resurrects the doctrine of aesthetic functionality, which had been thought by some to be moribund. Similarly, the Court embraced the previously defunct argument that the single color of a product is not capable of protection because of the risk of "shade confusion," which argument had been explicitly rejected by the Supreme Court in Qualitex Co. v. Jacobson Prod. Co., Inc., 514 U.S. 159, 167-168, 115 S. Ct. 1300, 131 L. Ed. 2d 248 (1995).

Interestingly, the Court spends little time discussing whether and to what extent the color red has a source-identifying effect for the sole of the Louboutin shoes. This analysis is critical to determining whether the color shade serves both a source-identifying and aesthetic function. The Court noted that the trademark registration failed to specify what color red was protected and that the difficulty of discerning the shade of red places an impossible burden on the Court. As such, the Court concluded this difficulty will lead to "fashion wars" notwithstanding the fact that no such wars have taken place since Qualitex was decided in 1995. Based upon these observations, the Court held a single color is not protectable in the fashion industry and, in consideration of its findings under federal law, the Court held Louboutin was unlikely to succeed on its state law claims.

The Court noted that the issue of the validity of the registered Louboutin trademark and the counterclaim to cancel the mark were central to the disposition of the action and commented that the ample record developed with respect to the preliminary injunction obviated the need for further discovery. As a result, the Court directed the parties to appear on August 17, 2011 and for Louboutin to show cause why the record, as it exists, should not be converted into a motion for partial summary judgment to cancel Louboutin's trademark at issue. There will no doubt be more to come and it is likely, under the circumstances, that Louboutin will appeal to the Second Circuit to protect its registered trademark.

About Face: Lancôme's Airbrushed Makeup Ads Banned in the UK

Sheppard Mullin — Fri, 29 Jul 2011 14:35:16 -0500

Makeup ads in the UK for products by L'Oreal have been banned after the U.K.'s Advertising Standards Authority ("ASA") deemed the airbrushing used in post-production to be misleading to consumers.

The ASA issued the ban after British Liberal Democrat politician, Jo Swinson, lodged complaints about two ads for foundation products made by L'Oreal-owned brands, Lancôme and Maybelline, featuring Julia Roberts and Christy Turlington. Her complaints addressed the concern that the L'Oreal ads were not representative of the results that the products can actually achieve, and merely presented overly perfected and unrealistic images of women.

In making its decision, the ASA confirmed that both ads were misleading, without the aid of before and after shots. It ruled that the two ads breached advertising standards code for exaggeration and for being misleading, and banned them from future publication. Chief Executive of the ASA, Guy Parker, emphasized that airbrushing is a question of degree, and ads can only be banned if they are misleading, harmful or offensive: "If advertisers go too far in using airbrushing and other post-production techniques to alter the appearance of models and it's likely to mislead people, then that's wrong and we'll stop the ads," he said.

However, if advertisers provide the ASA with material sufficient to demonstrate that the retouching in the ads is not misleading, then the complaint will not be upheld. In this case, while L'Oreal admitted to retouching and denied the retouching was misleading, it did not actually provide the ASA with any evidence of how much retouching was done and to establish that the two ads were not misleading. When the ASA requested to see the untouched images for comparison, a requirement for makeup advertisers, L'Oreal refused, and the ASA banned the ads.

L'Oreal argued that the ads accurately illustrated the effects that their make-up (Maybelline's The Eraser anti-ageing foundation and Lancôme's Teint Miracle foundation) could achieve, and that both products were scientifically proven and supported by consumer tests that showed users were satisfied with their results. L'Oreal defended against the claims arguing, with respect to supermodel Christy Turlington, that she was chosen for their Maybelline foundation ad because her image in the ad was consistent with the public perception of her as a beautiful woman with a naturally stunning complexion. L'Oreal articulated that the fine lines around eye, on the cheek and near the model's nose were clearly visible in the ad, even in areas where the product had been applied. Moreover, using Julia Roberts in a Lancôme ad, also for foundation, was because of her naturally healthy and glowing skin.

It is not the first time that L'Oreal has been charged with a breach of UK advertising standards. In 2007, a TV ad for L'Oreal's Telescopic mascara, featuring actor Penelope Cruz, was criticized for failing to make clear that she was wearing false eyelashes.

Although the ASA ruling is limited to the UK, it strikes a clear warning to cosmetic companies around the world about the impact of misleading global advertising campaigns for makeup products, and the importance of being able to show that any retouching is not actually misleading.

YSL Fights Back By Seeking To Cancel Louboutin's Red Sole Trademark

Sheppard Mullin — Fri, 29 Jul 2011 14:29:50 -0500

As we previously reported here, Christian Louboutin ("Louboutin") filed a lawsuit against Yves Saint Laurent ("YSL") in early April, alleging that YSL and its affiliated companies violated Louboutin's red sole trademark by selling women's shoes with red uppers and outsoles alleged to be virtually identical to Louboutin's red sole trademarks.

YSL is not taking Louboutin's allegations lying down and is fighting back. YSL asserted a counterclaim against Louboutin in its Answer and Counterclaim filed on May 20, 2011, seeking to have the red sole trademarks cancelled and alleging that Louboutin’s red sole trademarks are invalid because, among other things, they were obtained by fraud from the U.S. Patent and Trademark Office (“PTO”). In its cancellation counterclaim, YSL alleged that Mr. Louboutin made fraudulent assertions to the PTO at the time of registration on March 14, 2007 that he had been the “substantially exclusive” user since 1992 of red soles on women’s footwear. YSL claimed that Louboutin was well aware that he was not the only fashion designer to use red soles. on shoes. YSL alleged that Louboutin even personally attended a YSL runway show in 2004, where YSL unveiled its Taï Taï and Lotus models, both of which included several individual styles featuring bright red soles, three years before his registration in 2007. YSL also alleged that Louboutin personally participated in a Vogue magazine fashion portfolio in 2005 in which third-party red-soled shoes were featured.

YSL also sought cancellation of Louboutin’s red sole trademarks based on the marks' lack of distinctiveness, the functional nature of the marks at issue; and its use of ornamental, aesthetic and design elements that do not serve as source identifiers for Louboutin -- all factors that YSL alleged suggest that the red-sole mark was not eligible for trademark protection.
In an additional counterclaim, YSL contended that Louboutin tortiously interfered with YSL’s business relations with major third party retailers. YSL specifically alleged that Louboutin pressured retailers to stop selling YSL footwear and to return accused products to the fashion house. It is claimed that Louboutin's conduct led to the return of certain YSL shoe models which are the subject of the lawsuit (Tribute, Tribtoo, Palais, and Woodstock), as well as other YSL shoe models which have not been challenged.

Finally, YSL alleged that Louboutin engaged in bad faith unfair competition. YSL specifically alleged that Louboutin brought the lawsuit as “one part” of an anti-competitive campaign to “monopolize use of a common design feature and thereby inappropriately limit the design options available to competitors.”

In response to YSL’s counterclaims, Louboutin moved to dismiss YSL's Second Counterclaim and asserted affirmative defenses in its Answer to Counterclaims, each filed on June 10, 2011. Louboutin argued that YSL’s claim of fraud upon the PTO at the time of Louboutin’s registration is based entirely on speculation and that YSL has failed to allege sufficient facts to support the counterclaim. Louboutin asserted affirmative defenses for failure to state a claim upon which relief may be granted and failure to allege fraud with the requisite specificity. Further, in its motion, Louboutin cited In re Bose Corp., 580 F.3d 1240, 1245 (Fed. Cir. 2009) (“Bose”), for the proposition that a subjective intent to deceive, not mere negligence, is required to establish fraud on the PTO. Specifically, Louboutin alleged that YSL’s allegations are deficient because they are “merely conclusory statements” about what Louboutin “knew or should have known” when he filed the submissions to the PTO, but do not actually support any claim of fraud with particularity.

In opposition to Louboutin's motion to dismiss the fraud claim, YSL argued that Louboutin's motion confuses YSL's ultimate burden of proof at trial with the pleading standard necessary to state a claim. YSL contended that the Federal Circuit Court in Bose held that to prevail at trial, a plaintiff seeking cancellation of a trademark registration on the basis of fraud must prove that the false statement was made “knowingly.” Notably the court in Bose observed that intent may be inferred from indirect and circumstantial evidence because direct evidence of fraudulent intent is rarely available. Citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), YSL asserted that the relevant question is whether the pleading contains factual allegations which “taken as true, raise a right to relief above the speculative level.” YSL maintained that Louboutin, “who is alleged to have devoted his entire professional life to women’s footwear” knew that his representations to the PTO were false, based not only YSL's past designs, but also “dozens of other third parties” who have designed, produced, marketed and sold women’s footwear with red soles for many years.

Meanwhile, Louboutin also filed a motion for a preliminary injunction on June 21, 2011 pending the outcome of the litigation. The injunction seeks to stop YSL from selling women’s luxury footwear bearing red soles that “infringe, unfairly compete with, and dilute” Louboutin's red sole trademark, including the Tribute, Tribtoo, Palais, and Woodstock YSL shoe models. In their opposition, YSL disputes claims of lost sales and consumer confusion, reiterating that Louboutin's red sole trademarks should be cancelled and that no fashion designer should be able to have a monopoly on any color. YSL contended that it has been using red-sole shoes for decades before Louboutin began using them, as have other designers, causing no harm to Louboutin, and that, while not brand-defining for YSL, red-soles have been an essential design element.

At the preliminary injunction hearing on July 22, 2011, counsel for YSL presented the Court with evidence of a number of red-soled shoes that had been sold in the marketplace and counsel for Louboutin argued that, if a preliminary injunction were not granted, the Louboutin brand would be "irreparably harmed." District Court Judge Victor Marrero indicated that he required more time to make a ruling on the preliminary injunction and would decide as soon as possible.

The court has not ruled on both the motion to dismiss and the preliminary injunction, so fashionistas will have to keep their designer shades on and keep watching.

KISS MY APP: PrivacyStar™ App Helps Consumers File FTC Complaints

Sheppard Mullin — Wed, 06 Jul 2011 06:49:35 -0500

First Orion developed PrivacyStar™, a relatively new and increasingly popular smartphone app for the Android and Blackberry. The app's main purpose is to block unwanted calls and text messages, and to provide Caller ID for unknown callers so subscribers may take appropriate action by adding the numbers to their Privacy List. The app also provides a SmartBlock capability, which employs the data gathered from PrivacyStar™ usage to automatically block most blocked numbers; Do Not Disturb, which forwards all non-blocked incoming calls to voicemail; and more recently, SMS ID and Voice-Activated Directory Assistance functionality (in the Android smartphone).

After garnering much interest from the FTC, the PrivacyStar™ app now also provides an interesting feature that enables subscribers to immediately file a federal complaint against the incoming number. According to First Orion, an estimated 150 million telemarketing calls are being made daily in the United States and of those, as many as 20% may be Do Not Call violations. Consumers are able to directly report potential Do Not Call Registry and Fair Debt Collection Practices Act violations to the FTC straight from their smartphone. Moreover, PrivacyStar™ complaint data generated by subscribers is automatically fed directly into Consumer Sentinel, the secure government database containing information about complaints filed with the FTC, that is available to more than 1,800 law enforcement agencies in the U.S. and abroad for consumer protection purposes. In essence, the PrivacyStar™ app now makes it easier for phone users to file federal complaints. Though the complaint data filed with the FTC does not distinguish between complaints and inquiries, the app assists the FTC to gather complaint data. The FTC or the relevant law enforcement agency will then decide whether to open an investigation.

Since the app's inception in December 2009, First Orion has announced that PrivacyStar™ subscribers have already blocked over 120 million numbers, and filed over 150,000 complaints directly to the Federal Trade Commission, with over 10,000 complaints being filed per month on average (as of May 19, 2011). PrivacyStar™ statistics show that 35% of all complaints filed are related to debt collection practices, while about 25% relate to telemarketers. The app's popularity has even extended to protect Canadian phone users, with the availability of the PrivacyStar™ app in Canada to enable Canadian phone users to report telemarketers to Canada’s Do Not Call Registry.

Since June 2003, the FCC in coordination with FTC amended its rules pursuant to the Telephone Consumer Protection Act of 1991 ("TCPA") to incorporate the national Do Not Call list. Violation of Do Not Call laws can result in federal fines of up to $11,000 and state fines of up to $25,000 per violation; while violations of the TCPA provides statutory damages, generally ranging from $500 to $1500 for each violation. Noted by the U.S. District Court for the Northern District of Illinois in Abbas v. Selling Source, LLC, No. 09-CV-3413 (N.D. Ill. Dec. 14, 2009), a plaintiff may maintain a suit for receiving an unsolicited text messages under the TPCA. Though the meaning of “call” in the TCPA is ambiguous, it does indeed include text messages according to Abbas. In reaching its conclusion, the trial court relied in part on the Ninth Circuit’s decision in Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 954 (9th Cir. 2009), which noted that “text messaging is a form of communication used primarily between telephones;” as well as relying on the FCC’s own interpretation of the TCPA that it applies to text messages.

The introduction of the PrivacyStar™ app has made the filing of federal complaints about unsolicited telephone calls much easier and convenient for phone users. The relative ease and convenience of filing federal complaints has already significantly helped the FTC to gather complaint data that may result in federal investigations. In light of the PrivacyStar™ app's growing popularity, it is necessary for companies that engage in this form of direct marketing to be aware that this technology is out there and that enforcement agencies are watching.

USDA Gives OK for "Organic" Labeling for Third-Party Certified Textiles; National Organic Program Policy Clarified

Sheppard Mullin — Mon, 27 Jun 2011 06:56:09 -0500

On May 20, 2011, the United States Department of Agriculture's National Organic Program ("NOP") issued a Policy Memorandum (PM-11-14) addressing the labeling of textile products containing organic ingredients (such as organic cotton, wool or linen fabrics). The new policy supersedes the July 2008 NOP fact sheet entitled "Labeling of Textiles Under National Organic Program (NOP) Regulations."

Policy Memo PM-11-14 addresses the labeling of textiles that contain organic ingredients. Presently, any textile product produced in full compliance with USDA NOP regulations (listed and detailed here) may be labeled as NOP-certified organic and display the USDA organic seal. Where the product is labeled "organic" by a third-party certification body, such as the Organic Trade Association, all fibers identified as "organic" must be produced and certified under the NOP regulations.

Thus, where a textile product has been labeled as "organic" by a third-party certification body, such as the Organic Trade Association, the product manufacturer may:

Use label "Made With Organic [Specified Ingredient]" claims to identify specific types of organic fibers featured in the apparel, and
Use information to identify the percentage of organic fibers featured in the product.

Where a textile product has not been labeled as "Organic" and NOP regulations have not been followed, the NOP regulations bar the following:

The use of the USDA seal where the apparel products have not been NOP certified,
Implying or leading the customer to believe that the final product is NOP certified where, in fact, it has not been certified in accordance with NOP regulations, and
Using a combination of both organic and non-organic sources for a single fiber that has been identified as "organic" in the final product.

These USDA regulations do not supersede any other requirements of Federal and State laws, including Federal Trade Commission ("FTC") labeling requirements. Where one seeks to make a fiber content claim in accordance with FTC labeling requirements terminology such as "contains 80% organic cotton" should be used in conjunction with NOP certification. The PM-11-14 is available, in its entirety, here. The Policy Memo PM-11-14 explicitly confirms that textile products produced in accordance with the Global Organic Textile Standard ("GOTS") may be sold as "organic" in the NOP certification or carry the USDA organic seal.

Comprenez-vous International Arbitration?

Sheppard Mullin — Tue, 07 Jun 2011 14:50:07 -0500

International arbitration is becoming the preferred method of resolving disputes in the fashion industry because international arbitration typically provides: (1) a private resolution so that the parties can still continue their business relationship in the future; (2) a neutral forum; (3) easy enforcement of the judgment throughout the world; and (4) a faster and cheaper dispute resolution than traditional litigation. Yet, not all international arbitrations are created equal.

When companies are considering international arbitration, or are faced with negotiating these types of provisions, companies should consider several aspects in order to ensure that there are no surprises, if eventually faced with arbitrating a dispute internationally. Failing to take a moment to consider the different factors beforehand may result in parties being surprised to learn that the arbitration they agreed to is different from what they had imagined. Below is a discussion of the pros and cons of some of the factors that parties should consider before agreeing to international arbitration.

1.                  Type of Arbitration.

Just like the fashion industry and its diversity, companies may be surprised to learn that there are different types of arbitration, either institutional or ad hoc, and both affect the type of forum, rules, and procedure that will be used.

a.                   Institutional Arbitration.

Institutional arbitration occurs when parties select a particular forum, which often has its own set of rules. As such, a benefit of institutional arbitration is that the parties can familiarize themselves with the rules before agreeing to internationally arbitrate. However, a potential downside is that the parties may be subjected to certain rules or rigidity that neither party wishes to enforce. Further, not all institutions are created equal. As international arbitration has become popular, forums have been created throughout the world and they will vary in their history, experience, process to select arbitrators, time permitted for resolution of the dispute, and their rules and procedures, particularly with respect to discovery. Thus, parties should consider the forum that is being selected and seek to understand the rules of the forum before agreeing to arbitrate under those rules.

b.                  Ad Hoc Arbitration.

Instead of institutional arbitration, companies could be faced with an ad hoc arbitration—wherein the parties have not agreed to any rules or any particular forum. A benefit is that the parties can select the forum and rules to apply to the arbitration. But, ad hoc arbitration may create more problems as the parties will have to develop and agree to the rules after a dispute has arisen between them. Further, often parties have different cultures and thus, different expectations of how the arbitration should occur. Thus, if a company selects ad hoc arbitration, the company should be aware that the rules have not yet been selected, and it could be subjected to rules that it would never have wanted to be subjected to at the actual arbitration.

2.                  Procedure Governing the Arbitration.

a.                   Choice of Language.

Often the parties that have agreed to international arbitration are conducting business internationally and are uncomfortable with the potential to be hailed into foreign courts. However, with cross-border transactions often comes linguistic differences. Although parties may presume that the arbitration will be conducted in their native language, this is not necessarily true. Not only should a party consider what language the proceedings will be held, but also whether the proceedings will be conducted in multiple languages, thus requiring translation.

b.                  Selecting Arbitrators.

Parties should also be aware of how the arbitrators will be selected. For instance, in institutional arbitrations, often the rules provide the selection of arbitrators. Typically arbitrations will have single-member or three-member panels. In the case of three-member panels, parties may be surprised that often each party appoints one arbitrator, and either the parties or arbitrators select the third. The party-appointed arbitrators often act as advocates to persuade the third arbitrator, the supposed neutral arbitrator, to side with the party that appointed them. As the third arbitrator becomes the deciding vote in the arbitration, this can lead to very unusual results. Companies may not want to give up the right to a trial by a judge and jury knowing that, ultimately, the party-appointed arbitrators will exert a strong influence upon the supposed neutral arbitrator.

c.                   Discovery.

A major appeal of international arbitration is that it is typically a faster and cheaper resolution of disputes, compared to American trials with long discovery periods that have become costly and drawn out. Although parties often choose arbitration because of its supposed quickness and lower costs, this benefit often comes at the expense of limiting discovery. In international arbitration, there may be no right to conduct discovery, which as a result, saves parties money and resolves the dispute faster.

For instance, arbitrators may not allow discovery if they come from a country where no discovery is allowed. These same arbitrators may see no need to have a court reporter present. Some arbitrators may also find that witness testimony is unnecessary, or the testimony of the party itself is inadmissible because it is not credible. In an ad hoc arbitration, where the arbitrators decide which rules to apply, if the arbitrators come from countries where discovery is limited, then they will most likely not permit discovery. Conversely, if the arbitrators are American, they will most likely permit discovery.

If the international arbitration occurs in a forum or with arbitrators that do not permit discovery, and only one party has all of the documented evidence, the other party has no right to receive those documents and will be at a significant disadvantage in proving its case. Thus, although parties may think that they understand (and relieved) that they will be subjected to limited discovery in international arbitration, they may be shocked (and upset) to find out that they have no right to receive evidence from the other company.

Further, resolving issues quicker means that the parties will be limited in how much time to develop all legal theories. There is a risk that the expedited time will mean that not all legal theories are fully developed. On the other hand, some parties may prefer to avoid further financial loss, and may want the dispute settled quickly rather than with precision. Thus, American companies must consider whether the benefits of international arbitration's speed and price are worth giving up the right to discovery and a trial.

However, as more Americans and American companies are becoming involved with international arbitration, and creating rules either with the forums or with arbitrators, some arbitrations are appearing more like American trials, with extended discovery and procedure. The result of this is that the cost associated with arbitration is increasing. If companies choose international arbitration because of the expected cheaper and faster resolution of issues, but then are faced with American -style discovery rules because of the particular forum, rules, or arbitrators selected, then the expected benefit from engaging in international arbitration is lost.

3.                  Choice of Law.

International arbitration often applies a choice of law from a country different than that of either party. For instance, an American company and a Mexican company may decide to apply Ecuadorian law. On the one hand, the American company may presume that this law is a "neutral law." However, the Mexican company may always use Ecuadorian law in its international arbitrations and thus, may be very familiar with the law. Thus, parties risk being subjected to a choice of law that it does not know that well, but that its opposing party surprisingly knows very well.

To further complicate the choice of law issue, parties should not assume that the arbitrators will be well-versed in the law the parties chose. In this instance, there is no guarantee that the arbitrator or arbitrators will apply Ecuadorian law correctly. If they do not apply the law correctly, an award may still be held valid against the losing party. See International Trading & Industrial Investment Co. v. DynCorp Aerospace Technology, No. 09-cv-00791, (D.D.C. Jan. 21, 2011) (confirming the award in an international arbitration, despite the fact that the highest court in Qatar determined Qatari law was applied incorrectly, and reasoning that the only court that could set aside the award were the courts where the arbitration took place).

Taking the above considerations into account will allow parties to be in a better position to evaluate whether international arbitration is right for them, and then to craft favorable arbitration provisions to avoid finding out later that what they agreed to was not what they had in mind.

Beauty Is In The Eye Of The Beholder And New Commercial Privacy Legislation Is Before The U.S. Senate

Sheppard Mullin — Tue, 07 Jun 2011 14:26:27 -0500

On April 12, 2011, United States Senators John Kerry and John McCain formally proposed the Kerry-McCain Commercial Privacy Bill of Rights Act of 2011 ("CPBRA"). This proposed legislation would apply to all retailers, including those in the fashion, beauty, and apparel industries, that request and record their customers' personal information. If passed in its current form, the CPBRA would preempt similar state laws, would not provide a private right of action upon which an individual claim could be based, and would cap penalties at $3 million. While that is good news in light of the burgeoning class action privacy-related litigation filed against companies by private plaintiffs under state consumer protection laws, compliance with the CPBRA could potentially be onerous because the CPBRA replaces industry self-regulation with government regulation.

Below are some of the highlights of the proposed CPBRA, in its current form:

The CPBRA will apply to "covered information", which includes: "personally identifiable information" ("PII"), "unique identifier information", and any information that is collected, used, or stored in connection with the two former categories of information in a manner that may reasonably be used to identify a specific individual. [CPBRA Sect. 3(3)(A)].

"Covered information" does not include PII from public records not merged with "covered information" gathered elsewhere, PII obtained from a forum where the information was voluntarily shared and is widely and publicly available (think Facebook), PII reported in the public media, or PII dedicated to contacting an individual at work.

PII includes: names, postal addresses, email addresses, telephone numbers, Social Security Numbers, credit card account numbers, "unique identifier information" (as defined below), biometric data (like a fingerprint), or any of the foregoing used, transferred or stored with a birth date, birth certificate number, birth place, "unique identifier information", precise geographic location (with GPS specificity, but not including an IP address), information regarding use of voice services, and "any other information concerning an individual that may reasonably be used by the party using, collecting, or storing that information to identify that individual." [CPBRA Sect. 3(5)].

"Unique identifier information" includes items such as a customer number held in a cookie, a user ID, or a serial number. [CPBRA Sect. 3(9)].

"Unauthorized use" means use of "covered information" for any purpose not authorized by the person to whom such information relates. [CPBRA Sect. 3(8)(A)]. There are several notable exceptions, for example: to process a transaction or deliver a service requested by the individual, to prevent or detect fraud, to investigate a crime, to advertise to an individual within the context of the business's website if the individual affirmatively requested it, and to improve the transaction or service, among others. [CPBRA Sect. 3(8)(B)]. However, the exceptions only apply if the use is reasonable and consistent with the practices and purposes described in the notice given to the individual in accordance with CPBRA, described below. [CPBRA Sect. 3(8)(C)].

Companies should only collect data they need to complete transactions or to provide services. [CPBRA Sect. 301]. Companies can collect and use information for research and development to improve the transaction or service, provided they retain that information for only a reasonable period of time.

Companies must implement privacy protection procedures [CPBRA Sect. 101-103], provide clear, concise and timely notice regarding collection, use, transfer, and storage of covered information and the purpose of those practices [CPBRA Sect. 201], set up an opt-out consent mechanism regarding unauthorized use and use by third-parties for advertising or marketing, set up an opt-in mechanism for use of "sensitive" PII (with certain exceptions), provide individuals with access and ability to correct their information, and to give individuals the opportunity to revoke consent to use such information if the company undergoes a change in corporate structure or goes bankrupt. [CPBRA Sect. 202].

The CPBRA will allow the Federal Trade Commission ("FTC") and Department of Commerce to oversee voluntary "Safe Harbor" programs that if implemented, would allow companies to shield themselves from liability under the CPBRA. [See CPBRA Sect. 202(c); Sect. 501].

Only the government (state Attorney Generals or the FTC) can enforce the law, and can only enforce it against companies that collect information concerning more than 5,000 people during a 12-month period. [CPBRA Sect. 401 - 403]. If the FTC institutes an action, no Attorney General is allowed to bring an action based on the same violation. The civil penalty can be up to $16,500 per day or per individual violation, not to exceed $3 Million. [CPBRA Sect. 404]. The CPBRA expressly bars a private right of action. [See CPBRA Sects. 405(b), 406 ("This Act may not be construed to provide any private right of action")].

CPBRA Section 405 expressly states that the CPBRA will supersede any state laws that "relate to the collection, use, or disclosure of covered information addressed in this Act or personally identifiable information or personal identification information addressed in provisions of the law of a State." [See CPBRA Sects. 405].

In conclusion, under the proposed CPBRA, retailers can still request and use the requested information, but they will need to very clearly inform consumers what they intend to do with the information at the time that it is requested in order to avoid a violation of the CPBRA.

The full text of the proposed bill can be found here.

To Register Or Not To Register -- That Is The Question

Sheppard Mullin — Tue, 31 May 2011 14:07:23 -0500

If your garment manufacturing work is done in California, you need to register with the California Labor Commissioner or you could face heavy fines.

California law requires California garment manufacturers and contractors to register with the Labor Commissioner. The registration requirement applies not only to persons who directly employ garment workers, but also to those persons who contract with others to have that work done.

A Sheppard Mullin Client recently faced the question of whether apparel design work qualifies as "garment manufacturing" for purposes of this registration requirement. In March 2011, the California Division of Labor Standards Enforcement ("DLSE") made an unannounced site visit and fined the Client $75,000 for failing to register as a garment manufacturer. The Client does have California employees that design apparel. However, the Client does not have any California employees who engage in any "sewing, cutting, making, processing, repairing, finishing, assembling" any apparel or accessories that were designed or intended to be worn by any individual .... for sale or resale." The actual garment manufacturing is done by contractors outside of California, primarily in Asia. The Client also does not contract or subcontract with any California company for garment manufacturing. The only physical or "garment preparation" work the Client does in California is a limited amount of embroidery on apparel that is given away for promotional reasons. None of that work is done for either sale or resale.

Sheppard Mullin appealed the citation and went to hearing before the DLSE. Following the hearing, the DLSE dismissed the citation. The DLSE Hearing Officer concluded that on these facts, design work is not garment manufacturing --- and therefore, the Client was not required to register.

If the Client had done its embroidery work in California for sale or resale, the result would have presumably been different. The result would obviously have also been different if the Client had used other companies which themselves have California garment workers. Finally, It should be noted that it is possible that the DLSE could come to a different conclusion in other cases. But for those California companies that employ only apparel designers and not garment workers, this is a welcome development --- and means one less bureacratic obstacle to hurdle.

YSL has Louboutin Seeing Red

Sheppard Mullin — Thu, 05 May 2011 13:14:32 -0500

Elvis Costello's 1977 hit song "The Angels Want to Wear My Red Shoes" might be an appropriate theme song for the high profile fashion trademark case that was brought in the United States District Court for the Southern District of New York earlier last month by the designer Christian Louboutin, Christian Louboutin S.A. and Christian Louboutin LLC ("Christian Louboutin") against Yves Saint Laurent America, Inc., Yves Saint Laurent America Holding, Inc., Yves Saint Laurent S.A.S. and Yves Saint Laurent ("YSL). Plaintiff Louboutin and his related corporate entities allege that YSL and its affiliated companies violated Louboutin's red sole trademark by selling women's shoes with red uppers and outsoles virtually identical to Louboutin's red sole trademark. Plaintiffs further allege that: "YSL shoe models Tribute, Tribtoo, Palais, and Woodstock all appear now to carry the copy of Plaintiffs' Red Sole Mark." The YSL shoes at issue were part of a YSL collection featuring colored soles and uppers in red, green and blue color ways. Plaintiffs seek injunctive relief to prevent YSL from any further sales of red-soled shoes, profits allegedly earned through sales of the accused infringing shoes, actual damages, statutory damages, interest, and costs and reasonable attorneys' fees.

Christian Louboutin alleges in the complaint that Mr. Louboutin "introduced the world's first lacquered red footwear outsole" and was the first designer to have used red shoe soles as a trademark for women's shoes when he painted red nail polish on the soles of black shoes sold by Christian Louboutin in 1992. Christian Louboutin shoes have been sold in the U.S. since 1992 at high end department stores, stand alone specialty boutiques, and luxury online retailers. The complaint also alleges that extensive celebrity and media coverage, fashion editorials, and features in music videos and major motion pictures have led to increased popularity of the brand and generated extensive goodwill for Christian Louboutin's red sole trademark. Christian Louboutin applied for a federal trademark registration in 2007 and the mark was first published on the Principal Register on January 1, 2008. The complaint alleges that "the Red Sole Mark had acquired distinctiveness based on its many years of continuous use in commerce, the considerable media attention featuring the Red Sole Mark, consumer association of the Red Sole Mark with Louboutin Footwear, and the considerable sales of Louboutin Footwear bearing the Red Sole Mark."

Count One in the complaint for federal trademark infringement and counterfeiting pursuant to 15 U.S.C. § 1114(a) alleges that YSL is taking unfair advantage of the goodwill and brand recognition encompassed by the Christian Louboutin registered red sole mark. Plaintiffs also allege that YSL's red soles are likely to cause consumer confusion and deception as to the origin of the YSL shoes. Count Two alleges a claim for false designation of origin and unfair competition under the Lanham Act (15 U.S.C. § 1125(a)) and reiterated that YSL has caused a likelihood of confusion as to the origin and sponsorship of the accused infringing footwear. Count Three for federal trademark dilution (15 U.S.C. §1125(c)), alleges that the Christian Louboutin red sole mark is famous and that YSL is diluting the distinctiveness of the red sole mark by selling its all red shoes with red uppers and soles.

Count Four alleges trademark infringement under New York common law and that the continued sale of YSL shoes bearing red soles is intentional and willful. Count Five alleges trademark dilution under New York law (N.Y. Gen. Bus. Law §360(1)) and that: "Defendants knew and intended their acts to dilute the Red Sole Mark and to injure Plaintiffs' business and reputation." Count Six asserts a claim of unfair competition in violation of New York common law. Count Seven alleges unlawful deceptive acts and practices under New York General Business Law §349.

One major issue in this case will be whether the sale of YSL shoes featuring red uppers and soles in a YSL collection featuring all red, all blue and all green uppers and soles is likely to cause confusion with consumers so as to constitute an infringement of the Christian Louboutin red sole trademark. Central to this question is the strength and recognition accorded to both the Christian Louboutin and YSL trademarks, the level of sophistication of pertinent consumers and exclusive channels of trade in the world of high fashion footwear. As Mr. Louboutin conceded in his declaration made in support of the red sole trademark registration: "[M]y customers are sophisticated, deliberately seeking out my red-soled shoes because of the cachet and instant recognition they bring to the wearer. Because of the high value of my shoes, consumers take care over their purchase. Buying a pair of shoes that generally costs in excess of $1,000 not be an impulse purchase." The litigation of the issue of likelihood of confusion between these two famous designers should be interesting, especially where high fashion designer footwear is far from an impulse purchase and the two brands at issue are well-established in the marketplace. Indeed, the YSL Tribute sandal or the 105mm stiletto heel of a Tribtoo may be just as distinguished as a red-soled Louboutin. The question of post-sale confusion -- that is whether consumers viewing the YSL footwear as worn by a consumer in the marketplace will be confused about the source of the shoe -- may be a significant point of dispute in this case.

Oops They Did It Again! Lead Testing Requirements Under Consumer Product Safety Improvement Act Stayed Until The End Of 2011

Sheppard Mullin — Thu, 05 May 2011 13:12:11 -0500

The Consumer Product Safety Commission (“CPSC”) recently issued a notice announcing a revision to the terms of the stay of enforcement of the stringent certification and testing requirements under section 14 of the Consumer Product Safety Improvement Act (“CPSIA”). With regard to testing and certification of the total lead content in children’s products, except for metal components of children’s metal jewelry, the stay of enforcement is extended until December 31, 2011. The extension of the stay also applies to certain parts of youth all-terrain vehicles, youth off-road motorcycles, youth snowmobiles, bicycles, jogger strollers, and bicycle trailers.

The extension of the stay of enforcement for the above-listed products does not affect the stay of enforcement for testing and certifying children’s products for compliance with phthalate levels, and testing of children’s toys for compliance with the mandatory toy safety standard, as described in the December 28, 2009 notice. Thus, that stay of enforcement will remain in effect until notices of requirements of laboratory accreditation are published in the Federal Register. At that time, the responsible parties will have 90 days from that date to achieve compliance with the testing and certification requirements.

As before, while enforcement of the testing and certification requirements is currently stayed, all products must still comply with applicable limits governing lead and phthalate content. Details on the particular strictures of the CPSIA can be found here.

Tweet Me! - The Southern District of New York Answers Copyright Questions Raised By Twitter and Twitpic Use

Sheppard Mullin — Fri, 15 Apr 2011 14:49:20 -0500

Social media has become a part of everyday life. As Shakespeare has written: "This news is not old enough, yet it is every day news." The minutiae of every moment is narrated through status updates. Digital photographs are taken and instantaneously posted minute-by-minute on the Internet for the world to see. This lightning fast use of social media raises new and different intellectual property challenges which have not been previously addressed by courts. On January 14, 2011, the Southern District of New York addressed a particularly interesting copyright question raised by the use of Twitpic – a service that allows users to post pictures to the Twitter microblogging and social networking website. Agence France Presse v. Morel, 2011 WL 147718 (S.D.N.Y. Jan. 14, 2011).

On January 12, 2010, Morel, a photographer who has worked in Haiti for over twenty-five years, took photographs in Port au Prince of the earthquake hit and its immediate aftermath. Although communication throughout Haiti was disrupted, Morel was able to access the internet, upload his photos on Twitpic, post on Twitter that he had “exclusive earthquake photos”, and link his Twitter page with his Twitpic page. Morel, 2011 WL 147718 at *1. Moments after posting Morel's photographs went viral. Lisandro Suero copied the photographs, posted them on his Twitpic page and tweeted that he had “exclusive photographs of the catastrophe for credit and copyright.” Id. at *2. Later that day, a photo editor from Agence France Presse, a French news agency that offers an international photo service to media worldwide, downloaded thirteen of Morel’s photographs from Suero’s Twitpic page, placed the photographs on Image Forum, attributed them to Suero and transmitted them to Getty Images, an image licensing company. After fencing through cease and desist letters, the dispute was brought before a federal court. In December 2010, Agence France Presse brought a declaratory judgment action, alleging that it did not infringe Morel’s copyrights in his photographs based upon an express license. Morel counterclaimed, alleging, among other things, violations of the Copyright Act.[1] Agence FrancePresse moved to dismiss Morel's counterclaims. Agence France Presse's motion was denied with respect to Morel's copyright infringement claims.

In arguing against copyright infringement, Agence France Presse stated that it had an express license to use Morel’s images based upon the Twitter and Twitpic Terms of Service. In arguing for dismissal of the copyright infringement claims, Agence France Presse alleged that it had an express license to use Morel's images. District Judge William H. Pauley acknowledged that the existence of a license is a valid defense to a copyright infringement claim. After all, “it is a hallmark principal of copyright law that licensors may not sue their licensees for copyright infringement.” Morel, 2011 WL 147718 at *5 (quoting Jasper v. Sony Music Entertainment, Inc., 378 F.Supp.2d 334, 339 (S.D.N.Y. 2005). However, Judge Pauley ultimately concluded that Agence France Presse did not posses a valid license to use Morel’s photographs. Judge Pauley observed that the Terms of Service for Twitter and Twitpic "[b]y their express language . . . grant a license to use content only to Twitter and its partners. Similarly, Twitpic’s terms grant a license to use photographs only to Twitpic.com or affiliated sites.” Morel, 2011 WL 147718 at *6 (Emphasis added). Because Agence France Presse did not claim that it was a partner of Twitter or an affiliate of Twitpic, Judge Pauley held that it had not met its burden to establish that it had a license to use Morel’s photographs.

Agence France Presse alternatively argued that it was a third party beneficiary of the license agreement between Morel and Twitter and Twitpic. Judge Pauley noted that, to qualify as a beneficiary, the contracting parties must have intended to benefit that individual, an intent which must appear in the terms of the agreement. Morel, 2011 WL 147718 at *6. Agence France Presse argued that Twitter’s Terms of Service encouraged and permitted broad re-use of content by third parties and that this demonstrated an intent to confer a license upon third parties. Judge Pauley reasoned that such language, while encouraging and promoting re-use of content, did not necessarily demonstrate such an intention. He held: “That language is ambiguous and insufficient to establish on the pleadings that Morel ‘understood that the promisee [Twitter] had [the] intent’ to confer a license on other users.” Id. As a result, Judge Pauley found that Agence France Presse failed to establish that it was an intended third party beneficiary.

Although this is a district court ruling on a motion to dismiss and not a final decision on the merits, Agence France Presse v. Morel is instructive in that it underscores the importance of paying careful attention to the provisions of the Terms of Service when analyzing the rights and risks associated with the use of User Generated Content in the context of social media. As world communications become more and more viral, courts will be asked with increasing frequency to determine which uses of content infringe the laws of copyright and trademark and which do not. Prudent and careful users will review the applicable Terms of Service Agreements on sites like Twitter, MySpace and Facebook and scrutinize how these agreements impact intellectual property rights when those users share content with the world.

[1] Morel also counterclaimed for violations of the Digital Millennium Copyright Act ("DMCA") and violations of the Lanham Act. The motion to dismiss was denied with respect to the DMCA allegations, but granted with respect to Lanham Act violations. This holding is noteworthy in that it echoes Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 32 (2003), in finding that an author may not use the Lanham Act to protect originality and creativity. In Dastar, the Supreme Court found that Section 43(a) of the Lanham Act, which governs trademarks cannot be invoked as an end run around the copyright laws or to add another layer of protection for copyright holders. Morel, 2011 WL 147718 at *10. Consequently, Judge Pauley held that Dastar and its progeny foreclosed Morel's Lanham Act counterclaims for false representation and false advertising. These claims were consequently dismissed.