Law of luxury goods & fashion blog

Law of luxury goods & fashion blog

London fashion law firm Crefovi is delighted to bring you this law of luxury goods & fashion blog, in order to provide you with forward-thinking and insightful information on the business and legal issues for the fashion and luxury sectors.

This law of luxury goods & fashion blog provides regular news and updates, and features summaries of recent news reports, on legal issues facing the global fashion and luxury community, in particular in the United Kingdom and France. This law of luxury goods & fashion blog also provides timely updates and commentary on legal issues in the retail and consumer goods sectors. It is curated by the fashion lawyers of our law firm, who specialise in advising our fashion, luxury & retail clients in London, Paris and internationally on all their legal issues.

Crefovi has been practising the law of luxury goods & fashion law since 2003, in London, Paris and internationally. Crefovi advises a wide range of clients, from young fashion entrepreneurs in search of financing and legal advice to manager their contractual and intellectual property issues, to mature luxury houses in need of legal advice to negotiate and finalise licensing or distribution agreements and/or to enforce their intellectual property rights. Crefovi writes and curates this law of luxury goods & fashion blog to guide its clients through the complexities of fashion law.

Annabelle Gauberti, founding and managing partner of Crefovi, is one of the founders of the ‟fashion law” practice area, in Europe. She regularly lectures on the law of luxury goods & fashion at the Institut de la Recherche sur la Propriété Intellectuelle (IRPI), as well as to the Master and MBA students enrolled in HEC Luxury Certificate and to the students of the top master Luxury, Innovation & Design of the University Marnes la Vallée. These courses and lectures are an important testimony to the recognition of the legal discipline that is the law of luxury goods & fashion.

Moreover, Crefovi has industry teams, built by experienced lawyers with a wide range of practice and geographic backgrounds. These industry teams apply their extensive industry expertise to best serve clients’ business needs. One of the industry teams is the Consumer products & retail department, which curates this law of luxury goods & fashion law blog below for you.

Annabelle Gauberti, founding and managing partner of London fashion and luxury law firm Crefovi, is also the president of the International association of lawyers for creative industries (ialci). This association is instrumental in providing very high quality seminars, webinars & brainstorming sessions on legal & business issues to which the creative industries are confronted.

Crefovi regularly updates its social media channels, such as Linkedin, Twitter, Instagram, YouTube and Facebook. Check our latest news there!

Exhaustion of rights: how to capitalise on UK’s intellectual property rights and parallel imports, post-Brexit

Crefovi : 06/04/2022 12:43 pm : Antitrust & competition, Articles, Consumer goods & retail, Copyright litigation, Entertainment & media, Fashion law, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, Life sciences, Music law, Trademark litigation, Webcasts & Podcasts

While the London Book Fair is back in full swing at Olympia in London, which is a pleasant sight since the fair was cancelled in 2020 and only held online in 2021, I was reminded, yesterday, of the seminar I attended, on 10 March 2022, on ‟exhaustion of rights and downstream uses”, organised by the British Literary and Artistic Copyright Association (‟BLACA”). The presentations made by the speakers during this seminar, and in particular by Catriona Stevenson, general counsel of the book publishing trade body Publishers Association, gave me cause for concern. While I could not pinpoint exactly why their arguments on the best United Kingdom (‟UK”)’s future regime on exhaustion of intellectual property rights (‟IPRs”) were troubling me, I decided to zero in and focus on analysing this topic, in the article below.

1. What is exhaustion of rights?

IPRs (i.e. patents, trademarks, designs and copyright) exist to incentivise innovation and creation of new technology, products or creative works. However, these IPRs need to be balanced against enabling competitive markets, consumer choice and fair access to IPRs-protected goods for the benefit of society.

Enters the concept of exhaustion of IPRs, also sometimes referred to as the ‟first sale doctrine” (‟Exhaustion of rights”).

It is one of the mechanisms to strike this balance, between incentivising creativity and innovation, and enabling more competition, consumers’ choice and access to goods. While owners of IPRs can control distribution of their creation in terms of the first sale of their product, the principle of exhaustion of rights puts some limits on how far that control extends.

So the principle of exhaustion of rights essentially provides that, once goods have been placed on the market by a rights holder or with their consent, this rights holder cannot then assert their IPRs to prevent the onward sale of those goods into the territory. For example, once you have bought a book, the owner of the copyright in that book cannot then stop you from selling this book to another person, in the same territory.

Exhaustion of rights underpins parallel trade. Parallel trade is the cross-border movement of genuine (i.e. not counterfeited) physical goods that have already been put on the market. This is the import and export of IPRs-protected goods that have already been first sold in a specific market. As a result to exhaustion of rights, where the IPRs relating to goods have been exhausted, there will be an opportunity for others to engage in the parallel trade of those goods. For example, a distributor moves a good that had been sold in Germany, to import that good into the UK.

Prior to Brexit, when the UK was one of the 28 member-states of the European Union (‟EU”), the regime of exhaustion of rights applying in the UK had been organised by Brussels’ technocrats, via the European commission’s and European parliament’s legislative processes.

But post-Brexit, the UK is a free agent (allegedly), empowered to decide its own fate, and stance, on its future exhaustion regime and rules relating to the parallel trade of goods into the UK.

2. What was the deal, pre-Brexit, on exhaustion of rights?

Pre-Brexit, the UK was part of the EU, which operates a EU-wide regional exhaustion of rights regime, in compliance with the EU principle of free movement of goods.

Indeed, once goods have been put on the market, anywhere in the EU single market, these goods can flow freely in the then 28 (now 27) member-states of the EU, as well as in the European Economic Area (‟EEA”) (which, in addition to all EU member-states, is constituted by Iceland, Liechtenstein and Norway). Right holders cannot assert their IPRs to prevent this free movement of goods anywhere in the EEA. So, for example, a German right holder could not complain that his or her goods were being imported in the UK, pre-Brexit.

All this means that IPRs in goods first placed on the market anywhere in the EEA, by or with the right owners’ consent, would be considered exhausted in the rest of the EEA. As a result, goods could be both parallel imported in the UK from the EEA, and parallel exported out of the UK to the EEA. 

However, IPRs can be asserted to prevent goods from outside of the EEA entering the European market, without the rights holder’s consent. This is because, for non-EEA goods, the IPRs are not considered ‟exhausted” when the goods are first put on the EEA market. Therefore, goods can move around within the EEA market, but not in respect of those goods put on the market by rights holders in non-EEA markets. So, for example, a US right holder could, and still can, complain that his or her goods were being imported in the UK, from Italy, without his or her consent.

On 31 December 2020, the UK left the EU, via its Brexit, therefore also leaving the EU’s regional exhaustion of rights regime. Or did they?

3. What is the current deal, post-Brexit, on exhaustion of rights?

On 31 December 2020, the UK ceased to be part of the EEA and therefore, since then, IPRs relating to goods put on the UK market are not considered ‟exhausted” from the perspective of EEA countries.

Consequently, right holders can prevent the flow of goods they put on the UK market, into any EEA country.

However, the UK and the EU decided to maintain, for now, the ‟status quo”. This means that, although the UK is no longer part of the EEA, the rights in goods put on the EEA market are considered exhausted in the UK. So, if a product protected by an IPR in the EEA is sold with the permission of the IPR owner anywhere in the UK or EEA, then the exclusive right of the IPR owner to control sale or commercial use of the product can no longer be asserted. For example, rights holders cannot prevent the flow of goods they put on the EEA market, into the UK. Additionally, UK rights holders cannot prevent the flow of goods from the EEA, into the UK.

Although parallel imports from the EEA to the UK remain freely importable (with the UK unilaterally participating in the EEA regional exhaustion regime for now), the same is not true of parallel imports from the UK into the EEA. IPRs in goods first placed on the market in the UK are not considered exhausted in the EEA. Consequently, right owners can stop the parallel export of these goods into the EEA, and UK businesses exporting IPRs-protected goods to the EEA need to ensure that they have requisite permission. 

This is called the ‟UK+” EEA-wide exhaustion of rights regime.

As far as goods from outside the EEA are concerned, the case law of the Court of Justice of the European Union (‟CJEU”) which determined that, save for patents, international exhaustion of rights cannot apply in respect of goods put on the market outside of the EEA, still applies in the UK as retained EU law. Although the court of appeal in England & Wales and the UK supreme court may decide to diverge from such CJEU case law, it is likely that, in respect of goods put on the UK market both outside the EEA and within, the position on exhaustion of rights in the UK will remain as it is until the UK government directs a change of approach.

4. How may exhaustion of rights change, in the UK, post-Brexit?

Such moment for a new approach to exhaustion of rights is looming on the horizon.

The current UK+ exhaustion of rights regime may be a temporary solution until, following a consultation, a more permanent regime may be fixed by the UK government.

Therefore, further to a feasibility study commissioned to EY, the UK intellectual property office (‟UKIPO”) – the official UK government body responsible for IPRs – launched a consultation, which concluded on 31 August 2021, asking respondents whether the UK should keep the current exhaustion of rights regime on genuine (i.e. legitimate, not counterfeited) goods and materials (i.e. not services or digital goods), or change it (the ‟Consultation”).

In the Consultation, four possible options were under consideration, as follows:

  • option one: UK+ to maintain the status quo. This would be a continuation of the current unilateral application of an EEA-wide regional exhaustion regime, in the UK;
  • option two: national exhaustion. This national exhaustion regime would imply that only goods put on the market in the UK can flow around the UK. Goods put on the market in any other country, European or otherwise, could be stopped from entering the UK market by relying upon UK IPRs;
  • option three: international exhaustion. In an international exhaustion regime, goods put on the market in any country, anywhere in the world, could be automatically parallel imported in the UK, and IPRs could not be asserted to prevent the first sale of that product in the UK; or
  • option four: mixed regime. Under a mixed regime, certain IPRs, or certain types of goods, may have a different exhaustion regime applied to them. Switzerland, for example, which is neither part of the EU nor of the EEA, but is part of the European single market via bilateral agreements, has a mixed regime. Switzerland has adopted a unilateral EEA-wide regional exhaustion regime, with the exception of fixed price goods, primarily medicines, for which national exhaustion applies.

While the UKIPO sought views on the four above-mentioned regimes, in the Consultation, it also made it clear that it considered a national regime incompatible with the Northern Ireland protocol and, as such, ruled out adopting that option.

Hang on, what? The Northern Ireland protocol?

As with the rest of the UK, Northern Ireland adopted the same UK+ EEA-wide regional exhaustion of rights regime, from 31 December 2020 onwards. Goods can therefore flow freely from the EU member-state Ireland, or from anywhere else in the EEA for that matter, into Northern Ireland without IPRs holders being able to enforce their rights. This is one of the principles of the Northern Ireland protocol, along with the provision that certain EU legislation must be adopted in Northern Ireland to enable goods to flow around the geographical territory that is the island of Ireland; both in and out of Northern Ireland. However, as part of the EEA, the EU member-state Ireland cannot adopt a different exhaustion of rights regime to the other EEA territories. Therefore, notwithstanding the Northern Ireland protocol, rights holders in Ireland can still enforce their IPRs to stop their goods from being put on the market in Northern Ireland, flowing in the EU member-state Ireland.

So, what was the outcome of the Consultation which, despite mentioning the national exhaustion regime, as one of the four options, ruled out from the outset that such national exhaustion regime could ever be implemented in the UK, going forward?

Inconclusive, to say the least.

There were only 150 respondents to the Consultation, the majority of which came from the life sciences sector and creative industries.

As set out on the summary of responses to the Consultation:

  • most respondents stated that there was parallel trade of goods (materials and products) in their respective sector;
  • however, responses on the impact of parallel imports from the EEA on organisations, varied between those respondents whose livelihoods were dependent on commercialising parallel traded goods, and those who represent, or are, rights holders:
    • those respondents dependents on commercialising parallel traded goods, such as pharmaceutical distributors, commented that parallel imports from the EEA benefitted their organisation by contributing to (a) a greater choice of suppliers to source goods from that could in turn be made available to customers at different price points, (b) the availability, flexibility, and security of supply of goods to support market demand and alleviate supply shortages, (c) a competitive market especially intra-brand competition amongst suppliers of the same branded product (or substitutable products) encouraging price convergence;
    • those respondents representing, or being, rights holders, such as brand owners, replied that parallel imports (a) did not increase choice by providing a greater number of different goods because parallel imports tended to be products already available or approved in the UK, especially licenced branded goods such as branded toys and branded medicines, (b) weakened supply chain resilience due to fluctuations in supply and costs, making demand forecasting particularly difficult for brand owners, and (c) did not always drive competition for the benefit of the consumer but mainly benefitted distributors (through arbitrage opportunities) and resellers (incentivised to purchase lower priced parallel imports, rather than domestically sourced products to achieve higher profit margins).

The most favoured option by respondents was a continuation of the current UK+ regime, because of the difficulties with the national regime and the Northern Ireland protocol. So, if Northern Ireland was out of the picture, most respondents favoured the national exhaustion regime. But because the Northern Ireland protocol is a reality we all have to live with, they favoured the current UK+ EEA-wide regional exhaustion regime.

This is exactly what the two illustrious speakers at the BLACA seminar, Catriona Stevenson, general counsel of the trade body for the UK publishing industry Publishers Association, and David Harmsworth, general counsel of UK music neighbouring rights collecting society PPL, concluded, on 10 March 2022: let’s stick with the UK+ exhaustion regime because it is the least-damaging necessary evil.

More than 50 percent of the respondents to the Consultation opposed an international regime, citing concerns about stifling innovation, the environmental impact, domestic revenue losses, goods of inferior quality or different standards hitting the UK market and the distortion of retail competition in favour of multinationals. Brand owners, manufacturers and those in the creative industries were most opposed to the international exhaustion regime.

More than 20 percent of respondents expressed opposition to a national exhaustion regime, with their primary concerns being isolating the UK market and prices being driven up. Distributors and those who depend upon the supply of goods from Europe – in particular, UK pharmaceutical stakeholders and the National Health Service (‟NHS”) – were most opposed to the national exhaustion regime.

A mixed regime, such as the one in place in Switzerland, was not favoured by respondents to the Consultation.

Further to the Consultation, and the publication of a summary of responses received, the UKIPO decided to do … nothing, merely setting out that it is ‟analysing your feedback” on its website.

Whilst an option on exhaustion of rights, which would reconcile the views of those whose livelihoods depend on commercialising parallel traded goods, and right holders, is nonexistent, the UKIPO invoked the lack of data available to understand the economic impact of any of the alternatives to the current UK+ regime, in order to shelve the Consultation for now.

Consequently, the UK will continue with the current regional UK+ regime for the time being, since ‟further development of the policy framework must take place before the issue is reconsidered” (sic).

5. Why something’s gotta give, in order for the UK to keep its rank as a trade-friendly, competitive and exports-focused nation

The UK government’s decision to stay with the current UK+ EEA-wide exhaustion regime continues the strange asymmetry for IPRs holders in which a first sale in the EEA exhausts their rights in the UK, while a first sale in the UK does not exhaust their IPRs in the EEA.

This may provide continued opportunities for IPRs holders in the EEA to assert those IPRs against parallel importers from the UK. So, anyone engaging in parallel importation of goods from the UK to the EEA must carefully considers whether those goods are protected by unexhausted IPRs in the EEA.

More concerning is that Brexit has left the UK with all the disadvantages of being tied to EU laws, but none of the advantages, as far as parallel imports, parallel exports and exhaustion of rights are concerned. EEA-based companies can easily export their goods to the UK, but UK businesses cannot reciprocate. Why is the UK accepting such unilateral deal? Because it is heavily dependant on exports coming from Europe, being a nation which manufacturing sector is weak. Moreover, a lot of UK businesses, and UK consumers, are reliant on the EEA for the supply of goods and raw materials. 

So, as I predicted in 2016, many UK businesses either moved to the EEA or opened a manufacturing plan or facility in the EEA. 

As a consumer, can you imagine living in London and only having access to UK-produced and manufactured goods, if a national exhaustion of rights regime was ever implemented in the UK? Not only would retail prices for non-UK manufactured products go through the roof, but basic necessities goods would be in scarce supply. The UK could kiss goodbye to all its rich London-based expatriates, unwilling to return to a 1970s’ style shortage-stricken era

Moreover, UK’s borders controls are structurally weak and mismanaged, at best, and have been so for years. Indeed, the UK was recently sentenced by the CJEU to a potentially very heavy fine, after being found negligent in allowing criminal gangs to flood European markets with cheap Chinese-made clothes and shoes, while not collecting the correct amount of custom duties and VAT on these imported Chinese goods, from 2011 to 2017. In this context, how do, exactly, proponents of the national exhaustion of rights regime in the UK, such as the Publishers Association and PPL, intend to implement rigorous controls over IPRs-protected goods entering the UK, at UK borders, especially in respect of copyright which are not registered in any IPRs’ database? 

As far as goods from outside the EEA are concerned, IPRs owners have probably decided to forego the UK market as the place of first sale altogether, focusing their European sales on the EEA territory, which is a much more attractive proposition in terms of potential number of sales and diversity of customer-base. Then, these goods might enter the UK market via parallel imports, from the EEA, later on. But such convoluted distribution strategy has a cost, since all goods imported in the UK from the EEA are now subjected to trade tariffs and custom charges, as well as import duties. 

No wonder every consumer is feeling particularly affected by the ‟supply chain crisis” and ‟inflation”, in the UK.

Also, the resistance, from UK book publishers in particular, to let go of the distribution system territory-by-territory, on the pretense that ‟territorial rights systems support diversity and competition in the publishing sector” and that ‟carving rights allows smaller publishers to compete and acquire sets of rights, in a way that might not be possible if global rights packages became the norm”, is just plain nationalistic and backward-looking protectionism. Compared to other creative industries, such as the music streaming sector, the book publishing business is a dinosaur, refusing to evolve towards digital products such as e-books and digital comics, and towards global rights packages which would no doubt improve worldwide distribution of books at reasonable prices, in particular in emerging countries.

Already, the film industry – which used to be very monolithic itself – is finally forced to evolve towards global rights packages and more digital streaming, with COVID decimating the audience of local cinemas, and with the likes of Netflix and Amazon Prime only agreeing to ‟digital licenses”, where they acquire all worldwide rights in perpetuity to a motion picture prior to production, for a fixed ‟buyout” payment with no additional net profits, royalties or other accountings, before billing it as a ‟Netflix Original” or ‟Amazon Prime Video Original”.

The UK, and in particular its government, needs to master the ability to keep on looking inward, while, at the same time, adopting a much more realistic and pragmatic view and assessment of its own trade bargaining power, as well as strengths and weaknesses, vis-à-vis its main trading partners, worldwide. In particular, the UK government must push UK businesses towards leaner, more digitised and better streamlined worldwide distribution rights of their products and services, in order to keep their competitive edge. It is only at this cost of uncompromising realism and self-awareness, that the UK will keep a seat at the table of the most trade-friendly, competitive and exports-focused nations in the world.

https://youtu.be/zOZvzFJ53NU
Crefovi’s live webinar: Exhaustion of rights – how can the UK coin the best trade deal? – 12 April 2022

 

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    Actor agreements: how power is shifting back to movies studios and streaming platforms

    Crefovi : 13/03/2022 2:59 pm : Articles, Copyright litigation, Employment, compensation & benefits, Entertainment & media, Fashion lawyers, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Litigation & dispute resolution, Webcasts & Podcasts

    The movie industry’s balance of power is strongly impacting actor agreements and how actors and actresses are treated by movie studios, film production companies and streaming platforms. While the current pendulum is shifting back to movie studios, streamers and film producers, actors still have many cards to play, in the new streaming era, to get the best deals.

    1. The star system: how stars were ‟owned” by film studios, from the creation of the movie business at the beginning of the 20th century, up to the mid 1940s

    The film industry was invented at the end of the 19th century, when the Lumière brothers organised the first ever commercial and public screening, of their short films in Paris, on 28 December 1895.

    Then, the movie business blossomed in a more mature industry in the 1900s, with the 1920s being the golden years of German cinema and seeing Hollywood overtake, and triumph over, European film industries (French and Italian, in particular), which had been devastatingly interrupted by the first world war.

    The American industry, or ‟Hollywood” as it was becoming known after its new geographical center in California, then gained the position it has held, ever since: that of the film factory for the world and major exporter of its movie products to most countries on earth.

    Therefore, the Hollywood microcosm, based on its two pillars – the studio system and star system respectively – became the world’s epicenter of the movie industry, from the 1920s onwards.

    The studio system, a method of filmmaking wherein the production and distribution of films is dominated by a small number of large movie studios (i.e. the ‟majors”, divided between the ‟Big 5” RKO Radio Pictures, 20th Century Fox, Paramount Pictures, Warner Bros. and Metro-Goldwyn-Mayer; and the ‟Little 3” Universal Pictures, Columbia Pictures and United Artists), was based on the premise that most creative personnel, and in particular actors and actresses, were under long-term contract to their respective studios.

    While in the early years of cinema (1890s to 1900s), performers were not identified in films, the star system (a method of creating, promoting and exploiting movie stars in Hollywood films) was majorly used from the 1920s until the early 1960s, by the above-mentioned studios. However, from the mid-1940s onwards, the star system started showing some serious cracks, which aggressive and forward-thinking talent quickly infiltrated to regain control over their careers and, ultimately, their lives. More on that later.

    In the star system, movie studios would select promising young actors and actresses, glamorise and create personas for them, often inventing new names and even new backgrounds. Under orders from a studio, stars sometimes even altered their facial appearance and hair color. Examples of stars who went through the star system include Cary Grant (born Archibald Leach), Joan Crawford (born Lucille Fay LeSueur) and Rock Hudson (born Roy Harold Scherer).

    Under the star system, actors were literally ‟owned” by the majors, as properties locked into employment contracts with a standard term of seven years, through which they owned a weekly wage, like any other employee of the movie studios. They were asked to work six days a week, for long hours. Their contracts required the actors to participate in every movie, and all publicity, the studio desired.

    Morality clauses were integral to actors’ studio contracts. They curtailed, restrained or prohibited certain behaviours of, and from, the talent. This was justified not only by the fact that the star system put an emphasis on the image rather than the acting skills of its talent, but also by the studios’ reaction to the Roscoe ‟Fatty” Arbuckle criminal case in 1921. One of Hollywood’s most popular silent stars and highest-paid actors of the 1910s, Arbuckle suffered a serious setback when his reputation was irrevocably tarnished by becoming the defendant in three widely publicised trials, between November 1921 and April 1922, for the alleged rape and manslaughter of actress Virginia Rappe. Subsequent to media outcry, Universal Studios decided to add a morals clause to its contracts, which 1921 version read as follows: ‟The actor (actress) agrees to conduct himself (herself) with due regard to public conventions and morals and agrees that he (she) will not do or commit anything tending to degrade him (her) in society or bring him (her) into public hatred, contempt, scorn or ridicule, or tending to shock, insult or offend the community or outrage public morals or decency, or tending to the prejudice of the Universal Film Manufacturing Company or the motion picture industry. In the event that the actor (actress) violates any term or provision of this paragraph, then the Universal Film Manufacturing Company has the right to cancel and annul this contract by giving five (5) days’ notice to the actor (actress) of its intention to do so”.

    Constantly under pressure to ‟behave”, actors and actresses worked together with studio executives, public relations staffs and their agents, to create their star persona … and keep it at all costs, covering up incidents or lifestyles (in particular, homosexuality) that would damage their public image.

    From the 1930s to the 1960s, it was common practice for film studios to arrange the contractual exchange of talent (i.e. actors and directors) for prestige pictures. For example, film director Alfred Hitchcock, who had a difficult working relationship with the head of the film studio to which he was contractually bound via a seven year contract, David O. Selznick, was often lent to larger film studios.

    Things started to unravel when James Cagney, the top billing actor at Warner Bros., sued Jack Warner and his corporation for breach of contract. There had already been some early warning signs that things were heating up, between Cagney and Warner, with the former repeatedly asking for a higher salary for his successful films, at USD4,000 a week, on a par with Edward G. Robinson, Douglas Fairbanks Jr. and Kay Francis. Warner Bros ultimately refused to cave in and suspended Cagney. He then announced that he would do his next three pictures for free if Warner Bros. canceled the five years remaining on his contract. After six months of suspension, film director Frank Capra, acting as a mediator, negotiated a deal that increased Cagney’s salary to around USD3,000 a week, and guaranteed him top billing as well as no more than four films to shoot per year. Things eased off for a while and Cagney went on to make many more hits for Warner Bros. However, when Jack Warner forced Cagney into making five movies in 1934, and denied him top billing on the fifth title, ‟Ceiling zero”, Cagney’s third film with co-star Pat O’Brien, Cagney brought legal proceedings against Warner Bros. for breach of contract. Represented by his brother William Cagney in court, Cagney won. He had done what many thought unthinkable: taking on the studios and winning. Not only did he win, but Warner Bros., knowing that he was still their foremost box office draw, invited him back for a five-year, USD150,000-a-film deal, with no more than two pictures a year. Cagney also had full say over what films he did and did not make with Warner Bros.

    Cagney’s acts of rebellion did not fall on deaf ears, with Bette Davis slamming the door behind her, when Jack Warner asked her to act as a lumberjack in her next feature film. While Davis accepted a film studio competitor’s offer in 1936 to appear in two films in Britain, she was served with court papers in England, for breach of contract, by Warner’s lawyers. The Warner Brothers Pictures Inc v Nelson lawsuit that ensued took place in the English courts, with Davis (who was sued under her married name) invoking slavery, as a result of her 52 weeks’ contract allegedly only being fulfilled when she had – effectively – worked for exactly 52 weeks for Warner Bros. (as opposed to after 52 weeks’ from the starting date of such contract). Warner Bros.’s barrister astutely counterattacked by retorting that, if he received USD1,350 per week, like Davis allegedly did, during the term of her contract with Warner Bros., he, too, would like to be tied up in slavery. The English court found in favour of Warner Bros., deciding that this was a breach of contract on Davis’ part. After the case, Davis returned to Hollywood, in debt and without income, resumed working for Warner Bros. in what became one of the most successful periods of her career.

    A very different legal fate happened to Olivia de Havilland, when she, too, sued Jack Warner and Warner Bros. after walking out, refusing to have the time during which she was absent added onto the end of an already long contract. Indeed, in 1943, de Havilland’s seven-year contract ended, but Warner Bros. announced that she was not yet free to move on. The studio claimed that she owed them an additional six months for the time she was under suspension for refusing to perform in certain films. De Havilland argued, in her lawsuit, that the contract was for seven years, suspension or not, and that Warner Bros. was violating labour law. While de Havilland acknowledged that the suspension had taken place, she argued that under California state law, employment contracts were only enforceable for up to seven calendar years. She won the first trial, but Warner Bros. appealed. Yet, the studio lost its case in a decision considered to be such a landmark that it has been dubbed the ‟de Havilland law”, the California court saying that the actress’ contract was a form of ‟peonage”, or illegal servitude. In a big, splashy headline, Variety, noting the ruling, declared on 15 March 1944, ‟De Havilland Free Agent”.

    After that, the floodgates started to open, and the movie business had to change, letting actors and filmmakers strike out on their own and control their own destiny.

    2. The contemporary system: how actors regained power and took control of their professional destiny

    In the long term, the ‟de Havilland law” killed the star system, the publicity accompanying the Davis and de Havilland incidents fostering a growing suspicion among actors that a system more like being a free agent would be most personally beneficial to them, rather than the suffocating and hyper-controlling star system.

    Soon, power began shifting from the studios to the stars. In the 1950s, film studios began to employ actors on a project-by-project basis, often via the actors’ loan-out companies. Agents, such as Creative Artists Agency (‟CAA”) and William Morris Endeavor Entertainment (‟Endeavor”), as well as managers, supported stars to exploit their newfound power. Over the decades that followed, salaries and perks for the industry’s biggest stars skyrocketed.

    In 1959, Shirley MacLaine sued famed producer Hal Wallis over a contractual dispute, contributing further to the star system’s demise. By the 1960s, the star system was in decline.

    In 1966, MacLaine sued Twentieth Century Fox for breach of contract when the studio reneged on its agreement to star MacLaine in a film version of the Broadway musical ‟Bloomer Girl”, based on the life of Amelia Bloomer, a mid-nineteenth century feminist, suffragette and abolitionist, that was to be filmed in Hollywood. Instead, Fox gave MacLaine one week to accept their offer of the female dramatic lead in the Western ‟Big Country, Big Man‟, to be filmed in Australia. The Shirley MacLaine Parker v Twentieth Century-Fox Film Corp. case was decided in MacLaine’s favor, ans affirmed on appeal by the California supreme court in 1970. This case is often cited in law-school textbooks as a major example of employment-contract law.

    These female leads’ highly publicised and mostly successful litigation cases were instrumental in the push for more and more actors forming their own film production companies, or finding movie projects to champion, that suited their tastes and ambitions. Multi-hyphenates, such as Brad Pitt, Robert Redford, Reese Witherspoon, Clint Eastwood and Bradley Cooper, might not have enjoyed the same kinds of careers had Davis, de Havilland and MacLaine not weakened the control of the major studios.

    Indeed, studio heads signed ‟first-look” contracts with production companies founded by stars – Reese Witherspoon’s Pacific Standard, Brad Pitt’s Plan B Entertainment, and Will Smith’s Overbrook Entertainment, for example – giving them additional fees and access to office space on the studio lot, in exchange for the first option to produce or distribute the movies the stars pursued.

    By the mid-2000s, it had become increasingly clear that the tug-of-war between stars and studios was not supporting the profitability of movie studios. In her insightful book ‟Blockbusters: why big hits – and big risks – are the future of the entertainment business”, Anita Elberse cites her research, which suggests that whereas films that starred A-list actors typically had higher box-office revenues, the fees for those actors were so high that they wiped out the extra revenues the stars brought in – leaving studios with the same profits they would have made if they had relied on lesser-known creative talent. In other words, the stars themselves captured most of the surplus that resulted from their involvement. This is the ‟curse of the superstar”.

    The most flamboyant example of an actor successfully branching out into film producing, and taking back control over his career, is Tom Cruise. After his breakthrough role in 1986 with ‟Top Gun”, he went on to star in many more commercially and critically successful films such as 1988’s ‟Rain Man” and 1989’s ‟Born on the Fourth of July”. However, Cruise really upped the ante when he partnered with his then CAA talent agent Paula Wagner (who had signed him, and represented him for eleven years), and co-founded the independent film production company Cruise/Wagner Productions in July 1992. For the next thirteen years, Cruise was able to make the most of his newly-found creative freedom over his film projects, and to produce and direct motion pictures. The first three ‟Mission: Impossible” movies were released by C/W Productions (as it was abbreviated), as well as 2001’s ‟Vanilla Sky” and 2002’s ‟Minority Report”. In October 1992, C/W Productions signed an exclusive three-year multi-picture financing and distribution deal with Paramount Pictures. The deal was renewed and expanded several times over the next thirteen years. However, in August 2006, Sumner Redstone, chairman of Viacom (the parent company of Paramount Pictures) terminated that contractual relationship citing Cruise’s ill advised comments in the media about psychiatry, antidepressants, etc. and his fascination with Scientology. While this is a typical example of ‟what to do when celebrities get it all wrong”, Cruise got a lucky break, when Metro-Goldwyn-Mayer (‟MGM”) came knocking at his, and Wagner’s, door, in November 2006. Harry Sloan, chairman and CEO of MGM, signed an agreement with Cruise/Wagner, for them to run United Artists, a dormant studio that was part of MGM’s portfolio and had been founded in 1919 by Charlie Chaplin, Douglas Fairbanks, Mary Pickford and D. W. Griffith, four of the biggest stars in Hollywood at the time. Sloan’s proposed partnership was notable because Cruise/Wagner were given a relatively free hand in determining a direction for ‟the company built by the stars”, United Artists. For instance they could greenlight movie projects costing less than USD60 million without MGM’s approval, and for a term of at least five years they could develop up to six films a year. All films would be distributed and, at least initially, financed by MGM, for which the studio would receive a distribution fee of between seven and fifteen percent of revenues. In exchange, MGM granted the pair a one-third equity stake in United Artists without asking them to invest a penny of their own money. Most remarkably, Cruise was not obligated to appear in any United Artists’ movies himself, and he remained free to star in, and produce, movies at other studios. This experiment, which ultimately did not work out, was viewed by industry experts as an attempt to solve the fundamental problem of the above-mentioned ‟curse of the superstar” – the growing ability of powerful stars to undermine the profits of the studios and other businesses that employ them. Instead of up-front money, Sloan offered Cruise the freedom to pursue the kinds of projects that he and Wagner were most excited about, and the promise of a bigger payday in the future, through an ownership stake in the studio United Artists.

    3. How are actor agreements structured, in the contemporary film business?

    In some ways, actor agreements are the most difficult to negotiate as almost everything is negotiable.

    Assuming the film production is signatory to the Screen Actors Guild (‟SAG”), which is almost always the case, then the first question will be whether the actor is guaranteed USD65,000 or more in total compensation for acting services. If so, then the actor will fall under ‟Schedule F” of the SAG Basic Agreement and the film production company will be free to negotiate many employment provisions that would otherwise be set in stone by the guild (including overtime and meal breaks, scheduling, minimum daily or weekly compensation, etc.). For the rest of this section, we will refer to those above the USD65,000 threshold as ‟Schedule F actors”, and those below the threshold as ‟daily/weekly actors”.

    The two most important deal points when hiring Schedule F actors are the compensations and scheduling.

    • With respect to the scheduling, it is often overlooked. However, an actor is someone selling his or her time. Actors will not make a binding commitment to block out time for a film production (and therefore pass on other opportunities) unless they are guaranteed payment even if you end up not using them. They also cannot make an indefinite commitment to a film production. Unless the studio is paying a sizable sum in guaranteed compensation, the actor will expect some kind of guaranteed date after which he or she can accept new work without having to get the studio’s approval first. So, an important negotiation point in an actor’s deal, revolves around the total number of days or weeks that the film production will need the actor to actually render services (rehearsal and shooting days, etc.) and the window of time in which the film company needs the actor to be available to them (e.g. three consecutive weeks of services, commencing within two weeks before or after a specific date, within which the services will be rendered). As production schedules change frequently, especially on independent productions and/or if the director is relatively inexperienced, the film production or movie studio needs to negotiate for some additional ‟free” days that can be used consecutively with principal photography, as well as some ‟free” days non-consecutive to principal photography where the film production company can bring the actor back for post-production work (e.g. dialogue replacement, dubbing). The actor’s representatives will probably require that, after the scheduled days and free days are exhausted, the actor be entitled to ‟overage” compensation at the same rate as the fixed compensation represents in relation to the originally scheduled period of services. In other words, if an actor was paid USD100,000 for ten days of scheduled work, and they agreed to two free days, but the production required five days beyond the originally scheduled ten, then the actor would be entitled to USD30,000 in overages. With respect to the window of time in which the film company needs the actor to be available, to render services to the production (which is sometimes referred to as the actor being in ‟first position” to the production), some negotiations also take place. Because an actor is selling time slots, he or she is not going to want to give the film production a large cushion in which to get its work done. Instead, he or she will try to collapse the window to what the schedule currently allows, so that he or she remains available for other projects outside of this narrowed window. Even if the film production is not able to negotiate for many ‟free” days, the production should still be able to require the actor to continue rendering services through the completion of principal photography of the picture – the overages may be expensive, but at least the film production will not lose the actor entirely. Agreeing to any kind of stop date for the actor (i.e. the production guarantees the actor will be released by a certain date, or agrees the production will be in ‟second position” to another production starting on a certain date) is problematic and should not be agreed unless approved by the line producer, the film production company, the cast insurance provider and the completion guarantor (if any).

    • Fixed compensation is usually the first deal point discussed. For Schedule F actors, it is usually a fixed amount payable in equal weekly installments over the scheduled period of the actor’s services, with overages payable at the same rate for any services required beyond the originally scheduled days and any agreed ‟free” days. The actor’s agent will often negotiate for the fixed compensation to be put in escrow with the agency’s or a law firm’s trust account before the actor even travels, to ensure the production actually has the ability to pay the agreed amount. If escrow is agreed by the film production company, then it will need to enter into an escrow agreement with the agency or law firm. Such escrow agreement must provide that the agency/law firm will suspend payments in the event the actor is suspended or terminated, pursuant to the terms of the actor agreement. It is best practice for the film production company to only deposit the actor’s fixed compensation in escrow once the acting and escrow agreements are fully executed.

    • Contingent compensation on a project is typically largely paid to actors, who get the lion’s share. As discussed above in paragraph 2., since actors are usually the driving factor in terms of distribution revenues on a picture, they have the bargaining power to negotiate for the most in up-front and contingent compensation. They are four different categories of contingent compensation, as follows. Box office bonuses, which are straightforward contingent bonuses based on the theatrical performance of the picture – if the picture reaches certain theatrical revenue thresholds, then certain bonuses become payable. Box office bonuses are appealing to talent, because box office numbers are widely reported and there are no complicated accounting calculations involved. Gross Participations are the second category of contingent compensation. As with box office bonuses, a participation in the gross revenues of the picture is appealing to talent, because it does not require the cost of production to be calculated or recouped. Instead, the actor is entitled to a percentage of every dollar that the producer receives (after the distributor and/or sales agents deduct their fees, costs and expenses ‟off the top”). However, the investors on an independent production may be unwilling to share the picture’s revenues until they have recouped their entire investment. Therefore, they are more likely to only going to approve a gross participation for a top-level star who is going to drive sales of the picture. Deferments are the third type of contingent compensation. They tend to be a fixed dollar amount payable out of a pool at a defined point in the revenue waterfall (with each stage in the waterfall representing a different level of fee or cost/expense recoupment or profitability of the picture). The most generic deferment pool would be paid at the time immediately prior to net profits – after the distributors, sales agents and collection account managers have taken their fees and expenses off the top, the production has recouped the negative cost of the picture (which may include interest on loans and/or a premium return on equity investments), and any gross participations and/or box office bonuses have been paid. Then, the fourth and final category of contingent compensation are net participations. It is simply the amount that remains after all of the production’s other costs, expenses and contingent participations (e.g. box office bonuses, gross participations and deferments) have been deducted, recouped and paid. This is the least likely form of contingent compensation to be paid to the talent. Typically, an independent producer will hire a collection account management company to collect and administer all of the revenues on the project, and so the collection account manager will be responsible for allocating and paying the applicable participations and deferments. The actor’s representatives will often try to require that the film production company make the actor a party to the collection account management agreement.

    For daily/weekly actors, the film production can continue to employ them as long as it continues paying them at the negotiated daily/weekly rate, provided that the actor has not negotiated a specific stop date or something similar. The costs add up, but at least the film production will be able to keep the actor in first position to the production, if need be. Also, as far as fixed compensation of daily/weekly actors is concerned, it is set at a daily/weekly rate, and the actor is paid at that rate (plus overtime and other SAG-mandated amounts/penalties) for the duration of employment. In the case of a daily/weekly actor, his or her agent may negotiate for a guaranteed minimum number of weeks of employment, in which case the actor must be paid the full amount for the guaranteed period, unless they are terminated for cause.

    The next issue when negotiating actor agreements is credit. The relative position of actor’s credits is determined by negotiation, but usually depends on the size of the role and the stature of the actors. So, if a film project has two main characters, the bigger ‟star” will often get first position credit and the other actor will be in second position. The distributor of the picture will have very specific opinions about who needs to be used for marketing purposes to help sell the picture, and the film production company needs to liaise efficiently with the distributor’s marketing department, in order to clarify what kind of credit can be given to the actors, while retaining top marketability and revenues maximizing.

    It is customary to agree that an actor will have the right to approve the still photographs that will be used in the marketing of the picture (with the actor required to approve at least fifty percent of stills in which they appear alone, or seventy five percent of stills in which they appear with others who have approval rights).

    It is also normal to agree that the actor has a right of approval over any blooper footage (SAG requires this anyway) or behind the scenes footage in which the actor appears that the production company is going to use in the marketing of the film or in the added value materials for the home video release of the picture (e.g. DVD extras).

    Under SAG rules, actors have a right of prior written approval over any scenes that require them (or their double) to appear nude or as engaging in sexual conduct. The actors’ representatives will often ask that the contract sets this out explicitly (including specific descriptions of the scenes being filmed, and limitations on what can and cannot be shot).

    ‟Pay or play” is a concept created to protect above-the-line talent, and in particular actors, from being terminated without receiving their full fixed fee. The parties will agree that, at a certain point in the production process (often well before principal photography commences), the talent becomes ‟pay or play”. If they are subsequently terminated without cause, they will be entitled to their entire fixed fee, regardless of whether it has accrued at the moment of termination. Since the actors have blocked out their schedules for this production, they want to ensure that they will be compensated for that time even if the producer decides to go a different direction or the production does not move forward. The contract will set out that the talent can be terminated at any time, for any reason, with or without cause, but if the talent has become ‟pay or play” and is then terminated for any reason other than force majeure and/or the talent’s default or disability, the actor will be entitled to their full fee. Typically, a contract will say that talent becomes ‟pay or play” on the earlier of commencement of principal photography, or the hiring company electing to proceed to production of the picture with the actor in the specified role. While the ‟pay or play” provision does help protect the actors, it also provides a clear way for the producer to terminate the talent’s services, even without cause – the producer can merely pay the balance of compensation owed and send the talent packing (subject to any applicable guild rules). Contrast this with ‟pay and play”, where the talent – usually, the director – is not only guaranteed his or her compensation, but also the right to render services without being suspended or terminated (unless for cause) for a specified period of time.

    4. How film streaming and streamers are disrupting the industry, shifting the balance of power away from the stars, and back to film production companies and studios

    As film distribution evolved away from movie theatres and towards streaming platforms, the tectonic shift of power between various stakeholders has changed. Such change accelerated with the COVID 19 pandemic, when various lockdowns prevented movie goers to attend their local cinemas, for almost two years.

    Netflix is the undisputed market leader in the video streaming sphere, having achieved world domination in 2018 (i.e. its streaming-only plan can be watched by Netflix members in over 190 countries, except in China, Crimea, North Korea and Syria).

    From a mere mail-based rental business 20 years’ ago, Netflix successfully transitioned to streaming services from 2007 to 2012, then to its development of original programming, from 2013 to 2017, then to its expansion into international productions, from 2017 to 2020, and now to its emergence into the gaming space (since 2021).

    Basically, Netflix rules, when it comes to streaming distribution (although Amazon Prime is a close second). And Netflix does not take any prisoners, when it comes to its distribution deals. Its distribution agreements, more properly characterised as ‟digital licenses”, are differentiated primarily by the fact that there is no division of revenues involved. Netflix does not share the subscription fees it receives. Thus, even when Netflix acquires all worldwide rights in perpetuity to a motion picture prior to production, and bills it as a ‟Netflix Original”, they agree to make a fixed ‟buyout” payment, with no additional net profits, royalties or other accountings.

    Bye-bye, contingent compensation for actors, when their film projects are produced by, or distributed by, the likes of Netflix and Amazon! Only fixed compensation is up for grabs.

    In fact, Netflix does not even disclose box offices results, even when their films have a theatrical run before, or simultaneously to, making the film available for streaming on Netflix’s online platform. Amazon followed suit on this policy. Both companies refuse to report their box office grosses to either internal industry compilers (including Comscore, which is built into ticket sites for the vast majority of North American theatres) or to the press. Since their distribution deals are free of any contingent compensation, why would they?

    As this practice of releasing films in both theatres and streaming platforms has become the norm, in the United States, some talent have filed lawsuits against movie studios for breach of contract. For example, Scarlett Johansson sued Disney over what she claimed was a breach of contract, after Disney chose to release the Marvel superhero movie ‟Black Widow”, in which Johansson starred, simultaneously in cinemas and on its Disney+ streaming platform. In her July 2021 summons, Johansson claimed that her fees were based on the box-office performance of the film and that Disney’s change of release strategy, whilst refusing to renegotiate her actor agreement, deprived her of her fair share of income on this title. Disney retaliated by publicly disclosing Johansson’s upfront fee of USD20 million. The parties eventually settled, for a reported fixed sum of around USD40 million paid by Disney to Johansson.

    Not only can actors seat on their box office bonuses, deferments and gross or net participations, when they get involved in a film project with Netflix or Amazon, or other competing streaming services, they are now held by film studios and streamers for anywhere from nine months to more than a year in some cases, per standard series agreement deals. Indeed, prestige film series are at the core of the film streaming universe and business model, with original shows like ‟Euphoria” (produced by HBO and distributed on its streaming platform HBO Max), ‟Squid Game” and ‟The Queen’s Gambit” (both produced by Netflix and distributed on its streaming platform) being massive draws for existing and new streaming subscribers. Actors who are involved in these streaming series are prevented from booking other jobs in that time, without a complicated process of approvals, hindering this talent’s ability to chase other job opportunities. Actors’ agents are complaining that their clients are losing work due to this exclusivity requirement under their actor agreements, exacerbated by multiple factors such as the year-round development cycle and short-order seasons of 13 episodes or less. Actors get paid less because they work on fewer episodes, but they still face long contract holds.

    Another cause of concern, for agents and their actor clients, is the use of non-disclosure agreements (‟NDAs”) in casting, with many major producers, allegedly, overly sensitive about the secrecy of their projects. In an era of online file-sharing and sensitivity around plot spoilers, the increased use of NDAs in this context is unavoidable. However, actors and agents are concerned that NDAs are being overused when it comes to casting auditions, with sweeping and unreasonable terms. US streamers are blamed for starting the trend. Actors and agents say the use of NDAs si breaking the traditional relationship between them, with actors unable to discuss the upcoming audition, script and prospective role with their representatives, which is increasingly cutting out agents from the audition process altogether.

    Finally, while the advent of streaming platforms means more opportunity for actors, in particular actors from minority backgrounds, the likes of Netflix, Amazon and HBO rely on mostly young, new or not yet discovered talent, to minimise actors’ labour costs incurred in the production of their prestige streaming series. There is no place for prima donna stars, dictating their terms and conditions, in the film streaming era. And with Netflix now pushing its limits beyond film and into gaming, actors could easily become replaced by animes, artificial intelligence and virtual actors, in the near future, further decreasing the costs of talent for streaming platforms.



    https://www.youtube.com/watch?v=uiljiYQxLF8
    Crefovi’s live webinar: How to negotiate actor agreements, in the film streaming industry? – 18 March 2022

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      Reforming UK music law: making the music streaming market economically viable for all stakeholders

      Crefovi : 07/02/2022 10:51 am : Antitrust & competition, Articles, Copyright litigation, Entertainment & media, Fashion lawyers, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Litigation & dispute resolution, Music law, Webcasts & Podcasts

      1. Why are UK MPs investigating the music streaming market?

      Further to the digital revolution forced upon the global music industry by independent peer-to-peer file sharing service Napster, in the early noughties, music streaming has come out on top, as the most agile, flexible, user-friendly and wide-ranging music distribution channel.

      Indeed, based on research conducted by the International Federation of the Phonographic Industry (‟IFPI”) across 21 of the world’s leading music markets, its 2021 ‟Engaging with music” report sets out that subscription audio streaming (e.g. Spotify, Apple Music, Deezer) represents 23 per cent of the ‟music engagement mix”, while ad-supported audio streaming (e.g. free tier of Spotify or Deezer) and video streaming (e.g. YouTube, DailyMotion) represents 9 per cent and 22 per cent, respectively. So, according to IFPI, total music streaming is 54 per cent, in the ‟music engagement mix”, while music on the radio (e.g. radio stations, broadcast live, catch-up) is 16 per cent and purchased music (e.g. CDs, vinyls, DVDs, downloads) 9 per cent. Live music (including livestreaming) is at a paltry 2 per cent.

      The International Confederation of Societies of Authors and Composers (‟CISAC”), is prompt to underline, in its 2021 global collections report, that while music ‟streaming is fast heading towards being the most important source of creators’ earnings in the future”, ‟streaming revenues – however fast they grow – are currently simply not providing a fair reward when shared across millions of individual recipients”. Asking collecting societies to adapt to digital and re-invent themselves, CISAC’s main message conveyed through its 2021 report is better digital remunerations are needed for creators, via a fairer ‟digital split”.

      The Standing Committee on Copyright and Related Rights of the World Intellectual Property Office (‟WIPO”) conveys a similar, if more subtle and rigorously facts-checked, message in its 2021 report entitled ‟Inside the global digital music market”: ‟there is an ongoing legal debate within the music industry (…) over the interpretation of certain legal rights as they are, or believe that they should be, applied to digital music services”. ‟The debate appears to boil down to who should control administering rights, pricing and certain revenue collections for recordings with digital music services, whether record companies (producers), which invest in featured artists and recordings and which typically secure exclusive rights in the recordings, or Collective Management Organisations (‟CMOs”), which are tasked to collectively manage certain rights of performers, which vary from region to region. (…) The argument by the groups for the CMOs’ position aligns with the beliefs that featured performers’ royalties should be greater than what they are receiving from the digital market, and background (and) session musicians should be entitled to ongoing royalties or other form of additional remuneration generated by recordings in the digital marketplace, regardless of the contractual provisions and transfer of exclusive rights to producers. (…) (Already some) statutory provisions granting remuneration to musicians are in place in many countries’ legislation for broadcasting and communication to the public uses. The record companies observe that streaming services are substituting physical sales as the main method of delivering recorded music to consumers, and revenue from these services has become the main revenue source for the industry. According to record companies, licensing of streaming services should be organised along similar lines to the distribution of physical products”.

      This debate and tensions between pro-creators and pro-music labels have picked during the governments’ management of the COVID 19 pandemic, since multiple national lockdowns and statutory restrictions towards non-vaccinated citizens have grinded to a halt most live music events and concerts, all over the world. Music performers and songwriters therefore had even less revenues to sustain them, in the last two years, with many of them having to find additional side jobs in order to make rent.

      The negative effects of the pandemic have been strongly compounded, in the United Kingdom (‟UK”), by Brexit, since not only does the EU-UK withdrawal agreement not provide for any specific music visa provision system, which would have allowed UK touring musicians to easily continue performing and touring in the 27 member-states of the European Union (‟EU”), but certain cross-border copyright mechanisms – especially those relating to CMOs and other rights management societies, as well as those relating to the EU digital single market (‟DSM”) – stopped applying in the UK on 1 January 2021.

      In this context, it is no wonder that UK musicians – songwriters and performers alike – are getting increasingly concerned about getting a slice of the pie which would allow them to keep on creating, and performing, in the music industry. Their urgency and various acts of lobbying have not fallen on deaf ears, and many compassionate UK members of parliament (‟MPs”) have decided to take this matter in their own hands, so that UK music creators could benefit from a level playing field, in particular with respect to their EU peers, post Brexit.

      2. What process is followed by UK MPs, to implement change in the music streaming market?

      MPs on the House of Commons Digital, Culture, Media and Sport Committee (the ‟Committee”) launched an investigation in October 2020, during which they heard from music creators, industry experts and streaming services, held roundtables with musicians to hear their views and wrote to major UK record labels and tech companies for their explanations.

      Several publications were issued as a result, among which:

      The main takeaways from the inquiry and Committee’s report are that:

      • the Committee recommends to classify music streaming as an income source subject to equitable remuneration. To implement this, the Committee’s report recommends that the UK government legislate so that performers enjoy the right to equitable remuneration for streaming, by amending the Copyright, Designs and Patents Act 1988 (‟CDPA”)so that the making available right does not preclude the right to equitable remuneration, using the precedent set by the co-existence of the rental right and right to equitable remuneration in UK law”. The Committee’s report asks for the remuneration to be paid by the rightsholders (i.e. record labels) – rather than the streaming services – to the performers, through their CMOs.
      • since the music industry market, and in particular the UK music market, is dominated by a small number of large buyers of music rights (i.e. the major record labels Warner, Sony and Universal), the UK government should expand creator rights by setting out, in the CDPA, a right to recapture works, and a right to contract adjustment, where an artist’s royalties are disproportionately low compared to the success of their music. Such right to recapture should occur after a period of 20 years, so short enough to occur within an artist’s career.
      • concerns about the above-mentioned oligopoly currently in place in the music industry – in terms of overall market share in recording and publishing, but also through vertical integration, acquiring shares in streaming services and a cross-ownership system – should be escalated to the CMA, to undertake a full market study into the economic impact of the music majors’ dominance and assess whether any infringement of competition law may be taking place.
      • a renewed safe harbour protection should be put in place by the UK government, so that music rightsholders may be protected on a par, compared to EU rights owners who benefit from the provisions of the EU directive on copyright in the DSM 2019/790 (the ‟DSM directive”), when their music content is uploaded on user-generated content platforms such as YouTube (‟UGCs”). The Committee recommends that the UK government introduces robust and legally enforceable obligations to normalise licensing arrangements for UGCs, ensuring that these obligations are proportionate so as to apply to dominant players such as YouTube and Facebook, without discouraging new entrants to the UGCs’ market.
      • the Advertising Standards Authority (‟ASA”) should regulate music playlist curators, who have an important role in the discovery and consumption of digital music, and are therefore influential in how creators are remunerated. However, since the extent of their paid-for activity is currently undisclosed, and since the selection methods of platform editorial playlists are non transparent, music playlist curators should comply with a code of practice drafted by ASA, similar to the one focusing on social media influencers, to ensure that the curation decisions they make are transparent and ethical.

      The Responses, from the UK government and the CMA, were, circonspect and measured, yet pragmatic and ‟enthusiastic”.

      In particular, the UK government set out three main pillars, in its Responses:

      • Establishing a music industry contact group with senior representatives from across the music industry to drive action and examine stakeholders’ view on the key issues, including equitable remuneration, contract transparency and platform liability rules introduced by the EU;
      • Launching a research programme, alongside stakeholders’ engagement;
      • Establishing two technical stakeholders’ working groups, the first focused on creating standards for contract transparency and establishing a code of practice for the music sector, and the second addressing data issues and developing minimum data standards for the music industry.

      With respect to equitable remuneration, the Responses set out that the UK government will launch work to better understand issues of fairness in songwriters’ and performers’ remuneration. As part of this work, the UK government will assess different models, including equitable remuneration, to explore how likely they are to affect different parts of the music industry and how that might be achieved, including through potential legislation. It will also explore these issues through the above-mentioned music industry contact group.

      As far as safe harbour is concerned, the UK government agreed that righsholders should be properly remunerated when their works are shared on UGCs, and that the UK had a unique opportunity to learn lessons from EU member-states that have implemented the DSM directive, as well as from approaches taken by other countries. Therefore, the UK government will analyse how EU member-states are implementing the DSM directive, to understand its impact on different parts of the music industry, other creative sectors, and UGCs alike.

      In relation to the recommendation of expanding creators’ rights by restricting contract freedom, the UK government will commission research on these issues, particularly by looking into countries that have implemented similar measures.

      With respect to launching a CMA investigation into the economic impact of the music majors’ dominance, the UK government pointed out that the CMA is an independent regulator, which should therefore decide autonomously how best to allocate its resources to protect fair competition. However, the Responses also include the CMA’s initial response, which stated that a new digital markets framework was being finalised, before its implementation, by the UK government and the CMA’s own ‟Digital Markets Unit”. Upon implementation of this new digital markets framework, the CMA’s ‟Digital Markets Unit” will assess the pertinence of launching an investigation into the majors’ oligopoly in the UK music industry.

      Finally, the UK government agreed with the Committee’s recommendation to subject music playlist curators to a code of practice developed by ASA. It is also in contact with Ofcom, the UK’s communication regulator for TV, radio and video on demand sectors, with respect to this issue.

      3. When are reforms to UK music law likely to take place?

      While the ‟enthusiastic” above-mentioned plans, set out in the Responses by the UK government, may be currently implemented, a member of the Committee, Kevin Brennan MP, erred on the side of caution, with respect to the follow-through abilities of the UK government, by introducing a bill to make provision about the rights and remuneration of musicians, on 24 November 2021 (the ‟Bill”).

      The timeline of the Bill, currently on its 2nd reading in the House of Commons, is now firmly on hand by the UK parliament.

      This will put adequate pressure on the UK government, as well as the CMA and Ofcom, to deliver on all the exciting measures and goals that they had set out in the Responses.

      The Bill proposes to introduce legislation giving effect to some of the recommendations made by the Committee, in the Committee’s report, in particular with respect to equitable remuneration for streaming, contract adjustment, right of revocation and transparency.

      Using similar wording as the equitable remuneration already provided for under section 93B of the CDPA, the Bill proposes to amend the CDPA and introduce a right to equitable remuneration for performers, where they have transferred their making available right, in relation to a sound recording, to the producer of the sound recording (usually, their record label). This new right to equitable remuneration cannot be assigned, except to be administered by a CMO, or via testamentary disposition. Equitable remuneration is payable by the person to whom the right was transferred, or any successor in title of that person. Therefore, where performers have transferred their making available right to their record company, the record company pays the equitable remuneration. How much is paid can be negotiated by the performer and producer, or the Copyright Tribunal where no agreement is met.

      The Bill also provides for contract adjustment: it sets out a right for performers and composers of musical works to receive additional and fair remuneration for their works, where their arrangement provides them with a disproportionately low level of remuneration, compared to the overall revenue generated from their work. The remuneration is paid by the person exploiting the work.

      The Bill sets out a right for performers and composers, who have transferred their rights, to revoke the transfer of their rights after 20 years. The right is not automatic, notice must be provided within two years.

      The Bill finally provides for a right for performers and authors of musical works (or literary works accompanying a musical work) to receive ‟up to date, comprehensible, relevant and complete information on the exploitation of such work or works”. This will enable music creators to determine whether the remuneration they are receiving is accurate and fair, or whether they may seek to renegotiate via the Bill’s contract adjustment rights.

      While the Bill is following its course in the UK parliament, the UKIPO is commissioning further research on equitable remuneration, contract adjustment and right of revocation.

      4. How do the UK music streaming suggested changes compare to EU policies and, in particular, the Digital Single Market directive?

      The Bill’s provisions are in line with existing EU rules on transparency, safe harbour protection, a right to appropriate and proportionate remuneration for music streaming income, as well as a right to revocation and contract adjustment.

      In the EU, two directives include transparency provisions:

      • article 19 of the DSM directive which provides that authors and performers receive on a regular basis, at least once a year, up to date, relevant and comprehensive information on the exploitation of their works and performances from the parties to whom they have licensed or transferred their rights, or their successors in title, in particular in relation to modes of exploitation, all revenues generated and remuneration due.
      • for CMOs in the EU, the 2014/26 directive on collective management of copyright requires CMOs to provide to rightsholders reports of revenue (royalty statements) that include the revenue attributed to the rightholder, the amount paid by the CMO to the rightholder per category of rights managed and per type of use, the period during which the use took place and deductions made for the CMO’s fees for managing the rights.

      In addition, chapter 3 of the DSM directive establishes:

        • a so-called appropriate and proportionate remuneration principle (article 18). EU member-states can choose to implement the fair remuneration principles set out in the DSM directive by relying on different or already existing mechanisms such as collective bargaining;
        • a contract adjustment mechanism (also referred to as a ‟best-seller”clause) (article 20). Armed with information obtained through the transparency obligations, authors and performers can seek ‟additional, appropriate and fair remuneration” where the original remuneration is ‟disproportionately low compared to the relevant revenues derived from the subsequent exploitation”. If a re-negotiation is unsuccessful, creators have the option to bring a claim with a voluntary alternative dispute resolution body to be set up in each EU member-state for this purpose;
        • an alternative dispute resolution (‟ADR”) mechanism (article 21). EU member-states are required to establish a voluntary ADR body to deal with disputes arising from the transparency obligations and the contract adjustment mechanism (without prejudice to the right to take court proceedings);
        • a revocation right. It can be used when a copyright work licensed exclusively is not being exploited by the licensee. The parameters of this right are to be set out in domestic legislation (article 22);
        • a specific ban on contractual overrides such that certain of these provisions (articles 19, 20 and 21) are considered to be of a mandatory nature (article 23).

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      Loan-out companies and loan-out agreements: how to use them in the new IR35 landscape, in the UK?

      Crefovi : 29/11/2021 10:13 am : Articles, Copyright litigation, Emerging companies, Employment, compensation & benefits, Entertainment & media, Fashion law, Fashion lawyers, Gaming, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, Music law, News, Trademark litigation, Webcasts & Podcasts

      Perhaps surprisingly in a Conservative government, the IR35 rules have been tightened, in order to ensure that the taxman gets its fair share of revenues, when creators and their clients enter into entertainment, film, media and professional sports contractual arrangements. What is at stake for the creative industries in the UK? How to make the most of loan-out companies and loan-out agreements, while ensuring compliance with the revised IR35 rules?

      Loan-out companies1. What are loan-out companies?

      In the entertainment industry, accountants often advise their clients, who work as key talent and crew in the film, TV, sports and media sectors, to set up a personal service company (‟PSC”) with Companies House, the United Kingdom (‟UK”) registrar of limited companies.

      Such personal service companies are also called ‟loan-out” corporations because this is the jargon term they are referred by, which comes from the USA. Indeed, the US, as a global leader in the entertainment industry, was the first country where creators used this form of US business entities to loan-out their services, via the corporate body, to their end-clients.

      The creator is usually the sole shareholder and director of the loan-out company.

      The loan-out entity is engaged by external third parties (i.e. the end-clients) to fulfil entertainment, media or professional sports services, which are going to be performed and executed solely by the creator. Consequently, it is the talent’s loan-out company that is referred to, and liable, in contracts to perform the services required.

      Since the creator’s services are typically performed on individual contract bases, in exchange of large, irregular sums of income throughout the year, the loan-out business model is especially prominent in the entertainment, media and professional sports industries.

      Article 17 of the OECD Model Income Tax treaty of 1930 appears to be the foundation by which loan-out corporation structures may be used, as it provides that athletes, celebrities, artists who operate across several countries, and who therefore earn income under several national taxation systems, may only be taxed in their home jurisdiction’s source of income (even without an established corporate body).

      By the 1970s-1980s, loan-out companies, or PSCs as they are more commonly referred to by the UK taxman, HMRC, and UK lawmakers, were widely used by entertainers, top talent and crew, as well as professional sportspeople, in the UK.

      2. How to use PSCs and loan-out agreements?

      Loan-out companies are used as a means to reduce the personal liability of the talent, as well as protect their personal assets.

      Indeed, since the SPC is the sole party to any services agreement entered into with the end-customer, then, such end-client cannot go after the personal assets and liability of the creator, in case things go south during the execution phase of such services. The end-client – who is the counterparty to that loan-out agreement – will only be able to sue the SPC and trigger the limited liability of such loan-out company.

      Moreover, in the UK, private companies limited by shares (which represent over 95 per cent of all companies in existence in that country), limit the liability of their shareholders to creditors of the company, to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company. Therefore, a shareholder’s personal assets are protected in the event of the company’s insolvency or increased liability to a third party.

      Also, in the UK, the corporate veil is thick and not often, or easily, pierced: UK company directors incur no personal liability because all their acts are undertaken as agents of the SCP. While there are certain circumstances where personal liability may be imposed by the UK courts, particularly in respect of wrongful or fraudulent trading, it is rare that the corporate veil is pierced, and that the owners are held accountable, on their own assets, to pay off the limited company’s debts.

      In a loan-out agreement, the party which is the loan-out company is typically responsible for dealing with the tax and/or any applicable national insurance contributions (‟NICs”) on any payments made under this agreement, by the counterparty.

      This loan-out structure is therefore beneficial to, and flexible for, the end-client, who is unencumbered by HMRC’s rules on income tax and employer NICs payable on employees’ salaries, as well as protective employment law regulations applying to employees and self-employed people/freelancers relating, in particular, to a right to holiday, the national minimum wage, workplace pension and the maximum amount of 48 work hours per week.

      There are also some tax advantages to this loan-out arrangement for the creator: first, the range of expenses which the PSC may set against its taxable profits will be much wider than that allowed to an employee to set against their taxable income. Second, there will be a cash-flow benefit in avoiding income tax being deducted at source each month. Third, the individual, as shareholder, may be in a position to be paid dividends by their loan-out company, which is a more tax-efficient alternative to only being paid earnings as the PSC’s employee, since this dividend form of income is not subject to NICs.

      Therefore, loan-out agreements often lead to win-win situations, for the talent and their end-clients, provided that such services agreements are drafted correctly. In particular, the producing entity needs to ensure that all intellectual property created by the talent is assigned to the production.

      Such loan-out agreements are typically called ‟producer agreement” or certificate of engagement (‟COE”). Indeed, a COE transfers to a studio or production company all rights in the results and proceeds of the services of an independent contractor (talent like an actor, producer, model, director or professional sportsperson) on an entertainment production, such as a television movie, theatrical motion picture film, TV or online series, social media content, or commercial. The COE includes work made for hire and assignment provisions. The parties negotiate and execute the COE promptly after agreeing to all deal terms before entering into a long-form agreement, such as a producer agreement, at a later stage.

      As there can be some risks with the loan-out approach, in case the COE and/or long-form agreement are drafted incorrectly, it is best practice to seek expert legal advice when drafting, and reviewing as well as negotiating, a loan-out agreement.

      3. What is the future of loan-out companies and agreements within the new IR35 landscape?

      While I highlighted that loan-out agreements may be a win-win arrangement for the creator and their end-clients, there is one entity which has a lot to lose out of them: the taxman.

      By the late 1990s, there were concerns that PSCs were being widely used, in the UK, to disguise the fact that, in many situations, individuals were working effectively as their client’s employee, while garnering the loan-out structure’s tax benefits.

      To counter this type of tax avoidance in the March 1999 Budget, the Labour government announced it would introduce provisions to allow the tax authorities to look through a contractual relationship, where services were provided through an intermediary such as a PSC, but the underlying relationship between the worker and the client had the characteristics of employment. In those circumstances, the Labour proposals went, the engagement would be treated as employment for tax purposes.

      Provision to this effect was included in the Finance act 2000, with effect from the 2000/01 tax year. The legislation is commonly called ‟IR35”, after the number of the Budget press notice which first announced this measure.

      For the last 20 years, IR35 remained controversial, but were retained, even by the Conservative governments which succeeded the Labour one.

      However, concerns escalated when it was discovered that the use of PSCs was common by senior staff in the public sector and by contractors working for the state-owned broadcaster BBC.

      Since 2014, the various Tory governments went about cleaning the slate, by reforming the way the IR35 rules worked in the public sector. Following these reforms to the application of IR35 in the public sector, the government introduced legislation to make similar changes for the private sector to take effect from April 2021.

      How do these changes affect creators in the entertainment, media and professional sports industries, since April 2021?

      From 6 April 2021, IR35 rules applying to PSCs shift the responsibility from the PSC to the organisation receiving the talent’s services.

      Before 6 April 2021, it was the loan-out company that was responsible for assessing and making payment of income tax and/or NICs for the services being provided by the creator/talent.

      The government’s reforms for private sector companies are intended to improve compliance with the IR35 rules by moving the responsibility for tax assessment and payment from the contractor to the end-client. What this means, in the film, media and sports context, is that a producer engaging the services of a talent is now responsible for assessing whether that individual should be legally treated as an employee if they were being engaged directly by the producer, rather than through the loan-out company, and, if so, for accurately deducing income tax and NICs from the individual’s pay.

      However, this change only affects large and medium size businesses, meaning that producers which fall into the category of a ‟small business” are not affected by the new IR35 provisions. It is not yet known how a ‟small business” will be defined by HMRC, and what criteria will be applied by HMRC to any assessment as to business size.

      For example, our law firm Crefovi recently advised a client, whose producer services were retained by a production company working on behalf of the BBC, the commissioning broadcaster of an upcoming TV series, via his loan-out company. When I asked this client how much the budget of these TV series was, since such information was not disclosed in the draft producer agreement he had asked us to review and analyse on his behalf, he replied ‟GBP10 million”. I would argue that this budget size definitely places the BBC- commissioned production company into the category of ‟medium to large business”. Yet, the production company’s solicitor had drafted the loan-out agreement in such a way that the onus of paying any income tax and NICs liabilities, on the producer’s payments, layed solely with our client’s loan-out company, not with the production company.

      Even if HMRC has confirmed, in its guidance on the new IR35 rules, that ‟customers will not have to pay penalties for inaccuracies in the first 12 months relating to the off-payroll working rules, regardless of when the inaccuracies are identified, unless there’s evidence of deliberate non-compliance”, and that HRMC ‟will not use information acquired as a result of the changes to the off-payroll working rules to open a new compliance enquiry into returns for tax years before 2021 to 2022, unless there is reason to suspect fraud or criminal behaviour”, it seems that UK production companies and their accountants and lawyers still turn a blind eye on their new responsibilities, post April 2021. This will trigger quite a few compliance enquiries with HMRC and, no doubt, tax litigation in the coming years.

      Watch that space and, if you are a responsible creator, or production company owner, do reach out to us, at Crefovi, so that we may advise you on how to still reap the benefits of loan-out companies and structures, while minimising heightened legal and tax risks caused by this more stringent IR35 framework.

      Crefovi’s live webinar: How to use loan-out companies & agreements in in the new IR35 landscape, in the UK? – 3 December 2021

       Crefovi regularly updates its social media channels, such as LinkedinTwitterInstagramYouTube and Facebook. Check our latest news there!

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        How to sell your US fashion products in Europe, at high margins?

        Crefovi : 28/08/2021 2:41 pm : Antitrust & competition, Articles, Consumer goods & retail, Emerging companies, Fashion law, Information technology - hardware, software & services, Internet & digital media, Law of luxury goods, Outsourcing, Product liability, Technology transactions

        In the globalisation age, fashion and luxury brands aspire to doing business everywhere, servicing their retail clients on each continent.

        Yet, trade and geographical barriers are still in place, and even increased during the inward-looking Trump era, in the US, and Brexit transition, in the UK, making smooth and seamless fashion and luxury purchase transactions a challenge.

        So, what is the best approach, in the post-COVID, post-Trump, and post-Brexit world, to sell your fashion and luxury wares around the world, while making high margins?

        how to sell your US fashion products in Europe1. Selling fashion products between the US and Europe, via your own e-commerce sites, at a profit: ‟how to” guide

        In an age stricken by lockdowns and compulsory sanitary passes induced by COVID, online sales are a life saver. They took off during the pandemic and retail customers have now gotten used to shopping online.

        It is therefore time to make your ecommerce site, as well as social media accounts, as attractive, and user-friendly, as possible. This way, you may capitalise on this online shopping spree, provided that you offer free worldwide shipping and returns, 24/7 customer service and a faultless and enjoyable electronic buying experience.

        a. Consumer protection on distance-selling transactions

        One thing to bear in mind, though. While there is no singular or specific law governing e-commerce by retailers or any other seller of goods or services via the internet, in the US, it is a distribution channel which is tightly regulated in the European Union (‟EU”) and the UK.

        In particular, national laws transposing the EU directive 2011/83 on consumer rights, which aims at achieving a real business-to-consumer internal market, striking the right balance between a high level of consumer protection and the competitiveness of businesses, apply in the 27 EU member-states and in the UK, as ‟retained EU law” (i.e. a new type of UK law filling the gap where EU law used to be, pursuant to the EU withdrawal act 2018).

        Thanks to these EU and UK national laws, the withdrawal period during which a consumer may withdraw from the sale, has been extended from 7 to 14 days. They introduced the use of a standard form, that can be used by consumers to exercise their withdrawal rights. Such form must be made available to consumers online or sent to them before the contract is entered into. If a consumer exercises this withdrawal right, the business must refund the consumer for all amounts paid, including delivery costs, within a period of 14 calendar days.

        If your US fashion or luxury brand wants to sell, online, to European consumers, it must comply with those above-mentioned EU and UK national laws protecting consumers.

        So, your best bet is to adopt a best practice approach, offering the same level of consumer protection rights to all your clients, all over the world, which will be in compliance with the high standards imposed by the EU and UK national laws transposing the EU directive 2011/83 on consumer rights.

        b. General data protection regulation and privacy

        Also, Europeans are quite touchy with regards to their personal data and how businesses manage it.

        The General data protection regulation (‟GDPR”), adopted in April 2016, reflects these concerns and how they are addressed in the EU and the UK.

        As a result, e-commerce stores, which target the EU and UK markets, must have a data privacy policy, as well as a cookies policy, as well as some general terms and conditions of use of their e-commerce website, as well as some general terms and conditions of sale on their e-commerce website, which all comply with the GDPR and national data protection laws such as the French ‟loi informatique et libertés” and the UK data protection act 2018.

        In addition, companies offering products and services to EU and UK consumers must appoint a data protection officer, ensuring that they:

        • comply with such data protection legal framework,

        • have a systemic and quick process in place, should they suffer from a data breach or some hacking issues of their e-commerce website, and

        • have a designated point of contact, who will liaise with the EU or UK data protection authority, such as the ‟Commission informatiques et Libertés” (‟CNIL”) in France, or the Information Commissioner’s Office (‟ICO”) in the UK.

        Again, perhaps the best approach, for any fashion and luxury business with global ambitions, is to set up a data protection policy worldwide, which will apply to all its customers globally, and which will meet the high standards imposed by the GDPR.

        While it may be a steep learning curving, to bring your ecommerce website and business up to these standards, your fashion brand will only gain in reputation, coming across as a deeply respectful company, in tune with consumers’ needs and concerns with respect to data protection and privacy.

        c. Value added tax

        Online sales are taxed in the same way than sales in brick-and-mortar retail stores, in the EU and the UK: they are all subjected to a 20 percent value added tax (‟VAT”) rate. It is the standard VAT rate in France and the UK and is applicable on all fashion and luxury products.

        Indeed, since July 2021, all e-commerce purchases, even those made by retailers based outside the EU or the UK, are subjected to VAT. While there used to be an exemption of VAT, for goods imported in the EU, and sold for less than 22 Euros, they are no longer exonerated of VAT.

        So, what does this mean, practically, for a US fashion business that sells its wares via e-commerce in Europe? It must register with the Import one-stop shop (‟IOSS”), to comply with its VAT e-commerce obligations on distance sales of imported goods. And it must charge VAT on all fashion goods imported to the EU.

        d. Import duties

        If the VAT and import duties (or trade tariffs) are not planned for, and paid promptly, when the imported fashion products enter the EU or UK, this will cause customs delays, slow your delivery time and negatively impact your customer’s experience.

        It is therefore essential to clarify from the outset, with your EU or UK customer, who is in charge of bearing those costs, and how. These additional costs, and the responsibility for paying these, must be clearly communicated on your e-commerce website and/or social channels, as well as at the checkout.

        Generally, the customs clearance process is more or less the same in all EU countries. As far as shipping documents go, a commercial invoice and air waybill are required for all international shipments.

        Personal shipments of low-value, unregulated goods can usually clear customs without any additional documentation.

        However, fashion brands in non-EU countries will need an Economic operators registration and identification number (‟EORI number”), if they will be making customs declarations for shipments to EU countries. Shippers based outside the EU can request the EORI number from the customs authority in the EU country where they first lodge a customs declaration.

        Customs duties will be charged for shipments valued over 150 Euros.

        As a US fashion or luxury brand keen to do business in the EU and the UK, you need to adapt your e-commerce website, by adding some information and checkout options relating to VAT and custom duties, and by adding appropriate terms and conditions’ webpages, compliant with the GDPR and EU laws on consumer protection during distance-selling transactions. This will be a winning recipe for your European conquest.

        2. Selling fashion products from the US to Europe, via third-party e-commerce sites: the holy grail

        When you sell your fashion wares via third party ecommerce websites, as a US business, you somehow delegate the above-mentioned EU and UK compliance issues to someone else.

        Indeed, it will be down to the mytheresa, net-a-porter, theoutnet and matchesfashion of this world to have all their ducks in a row, in order to comply with EU regulations.

        However, you still have to focus on two main points, when selling your products via third party ecommerce sites.

        Firstly, a working capital consideration: are you ready to accept consignment, or do you only do wholesale? In other words, will you get paid only if and when your product is sold by the e-commerce platform, or will you get paid for the product, by this third-party retailer, whether or not it sells on the online retail store?

        Secondly, are your products compliant with EU regulations relating to product safety rules and standards? This is especially true if you are selling high risk products such as jewellery (in direct contact with the skin) or children’s apparel and jewellery. For example, the EU REACH regulation limits the concentration of lead in jewellery and other articles, while US jewellery companies have no such limitations on their internal market. It is therefore essential for your US fashion and luxury brand to double-check, before exporting to the EU or the UK, that your products comply with these EU and UK product safety rules and standards, especially now that class action lawsuits are allowed in Europe.

        3. Selling US fashion products via European brick & mortar retailers and stockists: the traditional route

        During the European seasonal fashion trade shows, such as Pitti and White, in Italy, and Tranoi, Man/Woman and Premiere Classe in Paris, France, your US brand may meet some European stockists interested in selling your wares in their EU or UK brick-and-mortar retail stores.

        This is a great opportunity to showcase your US brand to European consumers and should be embraced with ‟cautious celebration”. Indeed, while the two above-mentioned considerations of consignment vs wholesale, and of compliance with EU product safety rules and standards, should be taken into account, a proper discussion about the retail channels of the EU or UK brick & mortar stores also needs to take place.

        Does the EU or UK stockist intend to sell solely in their physical store, or also online, on their e-commerce boutique? Under article 101 of the treaty on the Functioning of the European Union (‟TFEU”), luxury and fashion brands cannot ban their distributors from selling their products online, through ecommerce, as this would be a competition law breach, deemed to be an ‟anticompetitive restriction”. However, luxury and fashion brands may impose some criteria and conditions to their stockists, to be able to sell their products online, in order to preserve the luxury aura and prestige of their products sold online, via the terms of their distribution agreements.

        Indeed, these above-mentioned discussions and conditions could be the premises of setting up a selective distribution network for your US brand in Europe. Selective distribution is the most-used distribution technique for perfumes, cosmetics, leather accessories and ready-to-wear in Europe. It escapes the qualification of anti-competitive agreement, under article 101(3) of the TFEU, via a vertical agreement block exemption.

        If you decide to appoint an agent, or a distributor, for the EU and UK territories, so that they find more stockists for your products in their geographical territories, your fashion brand must have a clear distribution plan in place, which needs to be set out in their agency agreement or distribution agreement. This way, your agent or distributor will be able to implement this distribution strategy, according to your guidelines and its contractual undertakings, in the designated EU or UK territory.

        4. What’s in the works, with a global tax for digital platforms? How is that going to affect fashion and luxury brands worldwide?

        Earlier this year, after the election of Joe Biden, we have heard a lot about an agreement on the corporate taxation of multinationals, paving the way to create new rules for the imposition of levies on the world’s multinational enterprises (‟MNEs”).

        This is because European governments, and businesses, are fed up with US MNEs, such as Amazon, Google, Facebook, Starbucks and Apple, not paying corporate tax on their soil, but solely in the US and/or in European tax havens such as Ireland (which corporate tax rate is among the lowest in Europe at 12.5 percent).

        Also, transfer pricing (that is, what affiliated companies charge each other for finished goods, services, financing or use of intellectual property) has been a source of tax planning opportunity, and the largest single source of tax controversy for MNEs, in a wide variety of industries, including retail and consumer products companies.

        The French government went as far as setting up its own unilateral digital services tax, at a 3 percent rate, which applies to social networks, search engines, intermediaries such as online selling platforms, digital services, online retailers, since December 2020.

        In July 2021, 130 countries and jurisdictions, representing more than 90 percent of global GDP, had joined a new plan to reform international taxation rules and ensure that MNEs pay a fair share of tax, wherever they operate, according to the OECD. If these reforms take place, taxing rights on more than USD100 billion of profit are expected to be reallocated to market jurisdictions each year, while the global minimum corporate tax will be at a rate of at least 15 percent and will generate around USD150 billion in additional global tax revenues annually.

        While these global tax reforms may not affect the P&L of most fashion and luxury brands directly, it will definitely impact the tax burden of their digital distributors, marketplaces and channels, around the world.

        These tax reforms will level the playing field, ensuring that wealth is redistributed more fairly, while globalisation and fashion distribution continue their ineluctable growth and expansion.

         

        Crefovi regularly updates its social media channels, such as LinkedinTwitterInstagramYouTube and Facebook. Check our latest news there!

         

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          How to enforce civil and commercial judgments after Brexit?

          Crefovi : 14/06/2021 10:45 am : Antitrust & competition, Art law, Articles, Banking & finance, Capital markets, Consumer goods & retail, Copyright litigation, Emerging companies, Employment, compensation & benefits, Entertainment & media, Fashion law, Gaming, Hospitality, Hostile takeovers, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, Life sciences, Litigation & dispute resolution, Mergers & acquisitions, Private equity & private equity finance, Product liability, Tax, Technology transactions, Trademark litigation, Unsolicited bids

          As explained in our two previous articles relating to Brexit, ‟How to protect your creative business after Brexit?” and ‟Brexit legal implications: the road less travelled”, the European Union (‟EU”) regulations and conventions on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, ceased to apply in the United Kingdom (‟UK”) once it no longer was a EU member-state. Therefore, since 1 January 2021 (the ‟Transition date”), no clear legal system is in place, to enforce civil and commercial judgments after Brexit, in a EU member-state, or in the UK. Creative businesses now have to rely on domestic recognition regimes in the UK and each EU member-state, if in existence. This introduces additional procedural steps before a foreign judgment is recognised, which makes the enforcement of EU civil and commercial judgments in the UK, and of UK civil and commercial judgments in the EU, more time-consuming, complex and expensive.

          How to enforce civil and commercial judgments after Brexit1. How things worked before Brexit, with respect to the enforcement of civil and commercial judgments between the EU and the UK

          a. The EU legal framework

          Before the Transition date on which the UK ceased to be a EU member-state, there were, and there still are between the 27 remaining EU member-states, four main regimes that are applicable to civil and commercial judgments obtained from EU member-states, depending on when, and where, the relevant proceedings were started.

          Each regime applies to civil and commercial matters, and therefore excludes matters relating to revenue, customs and administrative law. There are also separate EU regimes applicable to matrimonial relationships, wills, successions, bankruptcy and social security.

          The most recent enforcement regime applicable to civil and commercial judgments is EU regulation n. 1215/2012 of the European parliament and of the council dated 12 December 2012 on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the ‟Recast Brussels regulation). It applies to EU member-states’ judgments handed down in proceedings started on or after 10 January 2015.

          The original Council regulation n. 44/2001 dated 22 December 2000 on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the ‟Original Brussels regulation”), although no longer in force upon the implementation of the Recast Brussels regulation on 9 January 2015, still applies to EU member-states’ judgments handed down in proceedings started before 10 January 2015.

          Moreover, the Brussels convention dated 27 September 1968 on the jurisdiction and the enforcement of judgments in civil and commercial matters (the ‟Brussels convention”), also continues to apply in relation to civil and commercial judgments between the 15 pre-2004 EU member-states and certain territories of EU member-states which are located outside the EU, such as Aruba, Caribbean Netherlands, Curacao, the French overseas territories and Mayotte. Before the Transition date, the Brussels convention also applied to judgments handed down in Gibraltar, a British overseas territory.

          Finally, the Lugano convention dated 16 September 1988 on the jurisdiction and the enforcement of judgments in civil and commercial matters (the ‟Lugano convention”), which was replaced on 21 December 2007 by the Lugano convention dated 30 October 2007 on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the ‟2007 Lugano convention”), govern the recognition and enforcement of civil and commercial judgments between the EU and certain member-states of the European Free Trade Association (‟EFTA”), namely Iceland, Switzerland, Norway and Denmark but not Liechtenstein, which never signed the Lugano convention.

          The 2007 Lugano convention was intended to replace both the Lugano convention and the Brussels convention. As such it was open to signature to both EFTA members-states and to EU member-states on behalf of their extra-EU territories. While the former purpose was achieved in 2010 with the ratification of the 2007 Lugano convention by all EFTA member-states (except Liechtenstein, as explained above), no EU member-state has yet acceded to the 2007 Lugano convention on behalf of its extra-EU territories.

          The UK has applied to join the 2007 Lugano convention after the Transition date, as we will explain in more details in section 2 below.

          b. Enforceability of remedies ordered by a EU court

          Before Brexit, the Recast Brussels regulation, the Original Brussels regulation, the Brussels convention, the Lugano convention and the 2007 Lugano convention (together, the ‟EU instruments”) provided, and still provide with respect to the 27 remaining EU member-states, for the enforcement of any judgment in a civil or commercial matter given by a court of tribunal of a EU member-state, whatever it is called by the original court. For example, article 2(a) of the Recast Brussels regulation provides for the enforcement of any ‟decree, order, decision or writ of execution, as well as a decision on the determination of costs or expenses by an officer of the court”.

          The Original Brussels regulation also extends to interim, provisional or protective relief (including injunctions), when ordered by a court which has jurisdiction by virtue of this regulation.

          c. Competent courts

          Before the Transition date, proceedings seeking recognition and enforcement of EU foreign judgments in the UK should be brought before the high court in England and Wales, the court of session in Scotland and the high court of Northern Ireland.

          Article 32 of the Brussels convention provides that the proceedings seeking recognition and enforcement of EU foreign judgments in France should be brought before the president of the ‟tribunal judiciaire”. Therefore, before the Transition date, a UK judgment had to be brought before such president, in order to be recognised and enforced in France.

          d. Separation of recognition and enforcement

          Before the Transition date, and for judgments that fell within the EU instruments other than the Recast Brussels regulation, the process for obtaining recognition of a EU judgment was set out in detail in Part 74 of the UK civil procedure rules (‟CPR”). The process involved applying to a high court master with the support of written evidence. The application should include, among other things, a verified or certified copy of the EU judgment and a certified translation (if necessary). The judgment debtor then had an opportunity to oppose appeal registration on certain limited grounds. Assuming the judgment debtor did not successfully oppose appeal registration, the judgment creditor could then take steps to enforce the judgment.

          Before the Transition date, and for judgments that fell within the Recast Brussels regulation, the position was different. Under article 36 of the Recast Brussels regulation, judgments from EU member-states are automatically recognised as if they were a judgment of a court in the state in which the judgment is being enforced; no special procedure is required for the judgment to be recognised. Therefore, prior to Brexit, all EU judgments that fell within the Recast Brussels regulation were automatically recognised as if they were UK judgments, by the high court in England and Wales, the court of session in Scotland and the high court of Northern Ireland. Similarly, all UK judgments that fell within the Recast Brussels regulation were automatically recognised as if they were French judgments, by the presidents of the French ‟tribunal judiciaires”.

          Under the EU instruments, any judgment handed down by a court or tribunal from a EU member-state can be recognised. There is no requirement that the judgment must be final and conclusive, and both monetary and non-monetary judgments are eligible to be recognised. Therefore, neither the UK courts, nor the French courts, are entitled to investigate the jurisdiction of the originating EU court. Such foreign judgments shall be recognised without any special procedures, subject to the grounds for non-recognition set out in article 45 of the Recast Brussels regulation, article 34 of the Original Brussels regulation and article 34 of the Lugano convention, as discussed in paragraph e. (Defences) below.

          For the EU judgment to be enforced in the UK, prior to the Transition date, and pursuant to article 42 of the Recast Brussels regulation and Part 74.4A of the CPR, the applicant had to provide the documents set out in above-mentioned article 42 to the UK court, i.e.

          • a copy of the judgment which satisfies the conditions necessary to establish its authenticity;

          • the certificate issued pursuant to article 53 of the Recast Brussels regulation, certifying that the above-mentioned judgment is enforceable and containing an extract of the judgment as well as, where appropriate, relevant information on the recoverable costs of the proceedings and the calculation of interest, and
          •  
          • if required by the court, a translation of the certificate and judgment.

          It was incumbent on the party resisting enforcement to apply for refusal of recognition of the EU judgment, pursuant to article 45 of the Recast Brussels regulation.

          Similarly, for UK judgments to be enforced in France, prior to the Transition date, the applicant had to provide the documents set out in above-mentioned article 42 to the French court, which would trigger the automatic enforcement of the UK judgment, in compliance with the principle of direct enforcement.

          e. Defences

          While a UK defendant may have raised merits-based defences to liability or to the scope of the award entered in the EU jurisdiction, the EU instruments contain express prohibitions on the review of the merits of a judgment from another EU member-state. Consequently, while a judgment debtor may have objected to the registration of a judgment under the EU instruments (or, in the case of the Recast Brussels regulation, which does not require such registration, appeal the recognition or enforcement of the foreign judgment), he or she could have done so only on strictly limited grounds.

          In the case of the Recast Brussels regulation, there are set out in above-mentioned article 45 and include:

          • if recognition of the judgment would be manifestly contrary to public policy;
          • if the judgment debtor was not served with proceedings in time to enable the preparation of a proper defence, or
          • if conflicting judgments exist in the UK or other EU member-states.

          Equivalent defences are set out in articles 34 to 35 of the Original Brussels regulation and the 2007 Lugano convention, respectively. The court may not have refused a declaration of enforceability on any other grounds.

          Another ground for challenging the recognition and enforcement of EU judgments is the breach of article 6 of the European Convention on Human Rights (‟ECHR”), which is the right to a fair trial. However, since a fundamental objective underlying the EU regime is to facilitate the free movement of judgments by providing a simple and rapid procedure, and since it was established in Maronier v Larmer [2003] QB 620 that this objective would be frustrated if EU courts of an enforcing EU member-state could be required to carry out a detailed review of whether the procedures that resulted in the judgment had complied with article 6 of the ECHR, there is a strong presumption that the EU court procedures of other signatories of the ECHR are compliant with article 6. Nonetheless, the presumption can be rebutted, in which case it would be contrary to public policy to enforce the judgment.

          To conclude, pre-Brexit, the EU regime (and, predominantly, the Recast Brussels regulation) was an integral part of the system of recognition and enforcement of judgments in the UK. However, after the Transition date, the UK left the EU regime as found in the Recast Brussels regulation, the Original Brussels regulation and the Brussels convention, since these instruments are only available to EU member-states.

          So what happens now?

          2. How things work after Brexit, with respect to the enforcement of civil and commercial judgments between the EU and the UK

          In an attempt to prepare the inevitable, the EU commission published on 27 August 2020 a revised notice setting out its views on how various conflicts of laws issues will be determined post-Brexit, including jurisdiction and the enforcement of judgments (the ‟EU notice”), while the UK ministry of justice published on 30 September 2020 Cross-border civil and commercial legal cases: guidance for legal professionals from 1 January 2021” (the ‟MoJ guidance”).

          a. The UK accessing the 2007 Lugano convention

          As mentioned above, the UK applied to join the 2007 Lugano convention on 8 April 2020, as this is the UK’s preferred regime for governing questions of jurisdiction and enforcement of judgments with the 27 remaining EU member-states, after the Transition date.

          However, accessing the 2007 Lugano convention is a four-step process and the UK has not executed those four stages in full yet.

          While step one was accomplished on 8 April 2020 when the UK applied to join, step two requires the EU (along with the other contracting parties, ie the EFTA member-states Iceland, Switzerland, Norway and Denmark) to approve the UK’s application to join, followed in step three by the UK depositing the instrument of accession. Step four is a three-month period, during which the EU (or any other contracting state) may object, in which case the 2007 Lugano convention will not enter into force between the UK and that party. Only after that three-month period has expired, does the 2007 Lugano convention enter into force in the UK.

          Therefore, in order for the 2007 Lugano convention to have entered into force by the Transition date, the UK had to have received the EU’s approval and deposited its instrument of accession by 1 October 2020. Neither have occured.

          Since the EU’s negotiating position, throughout Brexit, has always been ‟nothing is agreed until everything is agreed”, and in light of the recent collision course between the EU and the UK relating to trade in Northern Ireland, it is unlikely that the UK’s request to join the 2007 Lugano convention will be approved by the EU any time soon.

          b. The UK accessing the Hague convention

          Without the 2007 Lugano convention, the default position after the Transition date is that jurisdiction and enforcement of judgments for new cases issued in the UK will be determined by the domestic law of each UK jurisdiction (i.e. the common law of England and Wales, the common law of Scotland and the common law of Northern Ireland), supplemented by the Hague convention dated 30 June 2005 on choice of court agreements (‟The Hague convention”).

          I. At common law rules

          The common law relating to recognition and enforcement of judgments applies where the jurisdiction from which the judgment relates does not have an applicable treaty in place with the UK, or in the absence of any applicable UK statute. Prominent examples include judgments of the courts of the United States, China, Russia and Brazil. And now of the EU and its 27 remaining EU member-states.

          At common law, a foreign judgment is not directly enforceable in the UK, but instead will be treated as if it creates a contract debt between the parties. The foreign judgment must be final and conclusive, as well as for a specific monetary sum, and on the merits of the action. The creditor will then need to bring an action in the relevant UK jurisdiction for a simple debt, to obtain judicial recognition in accordance with Part 7 CPR, and an English judgment.

          Once the judgment creditor has obtained an English judgment in respect of the foreign judgment, that English judgment will be enforceable in the same way as any other judgment of a court in England.

          However, courts in the UK will not give judgment on such a debt, where the original court lacked jurisdiction according to the relevant UK conflict of law rules, if it was obtained by fraud, or is contrary to public policy or the requirements of natural justice.

          With such blurry and vague contours to the UK common law rules, no wonder that many lawyers and legal academics, on both sides of the Channel, decry the ‟mess” and ‟legal void” left by Brexit, as far as the enforcement and recognition of civil and commercial judgments in the UK are concerned.

          II. The Hague convention

          As mentioned above, from the Transition date onwards, the jurisdiction and enforcement of judgments for new cases issued in England and Wales will be determined by its common law, supplemented by the Hague convention.

          The Hague convention gives effect to exclusive choice of court clauses, and provides for judgments given by courts that are designated by such clauses to be recognised and enforced in other contracting states. The contracting states include the EU, Singapore, Mexico and Montenegro. The USA, China and Ukraine have signed the Hague convention but not ratified or acceded to it, and it therefore does not currently apply in those countries.

          Prior to the Transition date, the UK was a contracting party to the Hague convention because it continued to benefit from the EU’s status as a contracting party. The EU acceded on 1 October 2015. By re-depositing the instrument of accession on 28 September 2020, the UK acceded in its own right to the Hague convention on 1 January 2021, thereby ensuring that the Hague convention would continue to apply seamlessly from 1 January 2021.

          As far as types of enforceable orders are concerned, under the Hague convention, the convention applies to final decisions on the merits, but not interim, provisional or protective relief (article 7). Under article 8(3) of the Hague convention, if a foreign judgment is enforceable in the country of origin, it may be enforced in England. However, article 8(3) of the Hague convention allows an English court to postpone or refuse recognition if the foreign judgment is subject to appeal in the country of origin.

          However, there are two major contentious issues with regards to the material and temporal scope of the Hague convention, and the EU’s and UK’s positions differ on those issues. They are likely to provoke litigation in the near future.

          The first area of contention relates to the material scope of the Hague convention: more specifically, what is an ‟exclusive choice of court agreement”?

          Article 1 of the Hague convention provides that the convention only applies to exclusive choice of courts agreements, so the issue of whether a choice of court agreement is ‟exclusive” or not is critical as to whether such convention applies.

          Exclusive choice of court agreements are defined in article 3(a) of the Hague convention as those that designate ‟for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship, the courts of one Contracting state or one or more specific courts of one Contracting state, to the exclusion of the jurisdiction of any other courts”.

          Non-exclusive choice of court agreements are defined in article 22(1) of the The Hague convention as choice of court agreements which designate ‟a court or courts of one or more Contracting states”.

          Although this is a fairly clear distinction for ‟simple” choice of court agreements, ‟asymmetric” or ‟unilateral” agreements are not so easily categorised. These types of jurisdiction agreements are a common feature of English law-governed finance documents, such as the Loan Market Association standard forms. They generally give one contracting party (the lender) the choice of a range of courts in which to sue, while limiting the other party (the borrower) to the courts of a single state (usually, the lender’s home state).

          There are divergent views as to whether asymmetric choice of court agreements are exclusive or non-exclusive for the purposes of the Hague convention. While two English high court judges have expressed the view that choice of court agreements should be regarded as exclusive, within the scope of the Hague convention, the explanatory report accompanying the Hague convention, case law in EU member-states and academic commentary all suggest the opposite.

          This issue will probably be resolved in court, if and when the time comes to decide whether asymmetric or unilateral agreements are deemed to be exclusive choice of court agreements, susceptible to fall within the remit of the Hague convention.

          The second area of contention relates to the temporal scope of the Hague convention: more specifically, when did the Hague convention ‟enter into force” in the UK?

          Pursuant to article 16 of the Hague convention, such convention only applies to exclusive choice of court agreements concluded ‟after its entry into force, for the State of the chosen court”.

          There is a difference of opinion as to the application of the Hague convention to exclusive jurisdiction clauses in favour of UK courts entered into between 1 October 2015 and 1 January 2021, when the UK was a party to the Hague convention by virtue of its EU membership.

          Indeed, while the EU notice states that the Hague convention will only apply between the EU and UK to exclusive choice of court agreements ‟concluded after the convention enters into force in the UK as a party in its own right to the convention” – i.e. from the Transition date; the MoJ guidance sets out that the Hague convention ‟will continue to apply to the UK (without interruption) from its original entry into force date of 1 October 2015”, which is when the EU became a signatory to the convention, at which time the convention also entered into force in the UK by virtue of the UK being a EU member-state.

           

          To conclude, the new regime of enforcement and recognition of EU judgments in the UK, and vice versa, is uncertain and fraught with possible litigation with respect to the scope of application of the Hague convention, at best.

          Therefore, and since these legal issues relating to how to enforce civil and commercial judgments after Brexit are here to stay for the medium term, it is high time for the creative industries to ensure that any dispute arising out of their new contractual agreements are resolved through arbitration.

          Indeed, as explained in our article ‟Alternative dispute resolution in the creative industries, arbitral awards are recognised and enforced by the Convention on the recognition and enforcement of foreign arbitral awards 1958 (the ‟New York convention”). Such convention is unaffected by Brexit and London, the UK capital, is one of the most popular and trusted arbitral seats in the world.

          Until the dust settles, with respect to the recognition and enforcement of EU judgments in the UK, and vice versa, it is wise to resolve any civil or commercial dispute by way of arbitration, to obtain swift, time-effective and cost-effective resolution of matters, while preserving the cross-border relationships, established with your trade partners, between the UK and the European continent.

           

           

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            How to remedy a breach of license which term is overran?

            Crefovi : 27/11/2020 12:43 pm : Antitrust & competition, Articles, Consumer goods & retail, Copyright litigation, Emerging companies, Entertainment & media, Fashion law, Gaming, Hospitality, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, Life sciences, Litigation & dispute resolution, Technology transactions, Trademark litigation

            In the creative industries, many intellectual property rights, such as copyright, trademarks, registered designs and patents, are subjected to licenses, in order for right owners and creators to monetize such rights. However, things do not always go smoothly during and after the term of the licensing agreement, between the licensor and the licensee. Therefore, what are the remedies that the licensor may put in place, in order to ensure that his or her intellectual property rights are fairly monetised? How to remedy a breach of license which term is overran?

            How to remedy a breach of license which term is overran?1. What is a license agreement?

            A license is the contract which authorises the use of a certain intellectual property right (‟IPRs”), be it copyright, a trademark, a design or a patent, for commercial purposes, by a licensee, in exchange for the payment of royalties to the licensor, i.e. the right owner. These royalties are usually computed as a percentage of the turnover generated by the sale of products manufactured, or services provided, by the licensee under this license agreement.

            A license is different from an assignment agreement, in that the former has a limited term, whereby the authorisation to use the IPRs granted to the licensee by the licensor will expire, after a period of time explicitly set out in the license agreement. On the contrary, an assignment is a perpetual and irreversible transfer of ownership of some designated IPRs, from the assignor to the assignee, in exchange for the payment of a consideration (usually, a one-off sum of money).

            To resume, a license is temporary and reversible upon expiry of a term, while an assignment is irrevocable and irreversible if made for consideration.

            2. How are licenses used in the creative industries?

            Licenses are often used in the creative industries, in order for creatives to monetise the IPRs that they created.

            For example, in the music industry, many copyright licenses are entered into, in order for music distributors to distribute the masters of sound recordings to new territories, which are difficult to reach for the music label which owns such masters because this label is located in a totally different geographical area. Therefore, the licensor, the music label, relies on the expertise of the local licensee, the national distributor, to put in place the best local strategy to broadcast the masters of its sound recordings, via radio plays, local streaming websites, TV broadcasting, and then to generate revenues through these various income streams and local neighbouring rights collecting societies.

            Another example of a copyright license, in the fashion and luxury sectors, is when a brand commissions an artist or designer to make some drawings and designs, which the brand will then display on its website(s), as well as in its various stores. These drawings and designs being protected by copyright, the brand, as licensee, will enter into a license agreement with the artist, as licensor, to obtain the right to use these drawings and designs in set locations and premises of this brand.

            Licenses are also extremely widely used in the context of trademarks, especially with respect to distribution of luxury and fashion products on new geographical territories by local distributors (who need to have the right to use the trademark to advertise, market and open retail locations), and also with respect to deals where the licensee manufactures products in which it has a lot of expertise (such as perfumes, cosmetics, children’s garments), which the licensee then sells under the trademark of a famous fashion or luxury brand, i.e. the licensor.

            In the technology sector, patent and/or copyright licenses are the norm. Indeed, softwares and sources codes are protected by copyright, so many tech companies make a living licensing their copyright into such inventions, to their retail or business customers, in exchange for some royalties and/or licensing fees. As far as technological products are concerned, those can be protected by patents, provided that they are novel, that an inventive step was present in creating such products, and that the invention is capable of industrial application. Therefore, most technological hardware products, such as mobile phones, computers, tablets, are protected by patents. And whenever there is a dichotomy between the creator of these products, and the manufacturers and distributors of such products, then some patent license agreements are entered into.

            Technology licenses are, indeed, so critical, that fair, reasonable and non-discriminatory terms (‟FRAND”) have been set up in order to level the playing field: FRAND terms denote a voluntary licensing commitment that standards organisations often request from the owner of an IPR (usually a patent) which is, or may become, essential to practice a technical standard. One of the most common policies, is for the standard- setting organisation to require from a patent holder that it voluntarily agrees to include its patented technology in the standard, by licensing that technology on FRAND terms. Failing or refusing to license IPRs on FRAND terms could even be deemed to infringe antitrust rules, in particular those of the European Union (‟EU”). For example, the EU commission sent a statement of objections to Motorola Mobility, for breach of EU antitrust rules, over its attempt to enforce a patent infringement injunction against Apple in Germany. The patents in question relate to GPRS, a part of the GSM standard, which is used to make mobile phone calls. Motorola accepted that these patents were standard essential patents and had, therefore, agreed that they would be licensed to Apple on FRAND terms. However, in 2011, Motorola tried to take out, and enforce, a patent infringement injunction against Apple in Germany, based on those patents, even although Apple had said that it was willing to pay royalties, to use the patented technology. Samsung was also the recipient of a statement of objections from the EU commission, after it sought patent infringement injunctions to ‟prevent Apple from infringing patents”, despite Apple apparently being willing to pay a license fee and negotiate a license on FRAND terms.

            3. How to remedy a breach of license which term is overran: what to do if the license has expired but your licensee keeps on using your IPRs?

            Due to poor management and in-house record-keeping, as well as human resources disorganisation and high turnover rate of staff, the licensee may breach the licensing agreement by keeping on using the licensed IPR, although the license agreement has reached its term.

            For example, in the above-mentioned case of the copyright license on some masters of sound recordings, the French local distributors and licensees of such masters overran the term of the license and kept on collecting royalties and revenues on those masters, in particular from French neighbouring rights collecting societies, well after the date of termination of this license. How, on earth, could have this happened? Well, as I experienced first hand at the music trade show Midem, many music distributors, labels and catalogues’ owners, such as music publishers, often mingle together in order to buy and sell to each other music catalogues, be it of copyrighted musical compositions and lyrics, or of copyrighted masters of sound recordings. Therefore, the terms of the first license agreement, between the licensor and the initial first licensee, become more and more blurry and forgotten, with basic provisions, such as the duration of the initial license, being conveniently lost into oblivion by the generation of successive licensees. Yes, I guarantee you, it happens very often.

            Another example, relating to the above-mentioned case of a copyright license granted by an artist, on his drawings and designs commissioned by a luxury brand, which used these drawings on its website(s) and stores, in order to promote its luxury products … even after the termination date of the license!

            So what can a licensor do, when he or she notices that the licensee has, or is, breaching the terms of the license agreement by overrunning its duration? How to remedy a breach of license which term is overran?

            First and foremost, the licensor must gather as much pieces of evidence as possible of such breach of the term of the license agreement, by the licensee. For example, the music label, licensor, may reach out to French neighbouring rights collecting societies and ask for the royalties statements for the French distributor, ex-licensee, up-to-date, in order to have some indisputable evidence that this ex-licensee kept on collecting the neighbouring rights royalties on the sound recordings which were the subject of the license, even after the termination date of this license. The French artist, whose designs and drawings kept on being used by the luxury brand after the term of his license with this brand expired, instructed our law firm to liaise with a French bailiff, in order to have this bailiff execute a detailed report of copyright infringement on internet, by taking snapshots of the webpages of this brand’s website displaying his drawings and designs.

            These pieces of evidence are indispensable, in order to prove the IPR infringement (since the license expired), to show it to the ex-licensee, if necessary, and to use it in any future lawsuit for IPR infringement lodged with a local court, if and when the ex-licensee refuses to settle further to receiving the ex-licensor’s letter before court action.

            You will have guessed by now that, indeed, once the ex-licensor has gathered as much conclusive evidence as possible that his or her IPR is being infringed by the ex-licensee because the latter keeps on using such IPR outside the contractual framework of the now-expired license agreement, the second stage is to instruct counsel, in the country where such IPR infringement is taking place, and have such counsel send a robust, cordial yet frank letter before court action to the ex-licensor, asking:

            • for the immediate cessation of any IPR infringement act, by stopping using the IPR at once;
            • for the evidence of, and information about, turnover and sales, relating to the sale of products and/or services, generated thanks to the use of the IPR beyond the term of the expired license, and
            • for the restitution of all those revenues generated by the sale of those products and/or services, generated thanks to the use of the IPR beyond the term of the expired license, as well as accrued late payment interests at the statutory interest rate,

            within a short deadline (usually, no longer than 14 days).

            Here, the ex-licensee has an option: either it decides to cave in and avoid a tarnished reputation by immediately complying with the terms of the ex-licensor’s letter before court action, or it may decide to act as a blowhard and ignore the requests set out in this letter. The first approach is favoured by anglo-saxon companies, while the second option is usual among French, and all other Mediterranean, ex-licensees.

            If the dispute may be resolved out-of-court, a settlement agreement will be drafted, negotiated and finalised, by the lawyers advising the ex-licensor and the ex-licensee, which will provide for the restitution of a very clearly defined sum of money, representing the sales generated by the ex-licensee during the period in which it overran the use of the litigious IPR.

            If the dispute cannot be resolved out-of-court, then the ex-licensor will have no other option left than to lodge a lawsuit for IPR infringement against the ex-licensee, which – provided the former has strong evidence of such breach of licensing agreement – it will won.

            Once the slate is clean again, i.e. after the ex-licensee has paid damages or restituted sums to the ex-licensor with respect to its use of the IPR after the termination date of the first license agreement, then ex-licensor and the ex-licensee may decide to resume doing business together. Here, I strongly advise that the parties draft a transparent, clear and straightforward new license agreement, which clearly sets out the termination date of this new future license, and foreseeable consequences in case the future licensee keeps on using the IPR beyond the end of such termination date. Using the services of either in-house lawyer or external counsel is very much advisable, in this instance, in order to avoid a repeat of the messy and damaging business situation which occured in the first place, between the licensor and the licensee.

             

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              Fashion law in France: a 2020 overview

              Crefovi : 15/04/2020 8:00 am : Antitrust & competition, Articles, Banking & finance, Capital markets, Consumer goods & retail, Copyright litigation, Emerging companies, Employment, compensation & benefits, Fashion law, Fashion lawyers, Hostile takeovers, Information technology - hardware, software & services, Intellectual property & IP litigation, Law of luxury goods, Litigation & dispute resolution, Mergers & acquisitions, Private equity & private equity finance, Product liability, Tax, Trademark litigation, Unsolicited bids

              Since its inception in 2003, the law of luxury goods and fashion law have evolved, matured, and become institutionalised as a standalone area of specialisation in the legal profession. Here is Crefovi’s 2020 status update for fashion law in France, detailing each legal practice area relevant to such creative industry.

              Fashion law in France1. Market spotlight & state of the market

              1 | What is the current state of the luxury fashion market in your jurisdiction?

              France is the number one player worldwide in the luxury fashion sector, as it is home to three major luxury goods conglomerates, namely:

              • LVMH Moet Hennessy-Louis Vuitton SE (full year (‟FY”) 2017 luxury goods sales US$27.995 billion and the number one luxury goods company by sales FY2017, with a selection of luxury brands, such as: Louis Vuitton, Christian Dior, Fendi, Bulgari, Loro Piana, Emilio Pucci, Acqua di Parma, Loewe, Marc Jacobs, TAG Heuer, Benefit Cosmetics);

              • Kering SA (FY2017 luxury goods sales US$12.168 billion and the number four luxury goods company by sales FY2017, with a selection of luxury brands, such as: Gucci, Bottega Veneta, Saint Laurent, Balenciaga, Brioni, Pomellato, Girard-Perregaux, Ulysse Nardin); and

              • L’Oreal Luxe (FY2017 luxury goods sales estimate US$9.549 billion and the number seven luxury goods company by sales FY2017, with a selection of luxury brands, such as: Lancome, Kiehl’s, Urban Decay, Biotherm, IT cosmetics).

              2. Manufacture and distribution

              2.1. Manufacture and supply chain

              2 | What legal framework governs the development, manufacture and supply chain for fashion goods? What are the usual contractual arrangements for these relationships?

              The French law on duty of vigilance of parent and outsourcing companies, dated 27 March 2017 (article L 225-102-4 inserted in the French commercial code), is the French response to the UK Modern Slavery Act and the California Transparency in Supply Chains Act.

              This is a due diligence measure that requires large French companies to create and implement a ‟vigilance plan” aimed at identifying and preventing potential human rights violations – including those associated with subsidiaries and supply chain members.

              The law applies to any company headquartered in France that has (i) 5,000 or more employees, including employees of any French subsidiaries; or (ii) 10,000 or more employees, including French and foreign subsidiaries.

              The law requires that the vigilance plan address activities by the company’s subcontractors and suppliers (‟supply chain entities”), where the company maintains an ongoing business relationship with these supply chain entities, and such activities involve its business relationship. The vigilance plan, as well as the minutes related to its implementation, must be made available to the public.

              As of February 2019, the enforceability of this new French law was mitigated, at best. Certain corporations had still not published a vigilance plan regardless of their legal obligation to do so (eg, Lactalis, Credit Agricole, Zara or H&M). Those that had published vigilance plans merely included them in their chapter on social and environmental responsibility within their company’s annual report. Such vigilance plans were vague and had gaps, the actions and measures were not detailed enough and only very partially addressed the risks mentioned in the risk mapping. There is, therefore, room for improvement.

              The usual contractual arrangements for the relationships relating to the development, manufacture and supply chain for fashion goods in France are standard French law-governed manufacturing agreements or supplier agreements.

              Such contractual arrangements are subject to the French civil code on contract law, and the general regime and proof of obligations, which was reformed in October 2016, thanks to Order No. 2016-131 of 10 February 2016. The order codified principles that had emerged from the case law of French courts, but also created a number of new rules applicable to pre-contractual, and contractual, relationships, such as:

              • new article 1104 of the French civil code, which provides that contracts must be negotiated, concluded and performed in good faith, and failure to comply with such obligation can not only trigger the payment of damages, but also result in the nullification of the contract;

              • new article 1112-1 provides that if a party to the contractual obligations is aware of information, the significance of which would be determinative for the consent of the other party, it must inform such other party thereof if such other party is legitimately unaware of such information, or relies on the first party;

              • new article 1119 provides that general conditions invoked by a party have no effect against the other party, unless they have been made known to such other party and accepted by it. In the event of a ‘battle of the forms’, between two series of general conditions (eg, general sales conditions and general purchase conditions), those conditions that conflict are without effect;

              • new article 1124, which provides that a contract concluded in violation of a unilateral promise, with a third party that knew of the existence thereof, is null and void; and

              • new article 1143 provides that violence exists when a party abusing the state of dependency in which its co-contracting party finds itself, obtains from such co-contracting party an undertaking which such co-contracting party would not have otherwise agreed to in the absence of such constraint, and benefits thereby from a manifestly excessive advantage.

              2.2. Distribution and agency agreements

              3 | What legal framework governs distribution and agency agreements for fashion goods?

              In addition to the reform of the French civil code on contract law and the general regime and proof of obligations explained in question 2 above, distribution and agency agreements for fashion goods need to comply with the following legal framework:

              • European regulation (‟EU”) No. 330/2010 dated 20 April 2010 on the application of article 101(3) of the Treaty on the Functioning of the European Union (‟TFEU”), which places limits on restrictions that a supplier could place on a distributor or agent (the ‟Regulation”);

              • article L134-1 of the French commercial code, which sets out what the agency relationship consists of;

              • article L134-12 of of the French commercial code, which sets out that a commercial agent is entitled to a termination payment at the end of the agency agreement;

              • books III and IV, and article L442-6 of the French commercial code, which set out that a relationship between two commercial partners needs to be governed by fairness and which prohibit any strong imbalance between the parties; and

              • the law No. 78-17 dated 6 January 1978 relating to IT, databases and freedom (the ‟French Data Protection Act”) and its implementation decree No. 2005-1309.

              French luxury houses often use selective distribution to sell their products. It is, indeed, the most-used distribution technique for perfumes, cosmetics, leather accessories or even ready-to-wear.

              The Regulation provides for an exemption system to the general prohibition of vertical agreements set out in article 101(1) of the TFEU. The lawfulness of selective distribution agreements is always assessed via the fundamental rules applying to competition law, in particular article 101 of the TFEU.

              Selective distribution systems may qualify for block exemption treatment under the vertical agreements block exemption set out in article 101(3) of the TFEU.

              4 | What are the most commonly used distribution and agency structures for fashion goods, and what contractual terms and provisions usually apply?

              Under French law, it is essential to avoid any confusion between a distribution agreement and an agency agreement.

              French law sets out that a distributor is an independent natural person or legal entity, who buys goods and products from the manufacturer or supplier and resells them to third parties, upon the agreed trading conditions, and at a profit margin set by such distributor.

              A distributor may be appointed for a particular territory, either on an exclusive, or non-exclusive, basis.

              Under French law, there is no statutory compensation for the loss of clientele and business due to the distributor upon expiry or termination of a distribution agreement. However, French case law has recently recognised that some compensation may be due when some major investments had been made by the distributor, on behalf of the manufacturer or supplier, in the designated territory.

              Moreover, there is no statutory notice period to terminate a distribution agreement under French law. However, most distribution agreements set out a three-to-six-month termination notice period. French law sets out a detailed legal framework relating to the role of commercial agent, which is of a ‘public policy’ nature (ie, one cannot opt out from such statutory legal provisions). In particular, commercial agents must be registered as such, on a special list held by the registrar of the competent French commercial court.

              Under French law, not only is it very difficult to terminate a commercial agent (except for proven serious misconduct), but also there is a statutory considerable compensation for the loss of clientele and business that is due to the terminated agent by the manufacturer or supplier.

              Selective distribution is the most commonly used distribution structure for luxury goods in France, as explained in question 3.

              Such selective distribution systems of luxury products can escape the qualification of anticompetitive agreements, pursuant to article 101(3) of the TFEU (individual and block exemption). However, in 2011, the European Court of Justice (‟ECJ”) held that the selective distribution agreement that has as its object the restriction of passive sales to online end-users outside of the dealer’s area excluded the application of the block exemption in its decision in Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi. The ECJ ruled that it was down to the French courts to determine whether an individual exemption may benefit such selective distribution agreement imposed by French company Pierre Fabre Dermo-Cosmétique SAS to its distributors. To conclude, it is clear that the ECJ set out that the prohibition of internet sales, in a distribution agreement, constitutes an anticompetitive restriction.

              2.3. Import and export

              5 | Do any special import and export rules and restrictions apply to fashion goods?

              A French company, upon incorporation, will be provided with the following numbers by the French authorities:

              • an intra-community VAT number, provided to all companies incorporated in a EU member state;

              • a SIRET number, which is a unique French business identification number; and

              • an EORI number, which is assigned to importers and exporters by the French tax authorities, and is used in the process of customs entry declaration and customs clearance for both import and export shipments, travelling to and from the EU and countries outside the EU.

              Fashion and luxury products manufactured outside of the EU, and brought into the EU, will be deemed to be imports, by French customs authorities.

              In case such fashion and luxury products are transferred from France, or another member state of the EU, to a third party country in the rest of the world (outside of the EU), then these products will be deemed to be exports by French customs authorities.

              For imports of fashion and luxury products, (ie, when they enter the EU), the French importer will have to pay some customs duties or other taxes when it imports these products from a third-party country to France or another member state of the EU.

              Such customs duties are the same in each of the 27 member states of the EU because they are set by EU institutions. The importer can compute such customs duties by accessing the RITA encyclopedia, which sets out the integrated referential to an automated tarif, for each luxury and fashion product.

              Through rather complex manipulations on the RITA encyclopedia, the importer can find out the relevant customs duties, additional taxes and any other fees (such as anti-dumping rights) payable for each type of fashion product and other imported merchandise.

              For example, if you are importing a man’s shirt in France or any other EU member state from China, there will be a 12 percent customs duty to pay (the ‟Customs duty”).

              Such Customs duty will be payable on the price paid to the Chinese manufacturer for the man’s shirt in China plus all transportation costs from China to France (or another EU member state).

              Therefore, if the man’s shirt has a manufacturing price (set out on the invoice of the Chinese manufacturer) of €100, and if there are €50 of transportation costs, the customs value basis will be €150 and the customs duty amount will be €18 (€150 multiplied by 12 per cent).

              The computation of Customs duties, additional taxes and other charges being such a complicated and specialised area, and the filling out of customs declarations being done only on the Delta software that is accessible only to legal entities that have received an authorisation to use such software, most EU companies that sell fashion and luxury goods use the services of registered customs representatives, also called customs brokers or customs agents.

              For exports of fashion and luxury products (ie, when they leave the EU to go to a third party in the rest of the world), a French company will not have to pay any Customs duties or other taxes. However, it is also important to check whether such third-party country will charge the French exporter some Customs duties, additional taxes and other charges, upon the luxury and fashion products entering its territory.

              In addition, it is important for the importers to double check whether the EU, and consequently France, may be giving preferential treatment to fashion and luxury products imported from certain developing countries, which names are set out on the list entitled ‟Système Généralisé de Préférence” (‟SPG”). SPG is a programme of trade preferences for goods coming from developing countries, such as Bangladesh, Vietnam, etc. It may be financially more advantageous to manufacture luxury and fashion products in the countries that are included on the SPG list, to ensure that lower tariffs and Customs duties will apply when importing these products to the EU.

              Finally, and especially if the goods are in the luxury bracket, it may be possible to put a ‟Made in France” label on them, provided that such products were assembled in France.

              2.4. Corporate social responsibility and sustainability

              6 | What are the requirements and disclosure obligations in relation to corporate social responsibility and sustainability for fashion and luxury brands in your jurisdiction? What due diligence in this regard is advised or required?

              As explained in question 2 above, the French law on duty of vigilance for parent and outsourcing companies, dated 27 March 2017 (article L 225-102-4 inserted in the French commercial code) is the legal framework that applies to disclosure obligations in relation to corporate social responsibility and sustainability for fashion and luxury brands in France.

              The vigilance plan made compulsory by such French law must set out a detailed risk mapping stating the risks for third parties (ie, employees, the general population) and the environment. French companies subject to this law must then publish their risk mapping, explicitly and clearly stating the serious risks and severe impacts on health and safety of individuals and on the environment. In particular, the vigilance plan should provide detailed lists of risks for each type of activity, product and service.

              It is these substantial risks (ie, negative impacts on third parties and the environment deriving from general activities) on which vigilance must be exercised and which the plan must cover. Moreover, the vigilance plan must include the evaluated severity criteria regarding the level, size and reversible or irreversible nature of the impacts, or the probability of the risk. This prioritisation should allow the French company to structure how it implements its measures to resolve the impacts or risks of impact.

              The vigilance plan, as well as the minutes related to its implementation, must be made available to the public.

              The French law on duty of vigilance of parent and outsourcing companies sets out some stringent enforcement mechanisms. Any person with a demonstrable interest may demand that a company comply with the due diligence requirements (i.e. creating and implementing a vigilance plan) and, if the French company fails to comply, a court may fine the offending company up to €10 million, depending on the severity of the breach and other circumstances. Additionally, if the activities of a French company – or the activities of its supply chain entities – cause harm that could have been avoided by implementing its vigilance plan, the size of the fine can be trebled (up to €30 million), depending on the severity and circumstances of the breach and the damage caused, and the company can be ordered to pay damages to the victims.

              7 | What occupational health and safety laws should fashion companies be aware of across their supply chains?

              As set out above in our answers to the questions set out in sub-paragraphs 2.2. and 2.4. above, the French law on duty of vigilance of parent and outsourcing companies, dated 27 March 2017 (article L 225-102-4 inserted in the French commercial code) is the legal framework that applies to disclosure obligations in relation to occupational health and safety across their supply chains, for fashion and luxury brands in France.

              In addition, the main legislation on occupational health and safety in France is set out in Part IV of the French labour code, entitled ‟Health and Safety at Work”. Health and safety at work legislation is supplemented by other parts of this labour code (ie, work time legislation, daily rest period, respect of fundamental freedoms, bullying, sexual harassment, discrimination, execution in good faith of the employment agreement, work council competencies, employee delegates’ abilities).

              Collective bargaining is also a source of health and safety legislation (via inter-branch agreements, branch agreements, company-level agreements) in France. These collective agreements regulate employer versus employee relationships, in particular as far as occupation health and safety are concerned.

              3. Online retail

              3.1. Launch

              8 | What legal framework governs the launch of an online fashion marketplace or store?

              The Hamon law dated 17 March 2014 (‟Hamon law”) transposes the provisions of the Directive 2011/83/EU on consumer rights, which aims at achieving a real business-to-consumer internal market, striking the right balance between a high level of consumer protection and the competitiveness of businesses. This law strengthened pre-contractual information requirements, in relation to:

              • the general duty to give information that applies to any sales of goods or services agreement entered into on a business-to- consumer basis (for on-premises sales, distance sales and off-premises sales); and

              • information specific to distance contracts about the existence of a withdrawal right.

              Thanks to this law, the withdrawal period has been extended from 7 to 14 days. It introduced the use of a standard form that can be used by consumers to exercise their withdrawal rights. Such form must be made available to consumers online or sent to them before the contract is entered into. If a consumer exercises this right, the business must refund the consumer for all amounts paid, including delivery costs, within a period of 14 calendar days.

              Also, the General Data Protection Regulation (‟GDPR”) and the French Data Protection Act with its implementation decree No. 2005- 1309, govern the launch of any online fashion marketplace or store in France. This is because e-commerce stores must have a data privacy policy, as well as a cookies policy, as well as some general terms and conditions of use of their e-commerce website, as well as some general terms and conditions of sale on their e-commerce website in place, which all comply with the GDPR and the French Data Protection Act. These online marketplaces must also appoint a data protection officer, to ensure that they comply with such data protection legal framework and so that the Commission Nationale Informatique et Libertes (‟CNIL”, the French data protection authority) has a point of contact within the French online fashion marketplace or store.

              With respect to the cookies policy, e-commerce stores must comply with the cookies and other tracking devices guidelines published by the CNIL in July 2019.

              3.2. Sourcing and distribution

              9 | How does e-commerce implicate retailers’ sourcing and distribution arrangements (or other contractual arrangements) in your jurisdiction?

              As explained in our answer to question 4, luxury and fashion brands (manufacturers, suppliers) cannot ban their distributors from selling their products online, through e-commerce, since this would be a competition law breach under article 101 of the TFEU, entitled an anticompetitive restriction.

              However, luxury and fashion brands may impose some criteria and conditions for their distributors to be able to sell their products online, in order to preserve the luxury aura and prestige of their products sold online, via the terms of their distribution agreements.

              3.3. Terms and conditions

              10 | What special considerations would you take into account when drafting online terms and conditions for customers when launching an e-commerce website in your jurisdiction?

              As explained in our answer to question 8, these terms and conditions for customers of an e-commerce website must comply with the GDPR, the French Data Protection Act and the cookies and other tracking devices guidelines from the CNIL.

              Therefore, those terms must comply with the following principles:

              • privacy by design, which means that fashion and luxury businesses must take a proactive and preventive approach in relation to the protection of privacy and personal data;

              • accountability, which means that data controllers, such as an e-commerce website, as well as its data processors, must take appropriate legal, organisational and technical measures allowing them to comply with the GDPR. They must be able to demonstrate the execution of such measures to the CNIL;

              • privacy impact assessment, which means that an e-commerce business must execute an analysis relating to the protection of personal data, on its data assets, to track and map risks inherent to each data process and treatment put in place, according to their plausibility and seriousness;

              • a data protection officer must be appointed, to ensure the compliance of treatment of personal data by fashion businesses whose data treatments present a strong risk of breach of privacy;

              • profiling, which is an automated processing of personal data allowing the construction of complex information about a particular person, such as his or her preferences, productivity at work and whereabouts. This type of data processing may constitute a risk to civil liberties; therefore, online businesses doing profiling must limit their risks and guarantee the rights of individuals subjected to such profiling, in particular by allowing them to request human intervention or contest the automated decision; and

              • right to be forgotten, which allows an individual to avoid that information about his or her past that interferes with their current, actual life. In the digital world, that right encompasses the right to erasure, as well as the right to dereferencing.

              3.4. Tax

              11 | Are online sales taxed differently than sales in retail stores in your jurisdiction?

              No, online sales are not taxed differently than sales executed in brick-and- mortar stores. They are all subjected to a 20 percent VAT rate, which is the standard VAT rate in France, and which is applicable on all fashion and luxury products.

              4. Intellectual property

              4.1. Design protection

              12 | Which IP rights are applicable to fashion designs? What rules and procedures apply to obtaining protection?

              French fashion designs are usually protected via the registration of a design right in France, with the Institut National de la Propriété Industrielle (‟INPI”). Articles L 512-1 et seq and R 511-1 et seq of the French intellectual property code govern the design application and registration process.

              Of course, this French design protection applies in addition to any registered or unregistered community design right that may exist.

              To qualify for protection through the French design right, the design must be novel and have individual character. Functional forms, as well as designs in breach of public policy or morality, are excluded from protection.

              French fashion designs are protected by copyright, as long as they meet the originality criteria. Indeed, article L 112-2 14 of the French intellectual property code provides that ‟the creations of the seasonal industries of garments and dresses” fall within the remit of copyright, as ‟works of the mind”.

              Copyright being an unregistrable intellectual property right in France, the existence of copyright on fashion products is often proven via the filing of an ‟enveloppe SOLEAU” with INPI, or by keeping all prototypes, drawings and research documents on file, to be able to prove the date on which such copyright arose.

              Indeed, under the traditional principle of unity of art, a creation can be protected by copyright and design law. Recent case law distinguishes between these IP rights, by stating that the originality required for copyright protection differs from the individual character required for design protection, and that both rights do not necessarily overlap.

              In the same way, the scope of copyright protection is determined by the reproduction of the creation’s main features; while in design law the same overall visual impression on the informed user is required.

              As far as the ownership of commissioned works is concerned, the default regime in France is that both an independent creator (i.e. a fashion freelancer, contractor, creative director) and an employee of any French fashion house is automatically deemed to be the lawful owner of all intellectual property rights on a fashion and luxury item that he or she has created during the course of his or her service or employment. Therefore, it is essential in all French law-governed service providers agreements entered into with third-party consultants, and in all French law-governed employment agreements entered into with employees, to set out that an automatic and irrevocable assignment of all intellectual property rights in any fashion creation will always occur, upon creation.

              13 | What difficulties arise in obtaining IP protection for fashion goods?

              France enjoys the most extensive and longstanding intellectual property rights in connection with fashion designs. As explained in our answer to question 12, copyright protection is extended to any original work of the mind.

              Even spare parts are protectable under French design law, which means that a design protecting only a spare part (eg, a bag clip) is valid without taking into consideration the product as a whole (ie, the bag).

              Therefore, IP protection for fashion goods is very achievable in France, and it is important for applicants to systematically register their designs (not rely simply on copyright law) to be on the safe side.

              4.2. Brand protection

              14 | How are luxury and fashion brands legally protected in your jurisdiction?

              Luxury and fashion brands are usually protected by a French trade mark registration filed with INPI.

              French trade marks are governed mainly by law 1991-7, which implements the EU first council directive related to trade marks (89/104/EEC) and is codified in the French intellectual property code. This code was amended several times, in particular by Law 2007-1544, which implements the EU IP rights enforcement directive (2004/48/EC).

              Ownership of a trade mark is acquired through registration, except for well-known trademarks within the meaning of article 6 bis of the Paris convention for the protection of industrial property dated 20 March 1883. Such unregistered well-known trademarks may be protected under French law if an unauthorised use of the trade mark by a third party is likely to cause damage to the trade mark owner or such use constitutes an unjustified exploitation of the trade mark.

              To be registered as a trademark, a sign must be:

              • represented in a way that allows any person to determine precisely and clearly the subject-matter of the trade mark protection granted to its owner;

              • distinctive;

              • not deceptive;

              • lawful; and

              • available.

              French trademarks, registered with INPI, may coincide with EU trademarks (filed with the European Union Intellectual Property Office (‟EUIPO”)) and international trademarks (filed with the Word Intellectual Property Office (‟WIPO”), through the Madrid protocol).

              Under French law, unauthorised use of a trade mark on the internet also constitutes trade mark infringement. The rights holder may sue those that unlawfully use its trade mark on the ground of trade mark infringement or unfair competition.

              Moreover, luxury and fashion brands are also protected by domain names, which may be purchased from domain name registrars for a limited period of time on a regular basis.

              French domain names finishing in .fr can only be purchased for one year, once a year, pursuant to the regulations of the French registry for .fr top level domains, Afnic.

              It is the responsibility of the person purchasing, or using, the domain name in .fr to ensure that he or she does not breach any third party rights by doing so.

              A dispute resolution procedure called Syreli is available for disputes relating to .fr domains, along with judiciary actions. This procedure is managed by Afnic and decisions are issued within two months from receipt of the complaint.

              With online ransom, a proliferation of websites being used for counterfeit sales, fraud, phishing and other forms of online trade mark abuse, most French luxury and fashion companies take the management and enforcement of domain name portfolios very seriously.

              With the advent of new generic top-level domains (generic top-level domains or ‟gTLDs”), it is now an essential strategy for all French luxury and fashion houses to buy and hold onto all available gTLDs relating to fashion and luxury (eg, .luxury, .fashion, .luxe).

              4.3. Licensing

              15 | What rules, restrictions and best practices apply to IP licensing in the fashion industry?

              French IP rights may be assigned, licensed or pledged. The French intellectual property code refers to licences over trade marks, patents, designs and models, as well as databases. With respect to copyright, this code only refers to the assignment of the patrimonial rights of the author (ie, representation right and reproduction right) in its article L122-7. In practice, copyright licences often occur, especially over software.

              When it involves French design rights, the corresponding deed, contract or judgment must be recorded in the French Design register, to be enforceable against third parties. The documents must be in French (or a translation must be provided). Tax will be incurred only up to the 10th design, in a recordal request filed with INPI. For community designs, recordal must be made with EUIPO. For the French designation of an international design, recordal must be requested through WIPO for all or part of the designation.

              When it involves French trade marks, the corresponding deed, contract or judgment should be recorded in the INPI French trade mark register, especially for evidentiary and opposability purposes, for the licensee to be able to act in infringement litigation and for such deed, contract or judgment to be enforceable against third parties. Again, the copy or abstract of the deed, or agreement, setting out the change in ownership or use of the trade marks should be in French (or a French translation be provided).

              Of course, copyright of fashion products does not have to be recorded in any French register, as there is no registration requirement for French copyright. However, best practice is for the parties to the deed, agreement or judgment to keep, on record, for the duration of the copyright (70 years after the death of the creator of the copyright) such documents, so that the copyright assignment, pledge or licence may be enforceable against third parties.

              Fashion brands such as Tommy Hilfiger, Benetton and Ermenegildo Zegna use franchising to access new markets, increase their online presence and develop flagship stores. Franchise agreements generally include a trade mark, trade name or service mark licence, as well as the transfer of knowhow by the franchisor, to the franchisee. On this note, knowhow licences exist in France, although knowhow does not constitute a proprietary right benefiting from specific protection under the French intellectual property code.

              A licensor must make some pre-contractual disclosure to prospective licensees, pursuant to article L330-3 of the French commercial code, when he or she makes available to another person a trade name or a trademark, and requires from such other person an exclusivity undertaking with respect to such activity. The precontractual information must be disclosed in a document provided at least 20 days prior to the signature of the licence agreement. Such document must contain truthful information allowing the licensee to commit to the contractual relationship in full knowledge of the facts.

              A licensing relationship governed by French law must comply with the general contract law principles, including the negotiation, conclusion and performance of contracts in good faith (article 1104 of the French civil code). This statutory legal provision implies an obligation on each party of loyalty, cooperation and consistency. In case of breach of this good faith principle, the licence may be terminated and damages potentially awarded.

              4.4. Enforcement

              16 | What options do rights holders have when enforcing their IP rights? Are there options for protecting IP rights through enforcement at the borders of your jurisdiction?

              Lawsuits involving the infringement or validity of a French design, or the French designation of an international design, may be lodged with one of the 10 competent courts of first instance (Bordeaux, Lille, Lyon, Marseille, Nanterre, Nancy, Paris, Rennes, Strasbourg and Fort-de-France).

              Lawsuits involving the infringement, in France, of a registered or unregistered community design may be lodged only with the Paris court of first instance. An invalidity action against a community design may only be brought before EUIPO. However, invalidity may be claimed as a defence in an infringement action brought before the Paris tribunal.

              The scope of protection for the design is determined exclusively by the various filed views, on the design registration, irrespective of actual use. Therefore, applicants should pay great care to those views, when filing a design application, so as to anticipate the interpretation made by the judiciary tribunal.

              Infringement is identified when a third-party design produces, on the informed observer, the same overall visual impression as the claimant’s design.

              The infringement lawsuit may be lodged by the design owner, or the duly recorded exclusive licensee.

              The claimant will be indemnified for lost profits, with the court taking into account: (i) the scope of the infringement; (ii) the proportion of actual business lost by the claimant; and (iii) the claimant’s profit margin for the retail of each unit.

              Damages may also be awarded for the dilution or depreciation of a design.

              As far as trademarks are concerned, lawsuits may be lodged before the 10 above-mentioned competent courts at first instance if they are French trademarks or the French designation of an international trademark. Lawsuits relating to the infringement of EU trade marks may only be lodged with the Paris judiciary tribunal.

              Such infringement proceedings may be lodged by either the trademark owner or the exclusive licensee, provided that the licence was recorded in the trademark register.

              To determine trademark infringement, the judiciary tribunal will assess: (i) the similarity of the conflicting trademarks, on the basis of visual, phonetic and intellectual criteria; and (ii) the similarity of the goods or services, bearing such trademarks, concerned. Such trademark infringement may be evidenced by any means.

              To secure evidence of the infringement, and to obtain any information related to it, rights holders may ask, and obtain, from the competent judiciary tribunal, an order to carry out a seizure on the premises where the products that infringe the copyright, trademarks, designs, etc. are located. Such order authorises a bailiff to size the suspected infringing products, or to visit the alleged infringer’s premises to collect evidence of the infringement by taking pictures of the suspected infringing products, or by taking samples. The IP rights holder must lodge a lawsuit against the alleged infringer with the competent judiciary tribunal within 20 working days, or 31 calendar days, whichever is the longer, from the date of the seizure. Otherwise, the seizure may be declared null and void on the request of the alleged infringer, who may also ask for some damages.

              In addition, IP rights holders may also request an ex parte injunction, to prevent an imminent infringement, which is about to happen, or any further infringement, to the competent judiciary tribunal.

              Infringement action, for all IP rights, must be brought within three years of the infringement. There is one exception, for copyright, which statute of limitations is five years from the date on which the copyright owner was made aware, or should have been aware, of such copyright infringement.

              There is also an option to protect design rights, copyright, trade marks, patents, etc at French borders, which we often recommend to our fashion and luxury clients. They need to file their IP rights with the Directorate-General of Customs and Indirect Taxes, via a French and EU intervention request, and obtain some certifications from those French customs authorities, that such IP rights are now officially registered on the French and EU customs databases. Therefore, all counterfeit products infringing such IP rights registered on these French and EU customs databases, which enter the EU territory via French borders, will be seized by customs at French borders for 10 days. Potentially, provided that certain conditions are met, French customs may permanently destroy all counterfeit products thus seized, after 10 days.

              5. Data privacy and security

              5.1. Legislation

              17 | What data privacy and security laws are most relevant to fashion and luxury companies?

              As explained in questions 8 and 10, fashion and luxury companies must comply with the GDPR, the French Data Protection Act and the cookies and other tracking devices guidelines from the CNIL.

              5.2. Compliance challenges

              18 | What challenges do data privacy and security laws present to luxury and fashion companies and their business models?

              The strict compliance with the GDPR, as well as the amended version of the French Data Protection Act, do present some challenges to luxury and fashion companies and to their business models.

              Indeed, on a factual level, most small and medium-sized enterprises (‟SMEs”) incorporated in France are still not in compliance with the GDPR, the French Data Protection Act and the cookies and other tracking devices guidelines from the CNIL. Most of the time this is because such SMEs do not want to allocate time, money and resources to bringing their business in compliance, while they are fully aware that a serious breach may trigger a fine worth up to 4 per cent of their annual worldwide turnover, or €20 million, whichever is greater.

              Fashion and luxury companies now have to take ownership of, and full responsibility for, the rigorous management and full protection of their data assets. They can no longer rely on a ‘I was not aware this may happen’ defence strategy, which was very often used by fashion companies before the GDPR entered into force when their internal databases or IT systems got hacked or leaked to the public domain (eg, Hudson’s Bay Co, which owns Saks Fifth Avenue, Macy’s, Bloomingdales, Adidas, Fashion Nexus, Poshmark). The way to rise up to such challenge, though, is to see the GDPR as an opportunity to take stock of what data your company has, and how you can take most advantage of it. The key tenet of GDPR is that it will give any fashion company the ability to find data in its organisation that is highly sensitive and high value, and ensure that it is protected adequately from risks and data breaches.

              With the GDPR, almost all fashion and luxury businesses worldwide that sell to EU customers (and therefore French customers), either online or in brick and mortar locations, now have a Data Protection Authority (‟DPA”). Businesses will determine their respective DPA with respect to the place of establishment of their management functions as far as supervision of data processing is concerned, which will allow them to identify the main establishment, including when a sole company manages the operations of a whole group. However, the GDPR sets up a one-stop DPA: in case of absence of a specific national legislation, a DPA located in the EU member state in which such organisation has its main or unique establishment will be in charge of controlling its compliance with the GDPR. This unique one-stop DPA will allow companies to substantially save time and money by simplifying processes.

              To favour the European data market and the digital economy, and therefore create a more favourable economic environment, the GDPR reinforces the protection of personal data and civil liberties. This unified regulation will allow businesses to substantially reduce the costs of processing data currently incurred in the 27 member states: organisations will no longer have to comply with multiple national regulations for the collection, harvesting, transfer and storing of data that they use.

              The scope of the GDPR extends to companies that are headquartered outside the EU, but intend to market goods and services into the EU market, as long as they put in place processes and treatments of personal data relating to EU citizens. Following these EU residents on the internet to create some profiles is also covered by the scope of the GDPR. Therefore, EU companies, subject to strict and expensive rules, will not be penalised by international competition on the EU single market. In addition, they may buy some data from non-EU companies, which is compliant with GDPR provisions, therefore making the data market wider.

              The right to portability of data allows EU citizens subjected to data treatment and processing to gather this data in an exploitable format, or to transfer such data to another data controller, if this is technically possible. Compliance with the right to portability is definitely a challenge for fashion and luxury businesses.

              5.3. Innovative technologies

              19 | What data privacy and security concerns must luxury and fashion retailers consider when deploying innovative technologies in association with the marketing of goods and services to consumers?

              Innovative technologies, such as AI and facial recognition, involve automated decision making, including profiling. The GDPR has provisions on:

              • automated individual decision making (making a decision solely by automated means without any human involvement); and

              • profiling (automated processing of personal data to evaluate certain things about an individual), which can be part of an automated decision-making process.

              These provisions, set out in article 22 of the GDPR, should be taken into account by fashion and luxury businesses when deploying innovative technologies. In particular, they must demonstrate that they have a lawful basis to carry out profiling or automated decision making, and document this in their data protection policy. Their Data Protection Impact Assessment should address the risks, before they start using any new automated decision making or profiling. They should tell their customers about the profiling and automated decision making they carry out, what information they use to create the profiles, and where they get this information from. Preferably, they should use anonymised data in their profiling activities.

              5.4. Content personalisation and targeted advertising

              20 | What legal and regulatory challenges must luxury and fashion companies address to support personalisation of online content and targeted advertising based on data-driven inferences regarding consumer behaviour?

              There is a tension, and irrevocable difference, between the GDPR’s push towards more anonymisation of data, and the personalisation of online content and targeted advertising based on data-driven inferences regarding consumer behaviour. This is because the latter needs data that is not anonymous, but, instead, traceable to each individual user.

              Indeed, a fashion and luxury business cannot truly personalise an experience in any channel – a website, a mobile app, through email campaigns, in advertising or events in a store – unless it knows something about that customer, and the luxury business cannot get to know someone digitally unless it collects data about him or her. The GDPR and the increasing concerns around privacy complicate this process.

              However, GDPR does not prohibit fashion businesses from collecting any data on customers and prospects. However, they must do so in compliance with the core GDPR principles set out in question 10.

              6. Advertising and marketing

              6.1. Law and regulation

              21 | What laws, regulations and industry codes are applicable to advertising and marketing communications by luxury and fashion companies?

              Advertising and marketing communications are regulated by the following French laws:

              • law dated 10 January 1991 (‟Evin law”) that prohibits advertising alcohol on French TV channels and in cinemas, and limits such advertising on radio and on the internet;

              • law dated 4 August 1994 (‟Toubon law”) that provides that the French language must be used in all advertising in France; and

              • decree dated 27 March 1992 that provides for specific rules relating to advertising on TV.

              Various legal codes set out some specific rules governing advertising and marketing communications in France, such as: the French consumer code, which prohibits deceptive and misleading advertising, and regulates comparative advertising; or article 9 of the French civil code, which protects individuals’ images and privacy.

              Moreover, there are some industry codes of practice, drafted by the French advertising self-regulation agency (‟ARPP”), which represents advertisers, agencies and the media. These codes of practice set out the expected ethical standards and ensure proper implementation of these standards, through advice and pre-clearance, including providing mandatory advice before the broadcast of all TV advertising.

              The French consumer and competition governmental authority (‟DGCCRF”) has investigative powers in relation to all matters relating to the protection of consumers, including advertising and marketing practices.

              DGCCRF agents are entitled to enter the professional premises of the advertiser, advertising agency or communication agency during business hours to request an immediate review of documents, take copies of these documents, and ask questions.

              The ARPP works with an independent jury that handles complaints against advertisements that violate ARPP standards. Its decisions are published on its website.

              If there is a data breach within a marketing campaign, the CNIL, the French DPA, may fine the culprit data controller (such as an advertiser or an agency) up to €20 million, or 4 percent of their worldwide annual turnover, whichever is the highest.

              6.2. Online marketing and social media

              22 | What particular rules and regulations govern online marketing activities and how are such rules enforced?

              Online marketing activities are regulated in the same manner as activities conducted in the ‟real world”, pursuant to the French digital economy law dated 21 June 2004. However, more specific to the online world, the digital economy law provides that pop-ups, advert banners, and any other types of online adverts must be clearly identified as such and therefore distinguished from non-commercial information.

              Article L121-4-11 of the French consumer code provides that an advertiser who pays for content in the media to promote its products or services must clearly set out that such content is an advertisement, through images or sounds clearly identifiable by consumers. Otherwise, this is a misleading advert or an act of unfair competition.

              The ARPP issued a standard relating to digital adverts, communications carried out by influencers, native advertising, etc emphasising the fact that all such online marketing communications and advertising should be clearly distinguishable as such by consumers.

              7. Product regulation and consumer protection

              7.1. Product safety rules and standards

              23 | What product safety rules and standards apply to luxury and fashion goods?

              French law dated 19 May 1998, which is now set out in articles 1245 et seq of the French civil code, transposes EU directive 85/374/EEC on the liability for defective products in France.

              Alongside this strict civil liability for defective products exists some criminal liability for defective products on the grounds of deceit, involuntary bodily harm, involuntary manslaughter or endangering the lives of others.

              Articles 1245 et seq. of the French civil code apply when a product is considered unsafe. Therefore, a fashion business would be liable for damage caused by a defect in its products, regardless of whether or not the parties concluded a contract. Consequently, these statutory rules apply to any end-user in possession of a fashion product, whether or not such end-user had entered into an agreement with the fashion company.

              Articles 1245 et seq. of the French civil code provide for a strict liability, where the claimant does not need to prove that the ‘producer’ made a mistake, committed an act of negligence or breached a contract. The claimant only has to prove the defect of the product, the damage suffered and the causal link between such defect and such damage.

              A defective product is defined in article 1245-3 of the French civil code, as a product that does not provide the safety that any person is entitled to expect from it, taking into account, in particular, the presentation of such product, the use that can reasonably be expected of it and the date on which it was put on the market.

              Such strict civil liability rules apply to the ‟producer”, a term that may refer to the manufacturer, the distributor, as well as the importer in the EU, of defective products.

              As soon as a risk of a defective product is recognised, the ‟producer” should comply with its duty of care and take all necessary actions to limit harmful consequences, such as a formal public warning, a product recall or the mere withdrawal of such product from the market.

              7.2. Product liability

              24 | What regime governs product liability for luxury and fashion goods? Has there been any notable recent product liability litigation or enforcement action in the sector?

              The regime governing product liability for luxury and fashion goods is described in our answer to question 22.

              The Hamon law introduced class action for French consumers. Consequently, an accredited consumer association may take legal action to obtain compensation for individual economic damages suffered by consumers placed in an identical or similar situation, that result from the purchase of goods or services.

              There has been no notable recent product liability litigation in the fashion and luxury sectors. However, a health class action matter is currently pending before the Paris judiciary tribunal. A pharmaceutical company was sued by 4,000 French individuals because it sold an anti-epileptic drug without providing adequate information relating to the use of such drug during pregnancy. As a result, some French babies were born with health defects because such drug has detrimental effects on foetal development. The judiciary tribunal should hand down its decision about the laboratory’s liability soon.

              8. M&A and competition issues

              8.1. M&A and joint ventures

              25 | Are there any special considerations for M&A or joint venture transactions that companies should bear in mind when preparing, negotiating or entering into a deal in the luxury fashion industry?

              As set out in question 2, the general contract law provisions included in the French civil code, which underwent a major reform in 2016, must be complied with. Therefore, for private M&As, the seller would seek to promote competition between different bidders through a competitive sale process, which conduct must comply with the statutory duty of good faith.

              In France, it is compulsory for the transfer of assets and liabilities from the seller to the buyer to cover all employment contracts, commercial leases and insurance policies pertaining to the business. Except from those, all other assets and liabilities relating to the transferred business may be excluded from the transfer transaction by agreement. Furthermore, the transfer of contracts requires the approval from all relevant counterparties, thus making the prior identification of such contracts in the course of the due diligence an important matter for any prospective buyer.

              In private M&As, there is no restriction to the transfer of shares in a fashion company, a fashion business or assets in France. However, French merger control regulations (in addition to merger control regulations of other EU member states) may require a transaction to be filed with the French competition authority (‟FCA”) if: (i) the gross worldwide total turnover of all the fashion companies involved in the concentration exceeds €150 million; and (ii) the gross total turnover generated individually in France by each of at least two of the fashion companies involved in the concentration exceeds €50 million.

              There are no local ownership requirements in France. However, French authorities may object to foreign investments in some specific sectors that are essential to guarantee France’s interests in relation to public policy, public security and national defence. As of today’s date, fashion and luxury are not part of these sectors that are protected for national security purposes.

              In addition to prior agreements, such as non-disclosure agreements or promises, final agreements will set out the terms relating to the transaction; in particular, a description of the transferred assets, the price, the warranties granted by the seller, the conditions precedent, any non-competition or non-solicitation clauses. Asset purchase agreements must set out compulsory provisions, such as the name of the previous owner, some details about the annual turnover, otherwise the buyer may claim that the sale is invalid. Most of these agreements, and most sales of French targets and assets, are governed by French law; in particular, the legal transfer of ownership of the target’s shares or assets.

              More specific to the fashion and luxury industries, any sale of a fashion business would entail transferring the ownership of all intellectual property rights tied into that fashion target. As such, the trade marks, which have sometimes been filed on the name of the founding fashion designer of the acquired fashion business (eg, Christian Dior, Chantal Thomass, John Galliano, Ines de la Fressange) would be owned by the buyer, after the sale. Thus, the founding fashion designer would no longer be able to use his or her name to sell fashion and luxury products, without infringing on the trade mark rights of the buyer.

              8.2. Competition

              26 | What competition law provisions are particularly relevant for the luxury and fashion industry?

              Articles L 420-1 and L 420-2 of the French commercial code are the equivalent to articles 101-1 and 102 TFEU and provide for anticompetitive agreements and abuses of a dominant position, respectively.

              Specific provisions of the French commercial code are also applicable, such as article L 410-1 et seq. on pricing, article L 430-1 et seq. on merger control, L 420-2-1 on exclusive rights in French overseas communities, L 420-5 on abusively low prices and L 442-1 et seq. on restrictive practices.

              For example, a decision handed down by the Paris court of appeal on 26 January 2012 confirmed the existence of price fixing agreements, and anti competitive behaviour, between 13 perfume and cosmetics producers (including Chanel, Guerlain, Parfums Christian Dior and Yves Saint Laurent Beaute) and their three French distributors (Sephora, Nocibe France and Marionnaud). The court also upheld the judgment from the FCA, dated 14 March 2006, sentencing each of these luxury goods companies and distributors to fines valued at €40 million overall.

              Court action for breach of competition law may be lodged with a French court of the FCA by any person having a legal interest. Class actions have been available since the entering into force of the Hamon law, but only when the action is filed by a limited number of authorised consumer associations.

              There has been a rise in antitrust damage claims lodged in France, and French courts are now responsive to such claims. A section of the Paris commercial court has been set up to review summons lodged in English, with English-language exhibits, and can rule on competition cases with proceedings fully conducted in the English language.

              As set out in question 4, while selective distribution is tolerated as an exemption, pursuant to article 101(3) TFEU, total restriction of online sales by a manufacturer, to its selective distributors, is a breach under article 101(1) TFEU (Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi, ECJ, 2011).

              The ECJ has refined its case law (which, of course, applies to France) in its 2017 ruling in Coty Germany GmbH v Parfümerie Akzente GmbH. The ECJ ruled that a contractual clause, set out in the selective distribution agreement entered into between Coty and its selective distributors, and which prohibits members of such selective distribution network from selling Coty cosmetics on online marketplaces, such as Amazon, complies with article 101(1) TFEU. This is because, according to the ECJ, the clause is proportionate in its pursuit of preserving the image of Coty cosmetics and perfumes, and because it does not prohibit distributors from selling Coty products on their own online e-commerce sites, provided that some quality criteria are met.

              This new ECJ case law is useful guidance for national courts on how to assess, in pragmatic terms, the prohibition of selling luxury products in marketplaces. Indeed, the Paris court of appeal handed down a judgment in relation to the validity of a similar clause set out in the contracts for Coty France on 28 February 2018, and used the ECJ analysis to confirm the validity of such prohibition, in relation to a marketplace that sold Coty perfumes during private sales.

              9. Employment and labour

              9.1. Managing employment relationships

              27 | What employment law provisions should fashion companies be particularly aware of when managing relationships with employees? What are the usual contractual arrangements for these relationships?

              Employer–employee relationships are governed by the following complex set of laws and regulations that leave little room for individual negotiation:

              • the French labour code set out a comprehensive legal framework for both individual and collective relationships between employers and employees;

              • collective bargaining agreements have been negotiated between employers’ associations and labour unions covering the industry as a whole, or between employers and labour unions covering a company. In the former case, the collective agreement usually applies to the industry sector as a whole, even to companies within that sector that are not part of the employers’ associations (for the fashion and luxury sectors, the ‟clothing industry collective agreement”, the ‘textile industry collective agreement (OETAM)’, or the ‟collective agreement for the footwear industries” may apply, for example); and

              • individual employment agreements, which relate only to the aspects of the employer–employee relationship not already covered by the labour code or relevant collective bargaining agreement.

              Because more than 90 per cent of French employees are protected by collective bargaining agreements, the rules set out in the French labour code are supplemented by more generous rules in areas such as paid leave, maternity leave, medical cover and even working time.

              Under the ‟Aubry law” dated 19 January 2000, a standard 35-hour working week became the rule. Employees working beyond 35 hours are entitled to overtime. A company-wide collective bargaining agreement may provide for a maximum working time of 12 hours, and a maximum weekly working time of 46 hours over 12 consecutive weeks. Extra time is either paid via overtime, or compensating by taking extra days off (called ‟RTT”).

              Any dismissal of a French employee must be notified in writing, and based on a ‘real and serious’ cause. A specific procedure must be followed, including inviting the employee to a pre-dismissal meeting, holding such meeting with the employee, and notifying the dismissal by registered letter with an acknowledgement of receipt. Dismissal for economic reasons and dismissals of employee representatives are subject to additional formalities and requirements, such as the implementation of selection criteria to identify the employees to be dismissed, the involvement of, and approval from, the French labour authorities and compulsory consultation with employee representatives. Upon termination, French employees are entitled to a number of indemnities (severance payment, notice period, paid holidays, etc) and, should the dismissal be deemed to be unfair, the ‟Macron scale”, set out in article L 1235-3 of the French labour code, provides that, in case of a court claim for unfair dismissal, French labour courts must allocate damages to former employees ranging between a minimum and a capped amount, based on the length of service with the former employer. Because many regional labour courts were resisting the application of the ‟Macron scale” to their court cases, the French supreme court ruled in July 2019 that such ‟Macron scale” is enforceable and must apply.

              Of course, French freelancers and consultants who work for fashion and luxury houses are not protected by the above-mentioned French labour rules applying to employer–employee relationships. However, French labour courts are prompt at requalifying an alleged freelancing relationship into an employment relationship, provided that a subordination link (characterised by work done under the authority of an employer, which has the power to give orders, directives, guidelines, and to control the performance of such work, and may sanction any breach of such performance) exists, between the alleged freelancer and the fashion company. Most creative directors of French fashion houses are consultants, not employees, and therefore have the right to execute other fashion projects or contracts, for other fashion houses (for example, Karl Lagerfeld was the creative director of both Chanel and Fendi).

              Article L 124-1 et seq of the French education code provide that a ‟gratification” (not a salary) may be paid to an intern, in France, if the duration of his or her internship is more than two consecutive months. Below that time frame, a French company has no obligation to pay a gratification to an intern. The hourly rate of such gratification is equal to a minimum of €3.90 per internship hour; however, in certain sectors of the industry where collective bargaining agreements apply, the amount may be higher than €3.90.

              9.2. Trade unions

              28 | Are there any special legal or regulatory considerations for fashion companies when dealing with trade unions or works councils?

              As mentioned in question 24, an employer may have to consult employee representatives if it wants to dismiss, for economic reasons, some of its employees. Also, trade unions, either covering a company or a group of companies, or covering an industry as a whole, negotiate, and will renegotiate and amend, any collective bargaining agreements in place in France.

              Unsurprisingly, employee representatives play a very important role, in French employer–employee relationships. Depending on the size of a company, some employee delegates or a works council, as well as a health and safety committee, may have to be appointed and set up. Such employee representatives not only have an important say on significant business issues such as large-scale dismissals, but must be consulted prior to a variety of changes in the business, such as acquisitions, or disposals, of business lines or of the company itself. In French companies with work councils, employee representatives are entitled to attend meetings of the board of directors, but are not allowed to take part in any votes at such meetings. As a result, most strategic decisions are made outside of board of directors’ meetings.

              Dismissals of employee representatives are subject to additional formalities and requirements, such as the approval given by French labour authorities.

              While the top creative management of French fashion houses may be terminated at will, because most creative directors are freelancers, the core labour force of most French fashion and luxury houses (eg, blue-collar workers on the shop floor (seamstresses etc), lower to middle management, etc) is almost immovable because of the above-mentioned strict French labour laws relating to hiring and firing. One advantage of such ‟job security” is that French students and the young labour force do not hesitate to train for, and take on, highly specialised and technical manual jobs, which are necessary to creative and exceptionally high-quality luxury products (eg, embroiderers working for Chanel-owned Lesage, bag makers working for Hermes, feather workers employed by Chanel-owned Lemarie and all the seamstresses working for Chanel and all the haute couture houses in Paris).

              9.3. Immigration

              29 | Are there any special immigration law considerations for fashion companies seeking to move staff across borders or hire and retain talent?

              Yes, the multi-year ‟passeport talent” residence permit was created to attract foreign employees and self-employed persons with a particular skillset (eg, qualified or highly qualified employee, self-employed professional, performer or author of a literary or artistic work) in France.

              Such residence permit provides the right to stay for a maximum of four years in France, starting from the date of arrival in France. A multi-year residence permit may also be granted to the spouse and children of the ‟talented individual”.

              10. Update and trends

              30 | What are the current trends and future prospects for the luxury fashion industry in your jurisdiction? Have there been any notable recent market, legal and or regulatory developments in the sector? What changes in law, regulation, or enforcement should luxury and fashion companies be preparing for?

              The future prospects of the luxury and fashion sectors in France are extremely high, because the Macron reforms are slowly but surely transforming the French economy into a liberalised and free-trade powerhouse, bringing flexibility and innovation at the forefront of the political reform agenda. However, the downside to these sweeping changes is the resistance, violence and riots that have taken place, and still regularly happen, in France, and in Paris in particular, emanating from a French people unsettled about, and scared of, a more free and competitive economic market.

              Fashion and luxury businesses are the first to bear the brunt of these violent acts of resistance, as their retail points on the Champs Elysees and other luxurious locations in Paris and in the provinces have been heavily disrupted (and sometimes ransacked) by rioters, some ‟yellow vests” and ‟anti-pension reforms” social unrest movements.

              However, in the medium to long term, fashion and luxury businesses will be among the first to benefit from those sweeping reforms, thanks to a highly productive, and more flexible, French workforce, better contractual and trade conditions to conduct business in France and abroad, and a highly efficient legal framework and court system that are among the most protective of IP rights owners, in the world.

               

              Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology Getting the Deal Through – Luxury & Fashion 2020 (Published: April 2020).

               

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                Why the valuation of intangible assets matters: the unstoppable rise of intangibles’ reporting in the 21st century’s corporate environment

                Crefovi : 15/04/2020 8:00 am : Antitrust & competition, Art law, Articles, Banking & finance, Capital markets, Consumer goods & retail, Copyright litigation, Emerging companies, Entertainment & media, Fashion law, Gaming, Hospitality, Hostile takeovers, Information technology - hardware, software & services, Insolvency & workouts, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, Life sciences, Litigation & dispute resolution, Mergers & acquisitions, Music law, Outsourcing, Private equity & private equity finance, Restructuring, Tax, Technology transactions, Trademark litigation, Unsolicited bids

                It is high time France and the UK up their game in terms of accounting for, reporting and leveraging the intangible assets owned by their national businesses and companies, while Asia and the US currently lead the race, here. European lenders need to do their bit, too, to empower creative and innovative SMEs, and provide them with adequate financing to sustain their growth and ambitions, by way of intangible assets backed-lending. 

                valuation of intangible assetsBack in May 2004, I published an in-depth study on the financing of luxury brands, and how the business model developed by large luxury conglomerates was coming out on top. 16 years down the line, I can testify that everything I said in that 2004 study was in the money: the LVMH, Kering, Richemont and L’Oreal of this word dominate the luxury and fashion sectors today, with their multibrands’ business model which allows them to both make vast economies of scale and diversify their economic as well as financial risks.

                However, in the midst of the COVID 19 pandemic which constrains us all to work from home through virtual tools such as videoconferencing, emails, chats and sms, I came to realise that I omitted a very important topic from that 2004 study, which is however acutely relevant in the context of developing, and growing, creative businesses in the 21st century. It is that intangible assets are becoming the most important and valuable assets of creative companies (including, of course, luxury and fashion houses).

                Indeed, traditionally, tangible and fixed assets, such as land, plants, stock, inventory and receivables were used to assess the intrinsic value of a company, and, in particular, were used as security in loan transactions. Today, most successful businesses out there, in particular in the technology sector (Airbnb, Uber, Facebook) but not only, derive the largest portion of their worth from their intangible assets, such as intellectual property rights (trademarks, patents, designs, copyright), brands, knowhow, reputation, customer loyalty, a trained workforce, contracts, licensing rights, franchises.

                Our economy has changed in fundamental ways, as business is now mainly ‟knowledge based”, rather than industrial, and ‟intangibles” are the new drivers of economic activity, the Financial Reporting Council (‟FRC”) set out in its paper ‟Business reporting of intangibles: realistic proposals”, back in February 2019.

                However, while such intangibles are becoming the driving force of our businesses and economies worldwide, they are consistently ignored by chartered accountants, bankers and financiers alike. As a result, most companies – in particular, Small and Medium Enterprises (‟SMEs”)- cannot secure any financing with money men because their intangibles are still deemed to … well, in a nutshell … lack physical substance! This limits the scope of growth of many creative businesses; to their detriment of course, but also to the detriment of the UK and French economies in which SMEs account for an astounding 99 percent of private sector business, 59 percent of private sector employment and 48 percent of private sector turnover.

                How could this oversight happen and materialise, in the last 20 years? Where did it all go wrong? Why do we need to very swiftly address this lack of visionary thinking, in terms of pragmatically adapting double-entry book keeping and accounting rules to the realities of companies operating in the 21st century?

                How could such adjustments in, and updates to, our old ways of thinking about the worth of our businesses, be best implemented, in order to balance the need for realistic valuations of companies operating in the “knowledge economy” and the concern expressed by some stakeholders that intangible assets might peter out at the first reputation blow dealt to any business?

                1. What is the valuation and reporting of intangible assets?

                1.1. Recognition and measurement of intangible assets within accounting and reporting

                In the European Union (‟EU”), there are two levels of accounting regulation:

                • the international level, which corresponds to the International Accounting Standards (‟IAS”), and International Financial Reporting Standards (‟IFRS”) issued by the International Accounting Standards Board (‟IASB”), which apply compulsorily to the consolidated financial statements of listed companies and voluntarily to other accounts and entities according to the choices of each country legislator, and
                • a national level, where the local regulations are driven by the EU accounting directives, which have been issued from 1978 onwards, and which apply to the remaining accounts and companies in each EU member-state.

                The first international standard on recognition and measurement of intangible assets was International Accounting Standard 38 (‟IAS 38”), which was first issued in 1998. Even though it has been amended several times since, there has not been any significant change in its conservative approach to recognition and measurement of intangible assets.

                An asset is a resource that is controlled by a company as a result of past events (for example a purchase or self-creation) and from which future economic benefits (such as inflows of cash or other assets) are expected to flow to this company. An intangible asset is defined by IAS 38 as an identifiable non-monetary asset without physical substance.

                There is a specific reference to intellectual property rights (‟IPRs”), in the definition of ‟intangible assets” set out in paragraph 9 of IAS 38, as follows: ‟entities frequently expend resources, or incur liabilities, on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes or systems, licenses, intellectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licences, import quotas, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights”.

                However, it is later clarified in IAS 38, that in order to recognise an intangible asset on the face of balance sheet, it must be identifiable and controlled, as well as generate future economic benefits flowing to the company that owns it.

                The recognition criterion of ‟identifiability” is described in paragraph 12 of IAS 38 as follows.

                An asset is identifiable if it either:

                a. is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or

                b. arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations”.

                ‟Control” is an essential feature in accounting and is described in paragraph 13 of IAS 38.

                An entity controls an asset if the entity has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. The capacity of an entity to control the future economic benefits from an intangible asset would normally stem from legal rights that are enforceable in a court of law. In the absence of legal rights, it is more difficult to demonstrate control. However, legal enforceability of a right is not a necessary condition for control because an entity may be able to control the future economic benefits in some other way”.

                In order to have an intangible asset recognised as an asset on company balance sheet, such intangible has to satisfy also some specific accounting recognition criteria, which are set out in paragraph 21 of IAS 38.

                An intangible asset shall be recognised if, and only if:

                a. it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and 

                b. the cost of the asset can be measured reliably”.

                The recognition criteria illustrated above are deemed to be always satisfied when an intangible asset is acquired by a company from an external party at a price. Therefore, there are no particular problems to record an acquired intangible asset on the balance sheet of the acquiring company, at the consideration paid (i.e. historical cost).

                1.2. Goodwill v. other intangible assets

                Here, before we develop any further, we must draw a distinction between goodwill and other intangible assets, for clarification purposes.

                Goodwill is an intangible asset that is associated with the purchase of one company by another. Specifically, goodwill is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process (= purchase price of the acquired company – (net fair market value of identifiable assets – net fair value of identifiable liabilities)).

                The value of a company’s brand name, solid customer base, good customer relations, good employee relations, as well as proprietary technology, represent some examples of goodwill, in this context.

                The value of goodwill arises in an acquisition, i.e. when an acquirer purchases a target company. Goodwill is then recorded as an intangible asset on the acquiring company’s balance sheet under the long-term assets’ account.

                Under Generally Accepted Accounting Principles (‟GAAP”) and IFRS, these companies which acquired targets in the past and therefore recorded those targets’ goodwill on their balance sheet, are then required to evaluate the value of goodwill on their financial statements at least once a year, and record any impairments.

                Impairment of an asset occurs when its market value drops below historical cost, due to adverse events such as declining cash flows, a reputation backlash, increased competitive environment, etc. Companies assess whether an impairment is needed by performing an impairment test on the intangible asset. If the company’s acquired net assets fall below the book value, or if the company overstated the amount of goodwill, then it must impair or do a write-down on the value of the asset on the balance sheet, after it has assessed that the goodwill is impaired. The impairment expense is calculated as the difference between the current market value and the purchase price of the intangible asset. The impairment results in a decrease in the goodwill account on the balance sheet.

                This expense is also recognised as a loss on the income statement, which directly reduces net income for the year. In turn, earnings per share (‟EPS”) and the company’s stock price are also negatively affected.

                The Financial Accounting Standards Board (‟FASB”), which sets standards for GAAP rules, and the IASB, which sets standards for IFRS rules, are considering a change to how goodwill impairment is calculated. Because of the subjectivity of goodwill impairment, and the cost of testing impairment, FASB and IASB are considering reverting to an older method called ‟goodwill amortisation” in which the value of goodwill is slowly reduced annually over a number of years.

                As set out above, goodwill is not the same as other intangible assets because it is a premium paid over fair value during a transaction, and cannot be bought or sold independently. Meanwhile, other intangible assets can be bought and sold independently.

                Also, goodwill has an indefinite life, while other intangibles have a definite useful life (i.e. an accounting estimate of the number of years an asset is likely to remain in service for the purpose of cost-effective revenue generation).

                1.3. Amortisation, impairment and subsequent measure of intangible assets other than goodwill

                That distinction between goodwill and other intangible assets being clearly drawn, let’s get back to the issues revolving around recording intangible assets (other than goodwill) on the balance sheet of a company.

                As set out above, if some intangible assets are acquired as a consequence of a business purchase or combination, the acquiring company recognises all these intangible assets, provided that they meet the definition of an intangible asset. This results in the recognition of intangibles – including brand names, IPRs, customer relationships – that would not have been recognised by the acquired company that developed them in the first place. Indeed, paragraph 34 of IAS 38 provides that ‟in accordance with this Standard and IFRS 3 (as revised in 2008), an acquirer recognises at the acquisition date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been recognised by the acquiree before the business combination. This means that the acquirer recognises as an asset separately from goodwill an in-process research and development project of the acquiree, if the project meets the definition of an intangible asset. An acquiree’s in-process research and development project meets the definition of an intangible asset when it:

                a. meets the definition of an asset, and 

                b. is identifiable, i.e. separable or arises from contractual or other legal rights.”

                Therefore, in a business acquisition or combination, the intangible assets that are ‟identifiable” (either separable or arising from legal rights) can be recognised and capitalised in the balance sheet of the acquiring company.

                After initial recognition, the accounting value in the balance sheet of intangible assets with definite useful lives (e.g. IPRs, licenses) has to be amortised over the intangible asset’s expected useful life, and is subject to impairment tests when needed. As explained above, intangible assets with indefinite useful lives (such as goodwill or brands) will not be amortised, but only subject at least annually to an impairment test to verify whether the impairment indicators (‟triggers”) are met. 

                Alternatively, after initial recognition (at cost or at fair value in the case of business acquisitions or mergers), intangible assets with definite useful lives may be revalued at fair value less amortisation, provided there is an active market for the asset to be referred to, as can be inferred from paragraph 75 of IAS 38:

                After initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequent accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be measured by reference to an active market. Revaluations shall be made with such regularity that at the end of the reporting period the carrying amount of the asset does not differ materially from its fair value.”

                However, this standard indicates that the revaluation model can only be used in rare situations, where there is an active market for these intangible assets.

                1.4. The elephant in the room: a lack of recognition and measurement of internally generated intangible assets

                All the above about the treatment of intangible assets other than goodwill cannot be said for internally generated intangible assets. Indeed, IAS 38 sets out important differences in the treatment of those internally generated intangibles, which is currently – and rightfully – the subject of much debate among regulators and other stakeholders.

                Internally generated intangible assets are prevented from being recognised, from an accounting standpoint, as they are being developed (while a business would normally account for internally generated tangible assets). Therefore, a significant proportion of internally generated intangible assets is not recognised in the balance sheet of a company. As a consequence, stakeholders such as investors, regulators, shareholders, financiers, are not receiving some very relevant information about this enterprise, and its accurate worth.

                Why such a standoffish attitude towards internally generated intangible assets? In practice, when the expenditure to develop intangible asset is incurred, it is often very unclear whether that expenditure is going to generate future economic benefits. It is this uncertainty that prevents many intangible assets from being recognised as they are being developed. This perceived lack of reliability of the linkage between expenditures and future benefits pushes towards the treatment of such expenditures as ‟period cost”. It is not until much later, when the uncertainty is resolved (e.g. granting of a patent), that an intangible asset may be capable of recognition. As current accounting requirements primarily focus on transactions, an event such as the resolution of uncertainty surrounding an internally developed IPR is generally not captured in company financial statements.

                Let’s take the example of research and development costs (‟R&D”), which is one process of internally creating certain types of intangible assets, to illustrate the accounting treatment of intangible assets created in this way. 

                Among accounting standard setters, such as IASB with its IAS 38, the most frequent practice is to require the immediate expensing of all R&D. However, France, Italy and Australia are examples of countries where national accounting rule makers allow the capitalisation of R&D, subject to conditions being satisfied. 

                Therefore, in some circumstances, internally generated intangible assets can be recognised when the relevant set of recognition criteria is met, in particular the existence of a clear linkage of the expenditure to future benefits accruing to the company. This is called condition-based capitalisation. In these cases, the cost that a company has incurred in that financial year, can be capitalised as an asset; the previous costs having already been expensed in earlier income statements. For example, when a patent is finally granted by the relevant intellectual property office, only the expenses incurred during that financial year can be capitalised and disclosed on the face of balance sheet among intangible fixed assets.

                To conclude, under the current IFRS and GAAP regimes, internally generated intangible assets, such as IPRs, can only be recognised on balance sheet in very rare instances.

                2.Why value and report intangible assets?

                As developed in depth by the European Commission (‟EC”) in its 2013 final report from the expert group on intellectual property valuation, the UK intellectual property office (‟UKIPO”) in its 2013 ‟Banking on IP?” report and the FRC in its 2019 discussion paper ‟Business reporting of intangibles: realistic proposals”, the time for radical change to the accounting of intangible assets has come upon us. 

                2.1. Improving the accurateness and reliability of financial communication

                Existing accounting standards should be advanced, updated and modernised to take greater account of intangible assets and consequently improve the relevance, objectivity and reliability of financial statements.

                Not only that, but informing stakeholders (i.e. management, employees, shareholders, regulators, financiers, investors) appropriately and reliably is paramount today, in a corporate world where companies are expected to accurately, regularly and expertly manage and broadcast their financial communication to medias and regulators.

                As highlighted by Janice Denoncourt in her blog post ‟intellectual property, finance and corporate governance”, no stakeholder wants an iteration of the Theranos’ fiasco, during which inventor and managing director Elizabeth Holmes was indicted for fraud in excess of USD700 million, by the United States Securities and Exchange Commission (‟SEC”), for having repeatedly, yet inaccurately, said that Theranos’ patented blood testing technology was both revolutionary and at the last stages of its development. Elizabeth Holmes made those assertions on the basis of the more than 270 patents that her and her team filed with the United States patent and trademark office (‟USPTO”), while making some material omissions and misleading disclosures to the SEC, via Theranos’ financial statements, on the lame justification that ‟Theranos needed to protect its intellectual property” (sic).

                Indeed, the stakes of financial communication are so high, in particular for the branding and reputation of any ‟knowledge economy” company, that, back in 2002, LVMH did not hesitate to sue Morgan Stanley, the investment bank advising its nemesis, Kering (at the time, named ‟PPR”), in order to obtain Euros100 million of damages resulting from Morgan Stanley’s alleged breach of conflicts of interests between its investment banking arm (which advised PPR’s top-selling brand, Gucci) and Morgan Stanley’s financial research division. According to LVMH, Clare Kent, Morgan Stanley’s luxury sector-focused analyst, systematically drafted and then published negative and biased research against LVMH share and financial results, in order to favor Gucci, the top-selling brand of the PPR luxury conglomerate and Morgan Stanley’s top client. While this lawsuit – the first of its kind in relation to alleged biased conduct in a bank’s financial analysis – looked far-fetched when it was lodged in 2002, LVMH actually won, both in first instance and on appeal.

                Having more streamlined and accurate accounting, reporting and valuation of intangible assets – which are, today, the main and most valuable assets of any 21st century corporation – is therefore paramount for efficient and reliable financial communication.

                2.2. Improving and diversifying access to finance

                Not only that, but recognising the worth and inherent value of intangible assets, on balance sheet, would greatly improve the chances of any company – in particular, SMEs – to successfully apply for financing.

                Debt finance is notoriously famous for shying away from using intangible assets as main collateral against lending because it is too risky.

                For example, taking appropriate security controls over a company’s registered IPRs in a lending scenario would involve taking a fixed charge, and recording it properly on the Companies Registry at Companies House (in the UK) and on the appropriate IPRs’ registers. However, this hardly ever happens. Typically, at best, lenders are reliant on a floating charge over IPRs, which will crystallise in case of an event of default being triggered – by which time, important IPRs may have disappeared into thin air, or been disposed of; hence limiting the lender’s recovery prospects.

                Alternatively, it is now possible for a lender to take an assignment of an IPR by way of security (generally with a licence back to the assignor to permit his or her continued use of the IPR) by an assignment in writing signed by the assignor[1]. However, this is rarely done in practice. The reason is to avoid ‟maintenance”, i.e. to prevent the multiplicity of actions. Indeed, because intangibles are incapable of being possessed, and rights over them are therefore ultimately enforced by action, it has been considered that the ability to assign such rights would increase the number of actions[2].

                Whilst there are improvements needed to the practicalities and easiness of registering a security interest over intangible assets, the basic step that is missing is a clear inventory of IPRs and other intangible assets, on balance sheet and/or on yearly financial statements, without which lenders can never be certain that these assets are in fact to hand.

                Cases of intangible asset- backed lending (‟IABL”) have occurred, whereby a bank provided a loan to a pension fund against tangible assets, and the pension fund then provided a sale and leaseback arrangement against intangible assets. Therefore, IABL from pension funds (on a sale and leaseback arrangement), rather than banks, provides a route for SMEs to obtain loans.

                There have also been instances where specialist lenders have entered into sale and licence-back agreements, or sale and leaseback agreements, secured against intangible assets, including trademarks and software copyright. 

                Some other types of funders than lenders, however, are already making the ‟intangible assets” link, such as equity investors (business angels, venture capital companies and private equity funds). They know that IPRs and other intangibles represent part of the ‟skin in the game” for SMEs owners and managers, who have often expended significant time and money in their creation, development and protection. Therefore, when equity investors assess the quality and attractiveness of investment opportunities, they invariably include consideration of the underlying intangible assets, and IPRs in particular. They want to understand the extent to which intangible assets owned by one of the companies they are potentially interested investing in, represent a barrier to entry, create freedom to operate and meet a real market need.

                Accordingly, many private equity funds, in particular, have delved into investing in luxury companies, attracted by their high gross margins and net profit rates, as I explained in my 2013 article ‟Financing luxury companies: the quest of the Holy Grail (not!)”. Today, some of the most active venture capital firms investing in the European creative industries are Accel, Advent Venture Partners, Index Ventures, Experienced Capital, to name a few.

                2.3. Adopting a systematic, consistent and streamlined approach to the valuation of intangible assets, which levels the playing field

                If intangible assets are to be recognised in financial statements, in order to adopt a systematic and streamlined approach to their valuation, then fair value is the most obvious alternative to cost, as explained in paragraph 1.3. above.

                How could we use fair value more widely, in order to capitalise intangible assets in financial statements?

                IFRS 13 ‟Fair Value Measurements” identifies three widely-used valuation techniques: the market approach, the cost approach and the income approach.

                The market approachuses prices and other relevant information generated by market transactions involving identical or comparable” assets. However, this approach is difficult in practice, since when transactions in intangibles occur, the prices are rarely made public. Publicly traded data usually represents a market capitalisation of the enterprise, not singular intangible assets. Market data from market participants is often used in income based models such as determining reasonable royalty rates and discount rates. Direct market evidence is usually available in the valuation of internet domain names, carbon emission rights and national licences (for radio stations, for example). Other relevant market data include sale/licence transactional data, price multiples and royalty rates.

                The cost approachreflects the amount that would be required currently to replace the service capacity of an asset”. Deriving fair value under this approach therefore requires estimating the costs of developing an equivalent intangible asset. In practice, it is often difficult to estimate in advance the costs of developing an intangible. In most cases, replacement cost new is the most direct and meaningful cost based means of estimating the value of an intangible asset. Once replacement cost new is estimated, various forms of obsolescence must be considered, such as functional, technological and economic. Cost based models are best used for valuing an assembled workforce, engineering drawings or designs and internally developed software where no direct cash flow is generated.

                The income approach essentially converts future cash flows (or income and expenses) to a single, discounted present value, usually as a result of increased turnover of cost savings. Income based models are best used when the intangible asset is income producing or when it allows an asset to generate cash flow. The calculation may be similar to that of value in use. However, to arrive at fair value, the future income must be estimated from the perspective of market participants rather than that of the entity. Therefore, applying the income approach requires an insight into how market participants would assess the benefits (cash flows) that will be obtained uniquely from an intangible asset (where such cash flows are different from the cash flows related to the whole company). Income based methods are usually employed to value customer related intangibles, trade names, patents, technology, copyrights, and covenants not to compete.

                An example of IPRs’ valuation by way of fair value, using the cost and income approaches in particular, is given in the excellent presentation by Austin Jacobs, made during ialci’s latest law of luxury goods and fashion seminar on intellectual property rights in the fashion and luxury sectors.

                In order to make these three above-mentioned valuation techniques more effective, with regards to intangible assets, and because many intangibles will not be recognised in financial statements as they fail to meet the definition of an asset or the recognition criteria, a reconsideration to the ‟Conceptual Framework to Financial Reporting” needs being implemented by the IASB.

                These amendments to the Conceptual Framework would permit more intangibles to be recognised within financial statements, in a systematic, consistent, uniform and streamlined manner, therefore levelling the playing field among companies from the knowledge economy.

                Let’s not forget that one of the reasons WeWork co founder, Adam Neumann, was violently criticised, during WeWork’s failed IPO attempt, and then finally ousted, in 2019, was the fact that he was paid nearly USD6 million for granting the right to use his registered word trademark ‟We”, to his own company WeWork. In its IPO filing prospectus, which provided the first in-depth look at WeWork’s financial results, WeWork characterised the nearly USD6 million payment as ‟fair market value”. Many analysts, among which Scott Galloway, begged to differ, outraged by the lack of rigour and realism in the valuation of the WeWork brand, and the clearly opportunistic attitude adopted by Adam Neumann to get even richer, faster.

                2.4. Creating a liquid, established and free secondary market of intangible assets

                IAS 38 currently permits intangible assets to be recognised at fair value, as discussed above in paragraphs 1.3. and 2.3., measured by reference to an active market.

                While acknowledging that such markets may exist for assets such as ‟freely transferable taxi licences, fishing licences or production quotas”, IAS 38 states that ‟it is uncommon for an active market to exist for an intangible asset”. It is even set out, in paragraph 78 of IAS 38 that ‟an active market cannot exist for brands, newspaper mastheads, music and film publishing rights, patents or trademarks, because each such asset is unique”.

                Markets for resale of intangible assets and IPRs do exist, but are presently less formalised and offer less certainty on realisable values. There is no firmly established secondary transaction market for intangible assets (even though some assets are being sold out of insolvency) where value can be realised. In addition, in the case of forced liquidation, intangible assets’ value can be eroded, as highlighted in paragraph 2.2. above.

                Therefore, markets for intangible assets are currently imperfect, in particular because there is an absence of mature marketplaces in which intangible assets may be sold in the event of default, insolvency or liquidation. There is not yet the same tradition of disposal, or the same volume of transaction data, as that which has historically existed with tangible fixed assets.

                Be that as it may, the rise of liquid secondary markets of intangible assets is unstoppable. In the last 15 years, the USA have been at the forefront of IPRs auctions, mainly with patent auctions managed by specialist auctioneers such as ICAP Ocean Tomo and Racebrook. For example, in 2006, ICAP Ocean Tomo sold 78 patent lots at auction for USD8.5 million, while 6,000 patents were sold at auction by Canadian company Nortel Networks for USD4.5 billion in 2011.

                However, auctions are not limited to patents, as demonstrated by the New York auction, successfully organised by ICAP Ocean Tomo in 2006, on lots composed of patents, trademarks, copyrights, musical rights and domain names, where the sellers were IBM, Motorola, Siemens AG, Kimberly Clark, etc. In 2010, Racebrook auctioned 150 American famous brands from the retail and consumer goods’ sectors.

                In Europe, in 2012, Vogica successfully sold its trademarks and domain names at auction to competitor Parisot Group, upon its liquidation.

                In addition, global licensing activity leaves not doubt that intangible assets, in particular IPRs, are, in fact, very valuable, highly tradable and a very portable asset class.

                It is high time to remove all market’s imperfections, make trading more transparent and offer options to the demand side, to get properly tested.

                3. Next steps to improve the valuation and reporting of intangible assets

                3.1. Adjust IAS 38 and the Conceptual Framework to Financial Reporting to the realities of intangible assets’ reporting

                Mainstream lenders, as well as other stakeholders, need cost-effective, standardised approaches in order to capture and process information on intangibles and IPRs (which is not currently being presented by SMEs).

                This can be achieved by reforming IAS 38 and the ‟Conceptual Framework to Financial Reporting”, at the earliest convenience, in order to make most intangible assets capitalised on financial statements at realistic and consistent valuations.

                In particular, the reintroduction of amortisation of goodwill may be a pragmatic way to reduce the impact of different accounting treatment for acquired and internally generated intangibles.

                In addition, narrative reporting (i.e. reports with titles such as ‟Management Commentary” or ‟Strategic Report”, which generally form part of the annual report, and other financial communication documents such as ‟Preliminary Earnings Announcements” that a company provides primarily for the information of investors) must set out detailed information on unrecognised intangibles, as well as amplify what is reported within the financial statements. 

                3.2. Use standardised and consistent metrics within financial statements and other financial communication documents

                The usefulness and credibility of narrative information would be greatly enhanced by the inclusion of metrics (i.e. numerical measures that are relevant to an assessment of the company’s intangibles) standardised by industry. The following are examples of objective and verifiable metrics that may be disclosed through narrative reporting:

                • a company that identifies customer loyalty as critical to the success of its business model might disclose measures of customer satisfaction, such as the percentage of customers that make repeat purchases;
                • if the ability to innovate is a key competitive advantage, the proportion of sales from new products may be a relevant metric;
                • where the skill of employees is a key driver of value, employee turnover may be disclosed, together with information about their training.

                3.3. Make companies’ boards accountable for intangibles’ reporting

                Within a company, at least one appropriately qualified person should be appointed and publicly reported as having oversight and responsibility for intangibles’ auditing, valuation, due diligence and reporting (for example a director, specialist advisory board or an external professional adviser).

                This would enhance the importance of corporate governance and board oversight, in addition to reporting, with respect to intangible assets.

                In particular, some impairment tests could be introduced, to ensure that businesses are well informed and motivated to adopt appropriate intangibles’ management practices, which should be overseen by the above-mentioned appointed board member.

                3.4. Create a body that trains about, and regulates, the field of intangible assets’ valuation and reporting

                The creation of a professional organisation for the intangible assets’ valuation profession would increase transparency of intangibles’ valuations and trust towards valuation professionals (i.e. lawyers, IP attorneys, accountants, economists, etc).

                This valuation professional organisation would set some key objectives that will protect the public interest in all matters that pertain to the profession, establish professional standards (especially standards of professional conduct) and represent professional valuers.

                This organisation would, in addition, offer training and education on intangibles’ valuations. Therefore, the creation of informative material and the development of intangible assets’ training programmes would be a priority, and would guarantee the high quality valuation of IPRs and other intangibles as a way of boosting confidence for the field.

                Company board members who are going to be appointed as having accountability and responsibility for intangibles’ valuation within the business, as mentioned above in paragraph 3.3., could greatly benefit from regular training sessions offered by this future valuation professional organisation, in particular for continuing professional development purposes.

                3.5. Create a powerful register of expert intangible assets’ valuers

                In order to build trust, the creation of a register of expert intangibles’ valuers, whose ability must first be certified by passing relevant knowledge tests, is key. 

                Inclusion on this list would involve having to pass certain aptitudes tests and, to remain on it, valuers would have to maintain a standard of quality in the valuations carried out, whereby the body that manages this registry would be authorised to expel members whose reports are not up to standard. This is essential in order to maintain confidence in the quality and skill of the valuers included on the register.

                The entity that manages this body of valuers would have the power to review the valuations conducted by the valuers certified by this institution as a ‟second instance”. The body would need to have the power to re-examine the assessments made by these valuers (inspection programme), and even eliminate them if it is considered that the assessment is overtly incorrect (fair disciplinary mechanism).

                3.6. Establish an intangible assets’ marketplace and data-source

                The development most likely to transform IPRs and intangibles as an asset class is the emergence of more transparent and accessible marketplaces where they can be traded. 

                In particular, as IPRs and intangible assets become clearly identified and are more freely licensed, bought and sold (together with or separate to the business), the systems available to register and track financial interests will need to be improved. This will require the cooperation of official registries and the establishment of administrative protocols. 

                Indeed, the credibility of intangibles’ valuations would be greatly enhanced by improving valuation information, especially by collecting information and data on actual and real intangibles’ transactions in a suitable form, so that it can be used, for example, to support IPRs asset-based lending decisions. If this information is made available, lenders and expert valuers will be able to base their estimates on more widely accepted and verified assumptions, and consequently, their valuation results – and valuation reports – would gain greater acceptance and reliability from the market at large.

                The wide accessibility of complete, quality information which is based on real negotiations and transactions, via this open data-source, would help to boost confidence in the validity and accuracy of valuations, which will have a very positive effect on transactions involving IPRs and other intangibles.

                3.7. Introduce a risk sharing loan guarantee scheme for banks to facilitate intangibles’ secured lending

                A dedicated loan guarantee scheme needs being introduced, to facilitate intangible assets’ secured lending to innovative and creative SMEs.

                Asia is currently setting the pace in intangibles-backed lending. In 2014, the intellectual property office of Singapore (‟IPOS”) launched a USD100 million ‟IP financing scheme” designed to support local SMEs to use their granted IPRs as collateral for bank loans. A panel of IPOS-appointed valuers assess the applicant’s IPR portfolio using standard guidelines to provide lenders with a basis on which to determine the amount of funds to be advanced. The development of a national valuation model is a noteworthy aspect of the scheme and could lead to an accepted valuation methodology in the future.

                The Chinese intellectual property office (‟CIPO”) has developed some patent-backed debt finance initiatives. Only 6 years after the ‟IP pledge financing” programme was launched by CIPO in 2008, CIPO reported that Chinese companies had secured over GBP6 billion in IPRs-backed loans since the programme launched. The Chinese government having way more direct control and input into commercial bank lending policy and capital adequacy requirements, it can vigorously and potently implement its strategic goal of increasing IPRs-backed lending. 

                It is high time Europe follows suit, at least by putting in place some loan guarantees that would increase lender’s confidence in making investments by sharing the risks related to the investment. A guarantor assumes a debt obligation if the borrower defaults. Most loan guarantee schemes are established to correct perceived market failures by which small borrowers, regardless of creditworthiness, lack access to the credit resources available to large borrowers. Loan guarantee schemes level the playing field.

                The proposed risk sharing loan guarantee scheme set up by the European Commission or by a national government fund (in particular in the UK, who is brexiting) would be specifically targeted at commercial banks in order to stimulate intangibles-secured lending to innovative SMEs. The guarantor would fully guarantee the intangibles-secured loan and share the risk of lending to SMEs (which have suitable IPRs and intangibles) with the commercial bank. 

                The professional valuer serves an important purpose, in this future loan guarantee scheme, since he or she will fill the knowledge gap relating to the IPRs and intangibles, as well as their value, in the bank’s loan procedure. If required, the expert intangibles’ valuer provides intangibles’ valuation expertise and technology transfer to the bank, until such bank has built the relevant capacity to perform intangible assets’ valuations. Such valuations would be performed, either by valuers and/or banks, according to agreed, consistent, homogenised and accepted methods/standards and a standardised intangible asset’s valuation methodology.

                To conclude, in this era of ultra-competitiveness and hyper-globalisation, France and the UK, and Europe in general, must immediately jump on the saddle of progress, by reforming outdated and obsolete accounting and reporting standards, as well as by implementing all the above-mentioned new measures and strategies, to realistically and consistently value, report and leverage intangible assets in the 21st century economy.

                [1] ‟Lingard’s bank security documents”, Timothy N. Parsons, 4th edition, LexisNexis, page 450 and seq.

                [2] ‟Taking security – law and practice”, Richard Calnan, Jordans, page 74 and seq.

                 

                Crefovi regularly updates its social media channels, such as LinkedinTwitterInstagramYouTube and Facebook. Check our latest news there!

                 

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                  Law of luxury and fashion marketing: how to secure your practices

                  Crefovi : 25/04/2017 8:00 am : Consumer goods & retail, Copyright litigation, Employment, compensation & benefits, Entertainment & media, Events, Fashion law, Fashion lawyers, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, Litigation & dispute resolution, Music law, Trademark litigation

                  Crefovi partners up with Les Echos Formation to present cutting-edge one-day training on the law of luxury and fashion marketing: how to secure your practices?

                  law of luxury and fashion marketingThis ground-breaking training day will provide a complete view on the legal aspects to pay attention to, when planning and organising marketing and advertising campaigns, as well as catwalk shows.

                  From image rights, publicity rights to brand ambassador deals, endorsement deals, as well as managing the brand’s relationships with agencies (modelling agencies, advertising agencies, music supervisors, etc), no stones will be left unturned by Crefovi during this seminar.

                  Dates of this training day

                  • Tuesday 25 April 2017, and
                  • Thursday 30 November 2017.

                  Training goals

                  • Master the essential aspects of a win-win negotiation with stars and models, their agents, as well as advertising agencies, sync agents and music supervisors;
                  • Understand who are the stakeholders, their positions and differents roles in the decision taking process, in relation to the choice of brand ambassadors and endorsers, music tracks which will feature during the catwalk show or the advertising campaign, fashion models;
                  • Compare the various strategies and negotiation tactics, in order to obtain the maximum investment in the advertising campaign or the partnership, from the brand ambassador or celebrity endorser, while fully complying with image rights and publicity rights;
                  • Maximise the ‟marketing” potential of social media while minimising legal risks, in particular copyright infringement risks, and
                  • Use anti-counterfeiting campaigns as a marketing strategy of luxury wares.

                  Outline for the daily programme ‟law of luxury and fashion marketing”

                  09:30 – 11:30: the advertising campaign – a breeding ground for legal issues

                  • Relationships between the luxury brand and advertising agencies: how to ensure that the “brief” written by the luxury house is well understood?
                  • The deal with the celebrity: manage the agents, talent agencies and the contractual relationship with the start;
                  • Synchronising music in the advertisement: a marked path;
                  • Relationships with the media, image rights and intellectual property: written press, TV, streaming sites (YouTube, Vimeo), and
                  • Social media and law: how to maximise the potential of digital while keeping legal risks down.

                  11:45 – 13:30 – the fashion show each season – an important legal challenge!

                  • Agreements with models and other service providers: an important stake;
                  • Photographers and catwalk shows: image rights, counterfeiting and royalties, and
                  • Music in fashion shows: how it works, from a legal standpoint?

                  Witness talk: a general counsel from a top luxury house shares his experience on negotiating and structuring various partnership agreements with brand ambassadors. He will detail the existing legal challenges during such negotiations

                  14:30 – 15:30 – case study

                  • Rihanna v Topshop;
                  • Why complying with image rights and publicity rights is paramount in the luxury and fashion sectors?
                  • Catherine Zeta-Jones v Caudalie.

                  15:45-17:15 – Fight against counterfeiting as a marketing and advertising tool

                  • Status of the fight against counterfeiting in the luxury and fashion sectors;
                  • New tools to fight against counterfeiting – legal and non-legal, and
                  • Lobbying actions against counterfeiting with ECCIA, the Walpole, Comité Colbert, etc.

                  17:15-18:00 – Final summary

                  Final summary of key points and takeaways, in order to best structure marketing and promotional campaigns for a luxury and fashion brand, while complying with existing laws and regulations

                  Training presenter

                  Annabelle Gauberti is a solicitor of England & Wales as well as a French ‟avocat” with the Paris bar. She focuses her practice on providing legal advice, either contentious or not contentious, to companies and individuals working in the creative industries in general, and the luxury and fashion sectors, as well as the music, film, TV and digital industries, in particular.

                  Ms Gauberti has more than thirteen years of experience in practicing the law of luxury goods and fashion. Since 2003, she has written numerous articles about this legal field.

                  Ms Gauberti is at the forefront of the expansion and development of the law of luxury goods and fashion, in particular by providing courses and seminars to luxury professionals at the Institut de la Recherche de la Propriété Intellectuelle (IRPI) and to MBA students in Luxury Brand Management, around the world.

                  Below are a few links to the seminars that Ms Gauberti organised and to which she participated as a speaker:

                  https://crefovi.com/media-coverage/hip-hop-film-stars-market-fashion-luxury-products/

                  https://crefovi.com/media-coverage/is-intellectual-property-in-fashion-luxury-a-relevant-topic/

                  https://crefovi.com/media-coverage/london-music-law-firm-crefovi-spoke-sync-license-midem-2015/

                  Les Echos Formation

                  Since 2003, Les Echos Formation works alongside large companies and public servants in developing their managerial capabilities with training sessions and conferences. Les Echos Formation is a content publisher (online and offline), aggregator and animator of customised and tailored training sessions focused on the needs of managerial teams, while leveraging its many resources and networks.

                   

                  Crefovi regularly updates its social media channels, such as LinkedinTwitterInstagramYouTube and Facebook. Check our latest news there!

                   

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