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 ‟Consumer goods & 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 law blog to guide its clients through the complexities of fashion & luxury 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.

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

Competition law & labour markets: the CMA springs into action

Crefovi : 04/04/2024 3:38 pm : Antitrust & competition, Articles, Consumer goods & retail, Emerging companies, Employment, compensation & benefits, Entertainment & media, Fashion law, Law of luxury goods, News, Outsourcing, Webcasts & Podcasts

Competition law in labour markets is a hot topic for many competition bodies around the world and, in particular, the United Kingdom’s Competition and Markets Authority. The CMA has lately sprung into action, in order to research, investigate and, ultimately, decide, whether the majority of UK’s labour markets lack competition due to no-poach agreements, salary-fixing agreements and other anticompetitive tactics used by UK employers. In this era of thrift and savings, generated by the recession caused by the management of the Covid 19 pandemic, and then the inflation ballooning in the aftermath of the Russia/Ukraine war, the CMA is particularly attentive that UK citizens get their fair share of remuneration, when they go to work every morning, to pay their bills. Let’s investigate how the Competition and Markets Authority is positioning itself as a model competition body, in the fight against anticompetitive behaviour in labour markets.

1. What is the CMA doing in relation to competition law & labour markets?

Competition issues in labour markets generally fall under the prohibition on anticompetitive agreements, pursuant to Chapter I of the Competition Act 1998 (‟CA98”) in the UK, and article 101 of the Treaty of the Functioning of the European Union (‟EU”).

The Competition and Markets Authority (‟CMA”) launched three investigations in labour markets in the United Kingdom (‟UK”), since July 2022, as follows.

The first investigation, started in July 2022, relates to suspected breaches of competition law in relation to the purchase of freelance services supporting the production and broadcasting of sports content in the UK. The CMA launched an investigation under section 25 (Power of CMA to investigate) CA98 into suspected infringements of the Chapter I (Agreements) prohibition of the CA98 by undertakings involved in the production and broadcasting of sports content. The CMA is investigating suspected breaches of competition law by at least the following:

This investigation was updated on 3 April 2024, with an ongoing assessment of information gathered in respect of the purchase of freelance services supporting the production and broadcasting of sports content in the UK, between March and May 2024.

The second investigation, launched in October 2023, relates to suspected anti-competitive behaviour relating to freelance and employed labour in the production, creation and/or broadcasting of television content, excluding sport content. The CMA launched this second investigation under section 25 CA98 into a suspected infringement or infringements of the Chapter I prohibition of the CA98 by a number of undertakings involved in the production, creation and/or broadcasting of television content. More specifically, the investigation concerns the activities of these undertakings in relation to the purchase of services from freelance providers, and the employment of staff, who support the production, creation and/or broadcasting of television content in the UK, excluding sport content. The following undertakings are investigated, as the investigation is digging into whether production companies have been colluding by informally fixing freelancers’ wage rates:

  • British Broadcasting Corporation;

  • ITV PLC;

Further investigatory steps and assessment of evidence is done by the CMA, between April and October 2024.

The third and last investigation, launched in March 2023, relates to suspected anticompetitive conduct in relation to fragrances and fragrance ingredients. The CMA launched an investigation under Chapter I CA98 into suspected breaches of competition law. The investigation concerns suspected anticompetitive conduct in relation to the supply of fragrances and fragrance ingredients for use in the manufacture of consumer products such as household and personal care products. In January 2024, the CMA extended the investigation to include suspected unlawful coordination by several undertakings, involving reciprocal arrangements relating to the hiring or recruitment of certain staff involved in the supply of fragrances and/or fragrance ingredients. The businesses under investigation by the CMA are:

as well as other entities within their corporate groups, including UK subsidiaries.

Also, in its annual plan for 2023/2024, the CMA referred to its current focus on competition issues in labour markets in the following terms, referring to it as a priority in relation to its strategic aim of ensuring that people can be confident they are getting great choices and fair deals: ‟More broadly on labour markets, we have produced guidance for employers on how to avoid anticompetitive behaviour such as no-poaching agreements, when 2 or more businesses agree not to approach or hire each other’s employees. Our Microeconomics unit’s research strategy includes work on labour market power – that is the extent to which employers are able to keep wages or working conditions below competitive levels”. This CMA annual plan highlights that with the cost-of-living crisis and at a time when finances are under particular pressure, the CMA wants to clamp down on cartel behaviour and unilateral effects impacting household income and labour markets, and therefore is actively pursuing collusive behaviour that affects finances and household incomes.

Indeed, in February 2023, the CMA issued guidance to support employers to identify and avoid collusion through wage-fixing, no-poaching agreements and information sharing. In this guidance, the CMA highlighted three areas of particular risk in labour markets:

  • no-poach agreements: agreement where two or more businesses agree not to approach or hire each other’s employees (or not to do so without the current employer’s consent);

  • wage fixing agreements: agreements between two or more businesses to fix employees’ salaries or other employment benefits. The CMA noted that this could include agreeing to pay the same wages or setting maximum caps for pay. Wage fixing agreements were given as an example of buyer cartels in the UK horizontal guidelines published by the CMA in August 2023; and

  • information sharing: businesses sharing sensitive information about terms and conditions of employment. The CMA highlighted that this could cover freelancers and contracted workers, as well as permanent employees.

Then, in January 2024, the CMA published a 192 pages’ long research report by their new Microeconomics Unit (part of the CMA which conducts research to inform the CMA of emerging economic issues) on ‟Competition and market power in UK labour markets” (the ‟Report”), focusing on employer market power and market concentration. The Report is intended to provide an evidential basis to support policymaking in relation to labour markets in the UK, as well as further research into competition and labour markets.

2. Why is the CMA concerned about competition law & labour markets?

2.1. Key takeways from the CMA’s Report

Some of the key findings, in the Report, are:

  • market concentration varies significantly across labour markets: overall, the level of employer market power (i.e. the ability of firms to pay workers less than the value of their contribution to the firm’s output) in the UK has, since 1998, been relatively stable or declining. Also, labour market concentration (i.e. how many firms there are in a particular market) in the UK is roughly the same as 20 years ago, despite significant changes to the structure of the labour market, including the rise of the gig economy and the impact of the Covid-19 pandemic. However, there is substantial industry variation in market concentration across labour markets, which can impact wage levels. Geographically, labour markets are much more concentrated outside London and the South East.

  • the law of non-compete clauses may need updating: non-compete provisions, which restrict the ability of employees to work for rival firms for a period of time after leaving their current employer, do not generally breach UK competition law. However, the Report finds that around 26 percent of UK workers are affected by non-compete clauses which prevent them from joining a competitor, even in low-paid jobs. Given the prevalence of non-compete clauses across the economy and their impact on worker mobility, the CMA considers that UK employment law may need updating. This supports the UK government’s intention, announced in May 2023 (as part of a package of measures to boost the productivity of UK businesses), to legislate to limit post-term non-compete clauses in employment agreements to 3 months.

Sarah Cardell, CEO of the CMA, has stated that the CMA will use the findings of the Report to inform the CMA’s work in combatting anti-competitive conduct in labour markets, including its existing above-mentioned three investigations. This Report’s findings will be used to inform broader policy developments, such as the increase in the number of self-employed people in the gig economy, for example.

2.2. Global interest in relation to competition law & labour markets

The CMA is not alone in focusing on labour market competition law violations. There is a global trend of competition authorities worldwide showing an increasing interest in potential anticompetitive conduct in labour markets in recent years.

The US Department of Justice (‟DOJ”) and the Federal Trade Commission (‟FTC”) were the first to take a stance on competition issues in labour markets when they published guidance in October 2016. The DOJ and FTC have been particularly interested in no poach agreements and announced the first criminal charges for a no-poach agreement in 2021. There have also been several civil class actions brought by employees against employers: for example, a claim was brought by nurses which resulted in the award of treble damages for wage fixing and settled actions for a large payout (against Disney by animators). In January 2023, the FTC announced a proposed rule that would ban nearly all post-employment non-compete agreements, with limited exceptions.

Similarly, Canada has implemented a no-poach ban.

In a 2021 speech, Competition Commissioner Margrethe Vestager indicated that the European Commission (the ‟Commission”) was interested in non-classic cartels, i.e. anticompetitive conduct in labour markets – including no-poach and wage-fixing agreements – as an area of enforcement activity. She also highlighted wage fixing agreements as an example of a buyer cartel with a ‟very direct effect on individuals”. At an EU-wide level, the Commission announced, and conducted, in November 2023, its first ever dawn raids carried out in relation to a suspected no-poach agreement (and associated anticompetitive exchange of information) in the online food delivery sector.

There have been numerous investigations into alleged competition law infringements in labour markets in recent years with cases in Belgium, Denmark, Finland, France, Hungary, Lithuania, Portugal, Romania and Spain in the EU, as well as Brazil, Colombia, Switzerland, Turkey and the USA. These investigations span a wide range of sectors, including banking, healthcare, sport and software.

For example, in France, in 2017, the French Competition Authority sanctioned the competitors in the floor-covering sector for having adopted a ‟tacit non-aggression agreement” or a ‟gentleman’s agreement”. This agreement prohibited the companies from actively soliciting each other’s employees for a number of years. The companies had also exchanged information on salaries (including planned increases) and bonuses awarded to employees. In January 2023, the French Directorate-General for Competition, Consumer Affairs and Fraud Control (the ‟DGCCRF”, responsible for local anti-competitive practices) fined metal recycling companies for having concluded a no-poach agreement covering the whole French territory as part of a divestment deal. The DGCCRF considered that this agreement went beyond what was necessary for the completion of the merger due to the national scope of the undertaking (which covered a larger territory than the one in which the seller offered its services prior to the divestment) and its reciprocity.

3. What are the next steps, for the CMA, with respect to competition law & labour markets?

In her speech on 25 January 2024, CMA’s CEO, Sarah Cardell reiterated the CMA’s current interest in potential competition issues in labour markets but stressed that the competition rules do not generally regulate contracts between an employer and an employee. She added that the CMA, in line with international competition authorities, does not intend to scrutinise genuine collective bargaining between self-employed workers and employers.

However, it is anticipated that during the course of 2024, in addition to the above-mentioned potential UK legislative reform to restrict the duration of non-compete clauses to three months, there will be an increase in competition enforcement in labour markets, particularly in respect to no-poach and wage-fixing agreements both in the UK and globally. Similarly, as a result of the increased scrutiny of labour markets, there could be a rise in private claims, especially concerning equal pay.

The CMA is particularly interested in clamping down on what may otherwise be seen as standard business practice.

It is therefore critical for all businesses, irrespective of the industry they compete in, to ensure Human Resources (‟HR”) and recruitment departments are fully familiar with competition law compliance and training programmes, and that care is taken to avoid potentially infringing conduct in this context. Members of those teams need to be aware of potential areas of concern when speaking to their peers in other businesses, to mitigate competition risks.

Employers and HR professionals across all sectors/industries should therefore take this opportunity to review their use of non-compete provisions and, of course, ensure that they are observing the CMA’s guidance on wage-fixing, no-poaching agreements and information sharing. Are there any agreements with competitors (commercially or in recruitment) where it is explicitly set out that they will not approach each other’s employees? Has the company agreed with its competitors that they will not pay above a certain amount or the terms on which it will employ staff? Does the company routinely contact competitors to benchmark themselves? If so, advice should be sought on how to proceed to minimise the risk of a CMA investigation.

https://youtu.be/CEVSDUwky2U?si=n8F6HlmAGKzBiBaE
Crefovi’s live webinar: Competition law & labour markets – the CMA springs into action – 12 April 2024

 

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    Digital Services Act: the revolution will be televised

    Crefovi : 20/03/2024 4:09 pm : Antitrust & competition, Art law, Articles, Banking & finance, Capital markets, Consumer goods & retail, Emerging companies, Entertainment & media, Fashion law, Gaming, Hospitality, Information technology - hardware, software & services, Internet & digital media, Law of luxury goods, Life sciences, Litigation & dispute resolution, Music law, News, Outsourcing, Private equity & private equity finance, Product liability, Real estate, Sports & esports, Technology transactions, Webcasts & Podcasts

    The Digital Services Act is upon us and, with its bestie the Digital Markets Act, promises to force powerful changes in the digital ecosystem currently in place in the European Union and even globally. The power is shifting back to the people, with the Digital Services Act, and intermediary service providers better listen to its complaints about unclear and deceptive terms and conditions of service, its takedown notices for illegal content, products and services, as well as its concerns about bullying, breach of free speech, unfair targeting of minors, minorities, etc. Otherwise, the European Commission and national Digital Services Coordinators in the 27 European Union member-states, will take swift action to force online platforms, other types of intermediary service providers and search engines, to change their way and comply, with fines which can go up to 6 percent of worldwide annual turnover. Be warned, the Google, Apple, Microsoft and X/Twitter of this world: the revolution will be, is, televised.

    1. What is the Digital Services Act?

    Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and amending Directive 2000/31/EC (Digital Services Act) (‟DSA”) is a regulation from the European Union (‟EU”) that regulates online intermediaries and platforms such as marketplaces, social networks, content-sharing platforms, app stores and online travel and accommodation platforms.

    The DSA is part of a ‟package” of new EU rules focused on achieving Europe’s digital targets for 2030 and the digital ecosystem ‟Shaping Europe’s digital future”, along with the Digital Markets Act, the passed AI Act, as well as the Data Act and Data Governance Act, which form a single set of rules that apply across the EU, to implement the two following goals:

    • create a safer digital space in which the fundamental rights of all users of digital services are protected by setting clear and proportionate rules, and

    • establish a level playing field to foster innovation, growth and competitiveness, both in the European single market and globally.

    More specifically, the DSA creates an EU-wide uniform framework dealing with four issues as follows:

    • the handling of illegal or potentially harmful online content;

    • the liability of online intermediaries for third-party content;

    • the protection of users’ fundamental rights online, and

    • the bridging of information asymmetries between online intermediaries and their users.

    2. Who is affected and/or impacted by the Digital Services Act? Providers of online intermediary services

    2.1. Intermediary services

    The DSA applies to all intermediary services offered to EU users (natural persons and legal entities), irrespective of where the providers of these intermediary services have their place of establishment.

    ‟Intermediary services” are defined as:

    • a ‟mere conduit” service, consisting of the transmission in a communication network of information provided by a recipient of the service, or the provision of access to a communication network (for example, ‟mere conduit” services include generic categories of services, such as internet exchange points, wireless access points, virtual private networks, DNS services and resolvers, top-level domain name registries, registrars, certificate authorities that issue digital certificates, voice over IP and other interpersonal communication services);

    • a ‟caching” service, consisting of the transmission in a communication network of information provided by a recipient of the service, involving the automatic, intermediate and temporary storage of that information, performed for the sole purpose of making the information’s onward transmission to other recipients more efficient, upon their request (for example, ‟caching” services include the sole provision of content delivery networks, reverse proxies or content adaptation proxies), and

    • a ‟hosting” service, consisting of the storage of information provided by, and at the request of, a recipient of the service (for example, cloud computing, web hosting, paid referencing services or services enabling sharing information and content online, including file storage and sharing).

    Intermediary services may be provided in isolation, as part of another type of intermediary service, or simultaneously with other intermediary services. Whether a specific service constitutes a ‟mere conduit”, ‟caching” or ‟hosting” service depends solely on its technical functionalities, which might evolve in time, and should be assessed on a case-by-case basis.

    2.2. Providers of intermediary services

    Therefore, all companies providing online intermediary services on the EU single market, whether established in the EU or not, must comply with the DSA. These include:

    • intermediary service providers offering network infrastructure (internet access providers, caching operators);

    • hosting service providers;

    • online platforms (including social media platforms, social networks, app stores, online travel and accommodation websites, content-sharing websites, collaborative economy platforms and marketplaces), and

    • search engines.

    In the DSA, companies are subject to obligations which are proportionate to their size, role, impact and audiences in the online ecosystem, in particular:

    • micro-companies and small businesses (with less than 50 employees and annual sales of less than 10 million Euros) are exempt from some of the DSA’s obligations, and

    2.3. Very Large Online Platforms (VLOPs) and Very Large Online Search Engines (VLOSEs)

    The European Commission (the ‟Commission”) has begun to designate VLOPs and VLOSEs based on user numbers provided by platforms and search engines, which, regardless of size (except micro and small enterprises), they were required to publish by 17 February 2023. Platforms and search engines will need to update these figures at least every six months.

    Once the Commission designates a platform as a VLOP or search engine as a VLOSE, the designated online service has four months to comply with the DSA. The designation triggers specific rules that tackle the particular risks such large services pose to Europeans and society when it comes to illegal content, and their impact on fundamental rights, public security and wellbeing. For example, the VLOP or VLOSE needs to:

    • establish a point of contact for authorities and users;

    • report criminal offences;

    • have user-friendly terms and conditions, and

    • be transparent as regards advertising, recommender systems or content moderation.

    The Commission will revoke its decision if the platform or search engine does not reach the threshold of 45 million monthly users anymore, during one full year.

    So who are those VLOPs and VLOSEs, identified by the Commission as early as April 2023, so far? Some of the most notable are, inter alia:

    • Alibaba (Netherlands) B.V. is a VLOP under the DSA, for the designated service AliExpress;

    • Amazon Services Europe S.à.r.l. is a VLOP under the DSA, for the designated service Amazon Store;

    • Apple Distribution International Limited is a VLOP under the DSA, for the designated service App Store;

    • Aylo Freesites Ltd. is a VLOP under the DSA, for the designated service Pornhub;

    • Booking.com B.V. is a VLOP under the DSA, for the designated service Booking.com;

    • Google Ireland Ltd. is a VLOSE under the DSA, for the designated service Google Search, and a VLOP under the DSA, for the designated services Google Play, Google Maps, Google Shopping and YouTube;

    • LinkedIn Ireland Unlimited Company is a VLOP under the DSA, for the designated service LinkedIn;

    • Meta Platforms Ireland Limited (MPIL) is a VLOP under the DSA, for the designated services Facebook and Instagram;

    • Microsoft Ireland Operations Limited is a VLOSE under the DSA, for the designated service Bing;

    • Pinterest Europe Ltd. is a VLOP under the DSA, for the designated service Pinterest;

    • Snap B.V. is a VLOP under the DSA, for the designated service Snapchat;

    • TikTok Technology Limited is a VLOP under the DSA, for the designated service TikTok;

    • Twitter International Unlimited Company is a VLOP under the DSA, for the designated service X;

    • Wikimedia Foundation Inc 3*** is a VLOP under the DSA, for the designated service Wikipedia, and

    • Zalanda SE is a VLOP under the DSA, for the designated service Zalando.

    On 18 December 2023, the Commission opened formal proceedings to assess whether X may have breached the DSA in areas linked to risk management, content moderation, dark patterns, advertising transparency and data access for researchers. This decision to open proceedings was motivated by the analysis of the risk assessment report submitted by X in September 2023, X’s transparency report published on 3 November, and X’s replies to a formal request for information, which, among others, concerned the dissemination of illegal content in the context of Hamas’ terrorist attacks against Israel.

    3. What are the obligations that providers of online intermediary services have, under the DSA?

    The DSA establishes a new liability framework for companies in the digital sector, meaning they are now subject to a multitude of obligations.

    3.1. Key obligations for all intermediary service providers

    Here is a summary of the key obligations imposed on different levels of digital intermediary service providers by the DSA:

    • Governance: all providers at all levels must establish two single points of contact, one for direct communication with supervisory authorities, and the other for the recipients of the services. Providers not established in the EU, but offering services in the EU, will be required to designate a legal representative in the EU. Online platforms will need to have an out-of-court alternative dispute resolution mechanism, publish annual reports on content moderation, including the number of orders received from the authorities and the number of notices received from other parties, for removal and disabling of illegal content or content contrary to their terms and conditions, and the effect given to such orders and notices. VLOPs and VLOSEs must perform systematic risk assessments, share data with regulators and appoint a compliance officer;

    • Obligations for VLOPs and VLOSEs to prevent abuse of their systems, by taking risk-based action, including oversight through independent audits of their risk management measures. Platforms must mitigate against risks such as disinformation or election manipulation, cyber violence against women or harm to minors online. These measures must be carefully balanced against restrictions of freedom of expression and are subject to independent audits;

    • Responsible online marketplaces: online platforms and VLOPs will have to strengthen checks on the information provided by traders and make efforts to prevent illegal content so that consumers can purchase safe products and services;

    • Measures to counter illegal content online, including illegal goods and services: the DSA imposes new mechanisms allowing users to flag illegal content online, and for platforms to cooperate with specialised ‟trusted flaggers” to identify and remove illegal content;

    • New rules to trace sellers on online marketplaces, to help build trust and go after scammers more easily; a new obligation for online marketplaces to randomly check against existing databases whether products or services on their sites are compliant; sustained efforts to enhance the traceability of products through advanced technological solutions;

    • Ban on dark patterns on the interface of online platforms, referring to misleading tricks that manipulate users into choices they do not intend to make; providers must not manipulate users (commonly known as ‟nudging”) into using their service, for example, by making one choice more prominent than the other. Cancelling a subscription to a service should also be as easy as subscribing;

    • Wide-ranging transparency measures for online platforms, including better information on terms and conditions, as well as transparency on the algorithms used for recommending content or products to users; Also enhanced transparency for all advertising on online platforms and influencers’ commercial communications;

    • Bans on targeted advertising on online platforms: targeted advertising to minors or targeted advertising based on special categories of personal data, such as ethnicity, political views or sexual orientation, is prohibited for online platforms and VLOPs;

    • Protection of minors on any platform in the EU: for services aimed at minors, the providers of intermediary services must provide an explanation on the conditions and restrictions of use in a way that is understandable to minors;

    • Recommender systems: VLOPs will be required to offer users a system for recommending content not based on profiling. Transparency requirements for the parameters of recommender systems will be included;

    • ‟Notice and action” procedure: providers of intermediary services must explicitly describe, in their terms and conditions, any restrictions that they may impose on the use of their services, such as the content moderation policies, and to act responsibly in applying and enforcing those restrictions. Users will be empowered to give notice of illegal online content. Online platforms and VLOPs will have to be reactive through a clearer ‟notice and action” procedure. Victims of cyber crime will see the content that they report removed momentarily;

    • Protection of fundamental rights: stronger safeguards must be put in place to ensure user notices are processed in a non-arbitrary and non-discriminatory way, and safeguards must protect fundamental rights, such as data protection and freedom of expression;

    • Effective safeguards for users, including the possibility to challenge platforms’ content moderation decisions based on the obligatory information platforms must now provide to users when their content gets removed or restricted; users have new rights, including a right to complain to the platform, seek out-of-court settlements, complain to their national authority in their own language, or seek compensation for breaches of the rules. Now, representative organisations are able to defend user rights for large scale breaches of the law;

    • Accountability: EU member-states and the Commission will be able to access the algorithms of VLOPs and VLOSEs;

    • Allow access to data to researchers of key platforms in order to scrutinise how platforms work and how online risks evolve;

    • A new crisis response mechanism in cases a serious threat for public health and security crises, such as a pandemic or a war;

    • A unique oversight structure: the Commission is the primary regulator of VLOPs and VLOSEs, while other intermediary service providers are under the supervision of member-states where they are established. Indeed, national Digital Service Coordinators (‟DSCs”), designed by each one of the 27 EU member-states, are responsible for supervising, enforcing and monitoring the DSA in that country. In France, the ‟Autorité de régulation de la communication audiovisuelle et numérique” (‟Arcom”) is the DSC. The Commission has enforcement powers similar to those it has under antitrust proceedings. An EU-wide cooperation mechanism is currently being established between national regulators, the DSCs, and the Commission.

    While the DSA does not define what illegal content online is, it sets out EU-wide rules that cover detection, flagging and removal of illegal content, as well as a new risk assessment framework for VLOPs and VLOSEs on how illegal content spreads on their services.

    What constitutes illegal content, though, is defined in other laws, either at EU level or at national level – for example, terrorist content or child sexual abuse material or illegal hate speech is defined at EU level. Where a content is illegal only in a given EU member-state, as a general rule it should only be removed in the territory where it is illegal.

    The DSA stipulates that breaches must be subject to proportionate and dissuasive penalties, determined by each member-state. Intermediary service providers can be fined up to 6 percent of annual worldwide turnover for breaching the DSA and up to 1 percent of worldwide turnover for providing incorrect or misleading information.

    3.2. Key obligations specific to VLOPs and VLOSEs

    Once they are designated as such, VLOPs and VLOSEs must follow the rules that focus only on VLOPs and VLOSEs due to the potential impact they can have on society. This means that they must identify, analyse and assess systemic risks that are linked to their services. They should look, in particular, to risks related to:

    • illegal content;

    • fundamental rights, such as freedom of expression, media freedom and pluralism, discrimination, consumer protection and children’s rights;

    • public security and electoral processes, and

    • gender-based violence, public health, protection of minors and mental and physical wellbeing.

    Once the risks are identified and reported to the Commission for oversight, VLOPs and VLOSEs are obliged to put measures in place that mitigate these risks. This could mean adapting the design or functioning of their services or changing their recommender systems. This could also consist of reinforcing the platform internally with more resources to better identify systemic risks.

    Those designated as VLOPs and VLOSEs also have to:

    • establish an internal compliance function that ensures that the risks identified are mitigated;

    • be audited by an independent auditor at least once a year and adopt measures that respond to the auditors’ recommendations;

    • share their data with the Commission and national authorities so that they can monitor and assess compliance with the DSA;

    • allow vetted researchers to access platform data when the research contributes to the detection, identification and understanding of systemic risks in the EU;

    • provide an option in their recommender systems that is not based on user profiling, and

    • have a publicly available repository of advertisements.



    To conclude, the DSA is a first-of-a-kind regulatory toolbox globally, and sets an international benchmark or a regulatory approach to online intermediaries. Designed as a single, uniform set of rules for the EU, these rules will give users new protections and businesses legal certainty across the whole single market. Moreover, the DSA will complement the distance selling regulations and EU consumer contract legislation well, empowering consumers and businesses in doing more business and deals online. While we are super glad to be Europeans and therefore to benefit from these wonderful protections, we highly recommend that providers of intermediary services take the DSA very seriously, and work their socks off to become immediately compliant with it, even when online platforms, such as Easyjet, have not yet been designated as VLOPs by the Commission.

    https://youtu.be/iDFI8IbOHuE?si=um2vsI7v7ExIS5Us
    Crefovi’s live webinar: Digital Services Act – the revolution will be televised – 29 March 2024



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      Farfetch: anatomy of a fall

      Crefovi : 20/12/2023 1:57 pm : Antitrust & competition, Articles, Banking & finance, Capital markets, Consumer goods & retail, Emerging companies, Fashion law, Hostile takeovers, Information technology - hardware, software & services, Insolvency & workouts, Internet & digital media, Law of luxury goods, Mergers & acquisitions, Private equity & private equity finance, Restructuring, Technology transactions, Unsolicited bids, Webcasts & Podcasts

      Farfetch was a lovely entrepreneurial adventure launched 16 years’ ago by thirty-something Jose Neves, but will probably not stand the test of time, in its current iteration. Let’s analyse what and who drove Farfetch, and how Farfetch was driven, into the ground, in less than 5 years. We all need to hear cautionary tales, and the Farfetch story definitely fits into this category. Future fashion entrepreneurs, saddle up!

      1. What is Farfetch?

      Farfetch was incorporated at Companies House in October 2007 as the private company limited by shares ‟Far-fetch.com Limited”, by Jose Neves, a Portuguese national, in London, United Kingdom (‟UK”).

      The company name was changed twice, in May 2010 and then June 2013, with the name ‟Farfetch UK Limited” still in existence, today.

      In 2007, Jose Neves’ vision was to create a business that would use the same technologies that were transforming other consumer sectors, such as the music and film sectors, for shopping fashion products. His plan was to ‟create a world-class infrastructure supported by a top-notch team, and then put all that to the service of the world’s most interesting retailers and their websites”.

      Since some of the best brick-and-mortar fashion boutiques around the world, despite having a powerful eye for curation, were not able to fund, set up and manage their own e-commerce operations to scale their businesses beyond their local markets, Farfetch seemed to bring them an appropriate solution.

      This, combined with the fact that Farfetch did not take on the risk of owning inventory made it a compelling business model that attracted the interest of venture capitalists, such as Advent Ventures (now Felix Capital) and its founder Frederic Court.

      Mr Neves and its venture capital investors pushed, over the years, Farfetch to expand and grow to realise the vision of becoming the Amazon of the fashion industry, a platform upon which the whole industry could operate its e-commerce businesses.

      Today, Farfetch, one of the few global online retailers for high-end merchandise from a range of labels, works with more than 1,400 fashion boutiques and sellers, in 190 countries.

      In 2015, Farfetch bought Browns, the London fashion boutique, which had a flagship store on Brook Street. Now, the brick-and-mortar location of this flagship store is disused and vacant, in Brook Street, London.

      As consumer appetite for buying luxury goods online began to grow, Farfetch also started working directly with fashion brands to build their websites and back-end operations. Through Farfetch Platform Solutions, the company also offers a host of e-commerce services to brands, like Burberry and Ferragamo, and department stores, like Harrods and Bergdorf Goodman.

      In 2017, Farfetch bought the intellectual property from Condé Nast’s failed e-commerce venture Style.com, a brand that the company has never used.

      In 2018, Farfetch became a public company listed on the New York Stock Exchange (‟NYSE”), via Farfetch Holdings plc, a public limited company organised under the laws of England and Wales and a wholly-owned direct subsidiary of Cayman Islands-based Farfetch Limited. At the USD20 Initial Public Offering (‟IPO”) price, Farfetch debuted its IPO with an approximate market capitalisation of USD5.8 billion.

      The same year, Farfetch acquired New-York based sneaker and streetwear reseller Stadium Goods, opting to pay USD250 million for the sneaker startup in a combination of cash and Farfetch stock.

      In 2019, Farfetch ramped up its shopping spree, with a USD675 million takeover of the Italian holding company New Guards Group, which manages the design, production and distribution, for a range of global brands, including Off White, Reebok and Palm Angels. This acquisitive move, doubled by a report of larger than expected losses, wiped out more than USD2 billion off Farfetch’s market value in a single day, in 2019.

      Unfettered, Jose Neves bought a USD200 million stake in American department store Neiman Marcus for Farfetch, and, in 2022, struck a deal to buy 47.50 percent of the shareholding of Yoox Net-a-Porter (‟YNAP”) – the underperforming e-commerce platform from the Richemont group – in exchange for the issuance of a 12 percent shareholding in Farfetch to Richemont. That partnership was cleared by the European Commission in October 2023.

      Meanwhile, Farfetch acquired Los Angeles-based luxury beauty retailer Violet Grey, at the beginning of 2022, only to put it up for sale barely a year and a half later, in October 2023, further to shuttering its beauty division in August 2023.

      And then, in November 2023, when Farfetch issued a press release backtracking on its initial intention to announce third quarter 2023 results, its shares started tumbling, losing more than 50 percent of their value. Mid-December 2023, two years after Farfetch’s peak valuation at a pandemic high of USD26 billion in February 2021, its market value shrunk to less than USD238 million, with its shares losing more than 97 percent of their market value since its IPO.

      In Mid-November 2023, British investment firm Baillie Gifford, formerly Farfetch’s largest investor, sold nearly half of its shares in the platform, keeping a 7.53 percent stake only.

      On 18 December 2023, Farfetch provided a business update, confirming that it had entered into an emergency and lifeline USD500 million bridge loan facility with Athena Topco LP, a Delaware limited partnership owned by South Korean e-commerce group Coupang, Inc (also listed on the NYSE and backed by SoftBank Group Corp). In exchange, Farfetch will delist from the NYSE and a partnership between Coupang and the investment firm Greenoaks Capital Partners will acquire Farfetch through a pre-pack administration in the UK, which is a quick process used to facilitate selling all or parts of the assets of an insolvent company.

      Via the same business update, Farfetch also informed the public that its partnership with Richemont, to purchase 47.50 percent of YNAP, the adoption of Farfetch Platform Solutions by YNAP and the Richemont Maison, as well as the launch of Richemont Maison e-concessions on the French marketplace, had terminated with immediate effect.

      Farfetch’s shares on the NYSE were suspended after slumping 35 percent in premarket US trading before the public announcement on 18 December 2023.

      2. How, and why, is Farfetch in such dire straits?

      A combination of factors have brought Farfetch to the brink of extinction, many of those self-inflicted.

      Firstly, Farfetch veered too far away from its cautious approach to fashion e-commerce, jumping with both feet, from 2015 to 2023, in overpriced, underprepared and badly-executed multiple acquisitions of brick-and-mortar fashion brands and retailers and etailers, as well as their inventories.

      Not only did this scattered M&A strategy massively increase the financial risks underpinning Farfetch’s business, but it also seriously emptied the coffers of this startup (whose current cash flow resources stand at USD630 million), and saddled it with debt (in particular, USD600 million of convertible notes, shared equitably between Richemont and Alibaba Group Holding Limited, to be converted into cash or shares in 2026).

      Also, Farfetch’s erratic growth approach, without a well-thought business plan, caused both the fashion industry and unforgiving financial markets such as the NYSE, to no longer understand the company’s increasingly complex vision.

      And, Farfetch never consistently made a profit, since its IPO. So, investors, stakeholders in the fashion industry and financial markets doubt that it may be able to get back on track.

      Moreover, clearly, the leadership at Farfetch, and in particular Jose Neves, is incompetent. Although Mr Neves currently owns only 15 percent of the company’s shareholding he founded in 2007, he still has 77 percent of the vote on Farfetch’s executive committee. While he sacked all independent members of Farfetch’s board and all committees of Farfetch, as confirmed in the business update dated 18 December 2023, the board still consists of … Jose Neves. It is probably the insistence, by Jose Neves, to keep on staying at the helm of Farfetch, despite his proven track record of incompetence and poor management, that has ultimately deterred the likes of Amazon, Alibaba, LVMH, Richemont and Kering, from rescuing Farfetch out of its misery: they know that, while Mr Neves is in charge at Farfetch, nothing good can come out of it.

      Finally, the economic conditions for etailers are tough, post-pandemic, as luxury e-commerce players such as Farfetch, Mytheresa and Matchesfashion currently experience. MyTheresa’s shares have lost 90 percent of their value since the pandemic boom of 2021, and Matchesfashion has just been acquired by the Frasers Group, for just GBP52 million, in a deal that signals heavy losses for its private equity backer Apax Partners. The longer-term challenge of luxury e-commerce platforms is a drive among fashion labels to seek greater control of their products, usually at their own retail boutiques – a strategy aimed at avoiding discounts that third party retailers like Farfetch and Mytheresa rely on to attract shoppers. Now that consumers are back to shopping in person, it is a trend that luxury brands prefer to control their own distribution.

      3. What’s next for Farfetch?

      The deal between Coupang and Farfetch, announced in December 2023, will be a catastrophe for Farfetch in the medium to long term. Indeed, while such a transaction gives Farfetch a bit of a breather in terms of keeping its network of brands, boutiques and consumers depending on the Farfetch marketplace up and running, for now, there are very few synergies (if any) between a basic, cheap, retail e-commerce platform like coupang.com, and a luxury e-commerce marketplace such as farfetch.com.

      There is no chance that the Korean management of Coupang will ‟get” the exclusive and elitist distribution strategy of its asset farfetch.com, with the risk of diluting the brand Farfetch by lowering the standards of selection of the boutiques selling on the Farfetch marketplace. When that happens, no fashionista or luxury shopper will ever buy anything on Farfetch again.

      Also, Farfetch can kiss goodbye to its glitzy deals with luxury partners such as Richemont, Ferragamo, Burberry, etc. The positioning of Farfetch, now that it is becoming an asset of Coupang, is veering from being ‟luxury”, to ‟mainstream retail”. Also, the top brass at Farfetch will be replaced by a team of South Koreans who not only understand very little about what constitutes the makeup of a luxury brand, but also do not have the appropriate connections and pazzaz, in the luxury spheres.

      While Jose Neves must go, since he continuously mismanaged and negligently drove Farfetch into the ground, the South Korean ‟new guard” who will eventually replace him will fail, if they do not quickly and efficiently buy extremely expensive knowhow and strategic advice about, and connections within, the luxury sectors in Europe and the USA, to turn Farfetch around and to keep it as a thriving going concern for the luxury fashion industry.

      https://youtu.be/HYoN9S9i8oo?si=V9hq2ssLe79FL7Qc
      Crefovi’s live webinar: Farfetch – anatomy of a fall – 22 December 2023



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        Pharrell Williams & Louis Vuitton: the era of entertainment stars appointed as creative directors has begun

        Crefovi : 28/03/2023 12:10 pm : Articles, Consumer goods & retail, Employment, compensation & benefits, Entertainment & media, Fashion law, Fashion lawyers, Law of luxury goods, Music law, Webcasts & Podcasts

        Pharrell Williams & Louis Vuitton are getting into bed together. This is exciting as it is the first time a fully-fledged entertainment star has taken the helm at one of the most prestigious luxury brands worldwide, as its creative director. While musician Kanye West had already broken ground, at sportswear firm Adidas, in his role as artistic director of the uber-successful Yeezy brand, no luxury conglomerate had had the balls to appoint a celebrity as creative director of one of its crown’s jewels. Well, ‟Monsieur Arnault”, eternally the groundbreaker, has reached new ground, by doing exactly that at Louis Vuitton, with Pharrell Williams. How does this strategy fit into the inverted pyramid structure of the luxury ‟maison”? Are celebrities apt at running and maintaining their fashion brands and companies, in the long term? How are luxury brands tying creative directors to themselves, exactly, via their super-secretive contracts?

        1. Inverted pyramid of human resource management

        The creator-manager tandem is a characteristic of luxury.

        Succeeding in luxury requires to be both highly creative and imaginative (right cerebral hemisphere) and highly rigorous (left cerebral hemisphere). Unlike traditional industry (left-brain), where there is often initially one person who creates an empire alone, or art (right-brain), where there is always an individual, success in luxury is achieved at minimum through a tandem of right-brain and left-brain skills, with neither dominating the other; each has its own territory.

        The partnership formed by Pierre Bergé and Yves Saint Laurent is a famous one, such as the association of Tom Ford with Domenico de Sole at Gucci or the deal between Gabrielle Chanel and the Wertheimer brothers. In fact, all luxury brands originate with a couple (or a threesome, in the case of Chanel!), and the brand can be considered their baby.

        Not only can success in luxury not be the work of a single person, but it cannot be the work of a single pair, either. It is critical to seek to form complementary teams, composed of artists (who should respect the universe of the brand and take into account economic and practical reality, which is that luxury items must sell), artisans (who manufacture such luxury products), managers (who need to know how to work with artists and have, themselves, an artistic side, while remaining very left-brain individuals at the same time) and salespeople (who are in direct contact with the client).

        In luxury, other than the creator, the most important people for the brand are the workers (i.e. the artisans, who make the products), and the salespeople, who are the link with end-customers. All the others are really at their service.

        A luxury house, therefore, functions according to the famous principle of the ‟inverted pyramid”, except that in this case it is a real and daily practice, and not a vague slogan contradicted by the facts (who would believe that an assembly line worker at carmaker Renault, or a salesperson at L’Oréal, is more important than the CEO?).

        In a house such as Louis Vuitton, a store director has priority over all other departments and always has direct access to the CEO. It is compulsory that any new employee in a managerial position of any kind begins by working in the store, in order to understand fully what goes on there and how a manager’s job can serve the sales network and thus, the client. This period in sales is not only a matter of personal training, as in the case of major successful brands, but really a structural question: the whole organisation serves the store, in order to serve the client.

        Managers should always be travelling to sites in order to create, and above all maintain, personal links between everyone.

        This is one of the reasons why luxury management is so difficult. Genuinely assuming the concept of the ‟inverted pyramid” is often difficult for managers accustomed to giving orders from behind their desks; travelling endlessly to the four corners of the world is tiring (not to mention, impossible, in the midst of a pandemic or war like the Covid-19 outburst or the Russian/Ukrainian conflict); knowing how to stay in the background is unnatural to the ego of the Western ‟leader”.

        2. Rise of entertainment stars as fashion designers

        In this context of ‟inverted pyramid”, it can be difficult to introduce fashion, with its ‟star system”, within a luxury house. The rejection may be swift, if the teams dealing with fashion do not have the right human behaviours (i.e. prioritising the workers, artisans and salespeople).

        Yet, a luxury conglomerate has become very masterful at introducing some showbizz glitz at the top of its brands’ inverted pyramids, by making several stars from the entertainment sector creative directors of its luxury ‟maisons”.

        Yes, you have guessed correctly, I am referring to French luxury conglomerate LVMH.

        After Virgil Abloh, a trained architect who managed his own successful fashion label, Off-White, in parallel with his Louis Vuitton duties, passed away, Bernard Arnault, founder of LVMH, has made star record producer, rapper, songwriter and singer Pharrell Williams the next men’s creative director of Louis Vuitton, one of the largest (by sales, prestige and revenues) Fashion & Leather Goods’ brands from the LVMH portfolio, with Christian Dior.

        Many other stars from the entertainment industry have made the crossover from music and/or film, to fashion. Most of the time, this is by creating their own fashion label, with varying degrees of success.

        While the Olsen twin sisters have really hit the nail on the head, with their minimalistic, extremely expensive and highly-desirable fashion brand The Row, Beyoncé and Rihanna both failed to convince their investors (Philip Green from now-defunct Topshop, for the former, and Bernard Arnault from LVMH for the latter), as well as potential clients, that their brands Ivy Park and Fenty, were attractive propositions. The various reasons for such flops are explained with flair and aplomb by French blogger, Crazy Sally!

        Other brands birthed by celebrities include ‟Victoria Beckham”, which continues to report a loss 14 years in the making, and despite hefty external investments poured into it by financial backers at inception, and ‟Skims”, a shapewear brand launched by ex-reality TV sensation Kim Kardashian.

        I do not give ‟Victoria Beckham” another 10 years, as I think that its star will fade with that of its eponymous founder, ex-Spice GirlsVictoria Beckham. But Skims may be onto something, more long term, in light of the business acumen and right-brain capabilities of Ms Kardashian.

        Indeed, most of these celebs’ led fashion collections, brands and companies are rare cases and, most of the time, are founded on fragile structures which do not pass the test of time. Those which will resist will be the most authentic and the best, i.e. striking, offering valuable products which are the outcome of a real collaboration between a star with a vision, and a designer who knows how to interpret it.

        3. Contract between luxury brands & creative directors: freelancing but not really free

        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, who viewed himself as a ‟mercenary” was the creative director of both Chanel and LVMH’s Fendi).

        French freelancers and consultants who work for fashion and luxury houses are not protected by French labour rules applying to employer–employee relationships, in particular in the areas of paid leave, maternity leave, medical cover and even working time. 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.

        In the United Kingdom (‟UK”), which has its fair share of luxury brands (Burberry, Alexander McQueen, Vivienne Westwood), most creative directors are either freelance workers, or sometimes have struck a consultancy or contractor arrangement with their brand, as self-employed individuals. This way, they can run multiple creative businesses simultaneously, such as Jonathan Anderson, creative director of LVMH’s LOEWE and of his eponymous label, JW Anderson. However, also in the UK, the type of contract is not determinative of the nature of the relationship. Employment tribunals can look beyond the contractual arrangements to how the relationship operates in practice when deciding whether someone is an employee, a worker or genuinely self-employed.

        To get on the good side of their creative directors, luxury brands do not hesitate to roll out the red carpet, in terms of financial packages, often incentivising their art directors via stock options and/or minority stakes in the fashion brand. Of course, all these contracts are highly confidential and kept under wraps by the parties, but their content may transpire when art directors cash in on their stock options, with the notable example of Tom Ford, artistic director of Gucci NV, who exercised 1 million stock options in May 2003, and subsequently sold this million shares on the secondary market (since Gucci NV was a listed company), thus realising a comfortable capital gain of Euros 25 million.

        Other less bombastic ways to find out about the content of highly confidential fashion brand/artistic director contracts, are when the parties go to court because of alleged breaches of such contracts. Fashion maverick Hedi Slimane filed a lawsuit, and won, against Kering‘s Saint Laurent, claiming that parent company Kering owed him an additional sum of about Euros 10 million in consideration of the minority stake agreed upon in the contract. The French court found that Saint Laurent’s ex-creative directorwas underpaid by as much as Euros 9.3 million after taxes for his last year of service”, bringing his annual salary – including his ownership share – to more than Euros 10 million. It was revealed, via the court ruling, that during his tenure at Saint Laurent, Slimane had a contractual clause that ‟guaranteed an after-tax compensation of at least Euros 10 million per year”, mainly through an agreement to buy shares in the company, and then resell them at a higher price.

        A new way to incentivise creative directors, experimented on by LVMH at Louis Vuitton, is by offering flexibility in terms of schedule and time commitments. Indeed, Pharrell Williams has been appointed to succeed Virgil Abloh as Louis Vuitton’s artistic director for menswear, signing a contract with very particular conditions that allow the rapper to keep running his own companies (Joopiter and Humanrace) as well as honouring his community commitments (Black Ambition and Team Yellow). The contract signed provides that the artist will devote a third of his working time to his role at Louis Vuitton.

        However, all this goodness comes at a hefty price, first in terms of non-competition clauses always built into the contract entered into between the luxury brand and the artistic designer. Via these non-compete covenants, the art director promises that, upon their separation from the brand (whether by termination, voluntary resignation or otherwise), they will not compete with their former brand for a certain period of time and/or within a particular geographic area. Raf Simons, for example, had to serve a nine-month non-compete period before completing his transition from the creative director role of Christian Dior to US high-end brand Calvin Klein in 2016, due to a strict non-competition undertaking with Christian Dior. One year seems to be the approximate length of time chosen by most esteemed European brands to appoint a new creative director: Nicolas Ghesquière took up his position as women’s creative director at Louis Vuitton on 4 November 2013, exactly one year and one day after leaving Kering’s Balenciaga, while Ricardo Tisci waited just over a year to join Burberry as art director in March 2018, after leaving LVMH’s Givenchy in February 2017. Sometimes, things can get a little bit out of end, when the creative director, although bound by a non-competition covenant, terminates their current employment agreement with their luxury brand. That is exactly what happened in 2013, when Nicolas Ghesquière and Balenciaga separated, before the new contract between them was finalised. This matter went to court, and, through French court documents, it was revealed that the brand paid Nicolas Ghesquiere ‟Euros 6.6. million as compensation for breaking his last work contracts signed in 2010 and 2012”. Nicolas Ghesquière also walked away with Euros 32 million for the purchase of his 10 percent stake in the company, granted to him when the Gucci Group bought Balenciaga in 2001.

        Another important undertaking that creative directors give to their fashion brands is that they permanently assign their rights to the production and associated intellectual property rights, to their brand. This is not an automatic transfer of right, underpinning any relationship between freelancers and their clients, though (in fact, the default regime, in both France and the UK, is that the freelancer keeps his/her intellectual property rights in the works created for the client). Therefore, the contracts between art directors and luxury brands always provide for the assignment of all rights to the production and intellectual property rights, from the designer, to the luxury ‟maison”. Even then, things do not always go smoothly, as evidenced by yet another legal battle between Hedi Slimane and Kering’s Saint Laurent: the parties clashed over the rights to the photographs in Saint Laurent’s online archive, many of which had been taken by Hedi Slimane. Hence, the large-scale deletion of the content of Saint Laurent’s instagram account after Hedi Slimane’s successor, Anthony Vaccarello, was announced. And Hedi Slimane was awarded Euros 618,000 after a Paris court ruled parent company Kering unlawfully used his Saint Laurent photographs without consent (or appropriate contractual arrangements to this effect).

        Finally, last but not least: like in the Hollywood old star system, luxury houses now include moral clauses and reputational clauses in their agreements with their creative directors, in a similar manner that they would do with their celebrities brand ambassadors. Adidas learned the lesson the hard way, after it decided to unilaterally terminate its relationship with troubled, yet supra-bankable, rapper and Yeezy creative director Kanye West, losing up to Euros 250 million to its net income in 2022, as a result of this decision.

        So, we wish good luck to Pharrell Williams at Louis Vuitton: while him and his handlers definitely seem to have struck a sweet deal from LVMH’s Bernard Arnault, something tells me that he will sweat blood soon, in order to fulfil the high expectations of ‟Monsieur Arnault”. And, Pharrell, don’t forget: always have your models carry bags on the catwalk, as Marc Jacobs learned the hard way, from ‟Monsieur Arnault”, when he, too, was creative director of Louis Vuitton!

        https://youtu.be/OLd1hVtfnCg
        Crefovi’s live webinar: Pharrell Williams & Louis Vuitton – era of celebrities as creative directors – 31 March 2023



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          John Lobb Ltd v John Lobb SAS: a disconcerting attempt to void a contract for common mistake

          Crefovi : 02/02/2023 8:37 am : Articles, Consumer goods & retail, Fashion law, Hostile takeovers, Intellectual property & IP litigation, Law of luxury goods, Litigation & dispute resolution, Mergers & acquisitions, Restructuring, Trademark litigation, Unsolicited bids, Webcasts & Podcasts

          I was always intrigued by the way John Lobb, the superb footwear brand, managed its affairs between Paris, France, and London, United Kingdom. Well, now, I know, thanks to my exhaustive review and analysis of the England and Wales High Court (Chancery division) decision dated 8 September 2022, on whether the agreement bounding the French business, John Lobb SAS, to the British business, John Lobb Limited, was void under the case law of common mistake. Was it a good call for John Lobb Ltd to pull such a claim? Did John Lobb Ltd gain anything out of this public exposure, and this washing of dirty laundry in the public eye? I don’t think so and here is why.

          1. John Lobb Ltd v John Lobb SAS: the facts

          John Lobb is a men’s luxury footwear brand, worn by many celebrities (Cecil Beaton, Orson Welles and Katharine Hepburn).

          It was founded in Sydney, Australia, in 1849 by John Lobb (born in 1826 in Cornwall, United Kingdom (‟UK”), and son of a farm hand).

          In 1866, the business moved to London, UK, and began trading from premises located at 296 Regent Street.

          In 1946, the business was incorporated by Eric Lobb, a descendant of the founder, into ‟société John Lobb”, after the successful set up of a boutique located rue du vingt-neuf-juillet in Paris, around 1900 (‟John Lobb France” or ‟JLF”).

          In September 1972, Eric Lobb incorporated the shoemaking business into ‟John Lobb Limited”, a private company limited by shares (‟JLL”) in London, UK. The share capital of JLL is GBP10,000, divided into 10,000 shares of GBP1 each. Eric Lobb and John Hunter Lobb, master bootmaker, seemed to have been the two shareholders of JLL, upon incorporation in 1972. The five original directors of JLL were:

          • Eric Lobb;

          • John Hunter Lobb;

          • John White (a bootmaker);

          • Alice Marguarite Ellen Lobb, and

          • Edward Eric Lobb.

          JLL’s shares are still now held by various members of the Lobb family.

          In 1976, the majority of the shares in JLF was sold by Eric Lobb to the French luxury goods business Hermes (‟Hermes”). Hermes acquired control of JLF as well as the rights in a trademark registered in France by Eric Lobb which protected JLF’s products (the ‟Trademark”).

          Meanwhile, JLF was transformed into a ‟Société par Actions Simplifiée” or ‟SAS” (‟John Lobb SAS” or ‟JLSAS”) and continued developing and operating its own luxury footwear business under the steady hand of Hermes (Guillaume de Seynes, general manager of Hermes, is also currently the CEO of JLSAS).

          From 1976 onwards, there has been collaboration between the businesses of JLL and JLSAS. JLSAS operated, or continued to operate, its business selling footwear under the ‟John Lobb” name. Hermes started registering international trademarks around the work, which were international extensions of the Trademark, in order to protect the ‟John Lobb” brand (together, the ‟TMK portfolio”).

          In order to regularise this collaboration, as well as clarify the rights of JLL and JLSAS into the Trademark and the TMK portfolio, JLL and JLSAS, together with Eric Lobb, entered into a written agreement on 9 March 1992 (the ‟Radlett agreement”). Already, signs of poor legal drafting services rendered were identified into the Radlett agreement since:

          • clause 10 of the Radlett agreement set out that it was ‟entered into for a period of 15 (fifteen) years at which time its operation shall be reviewed by (JLL) and (JLSAS)”;

          • such clause 10 did not specify a start date for this 15-year term;

          • clause 9 of the Radlett agreement, which related to financial matters, set out that the agreement was entered into from 9 March 1992.

          The recitals to the Radlett agreement set out that:

          • the property rights in the Trademark were ‟ceded” by Eric Lobb to JLSAS pursuant to an agreement between the parties dated 24 May 1976 (the ‟Prior agreement”), in consideration of the payment of a percentage of JLSAS’ turnover for the years between 31 March 1976 and 31 December 1985;

          • the Trademark was registered in other countries (hence creating the TMK portfolio) and recorded the costs incurred by JLSAS in this respect;

          • the parties wished to continue to collaborate and ‟extend existing agreements to the manufacture, promotion and sales of products described in classes and categories of the Trademark already registered throughout the world”.

          Clause 1 of the Radlett agreement gave JLSAS the right to the manufacture, promotion and sales of ready-to-wear footwear under the Trademark throughout the world. Such right was limited under clause 2, though, since JLSAS agreed not to manufacture made-to-measure hand-made footwear in the UK under the Trademark and assigned to JLL any rights which may have accrued to JLSAS in the UK by its acquisition of the Trademark in made-to-measure hand-made footwear.

          Clause 5 of the Radlett agreement provided that JLSAS agreed to make annual payments to JLL which were expressed to be in consideration for extending the Prior agreement in accordance with the terms and conditions of the Radlett agreement. Another example of a poorly drafted clause!

          Clauses 6 to 9 of the Radlett agreement contained provisions supplementary to clause 5. For the record, these provisions for payment to JLL were amended further to Hermes’ acquisition of Edward Green and company Limited, another UK footwear manufacturer (i.e. the sums payable to JLL were increased to take into account the increase in turnover resulting from this acquisition).

          Clause 11 provided that the Radlett agreement was governed by, and construed in accordance with, the law of England & Wales.

          Since the termination of the Radlett agreement was planned to take place in March 2007, negotiations between the parties kicked off in late 2005, concerning the nature and terms of the relationship between the parties which was to follow the Radlett agreement.

          On 3 March 2006, JLSAS’ solicitors, DLA Piper UK LLP (‟DLA”), sent a letter to Hermes which contained advice ‟in relation to your rights or ownership and use of the (Trademark)” (the ‟Letter”). The Letter was copied to JLL as part of the negotiations. The Letter set out: ‟As I said at the outset whilst there have, over the years, been a number of agreements and discussions between the parties, (Hermes)’s ownership of the (Trademark) is well documented. (JLL) has received proper consideration for the acquisition by (Hermes) of those exclusive rights and (Hermes) is entitled to continue to use, exploit and protect those rights as any trade mark owner would be”.

          On 6 March 2008, JLSAS and JLL, as well as JLL’s shareholders, entered into an agreement organising their future relationship, which was entitled ‟Agreement relating to John Lobb name and trademark” (the ‟2008 agreement”).

          The 2008 agreement provides that:

          • the Prior agreement dealt with the sale of the Trademark;

          • the Trademark was registered, for its protection, in various countries by JLSAS;

          • JLL and JLSAS have fully cooperated to maintain and develop a mutual business built on the Trademark and trade name Lobb with a view to ensuring that standards continue into the future;

          • JLSAS is the legal and beneficial owner and registered proprietor of the Trademark throughout the world and has all the rights in the Trademark save in respect of the rights enjoyed by JLL set out in clause 1 of the 2008 agreement;

          • pursuant to clause 1, JLSAS agrees that (i) JLSAS’ Prior agreement to permit JLL’s exclusive right to use the Trademark in relation to its UK business in made-to-measure hand-made products (the ‟JLL products”) continues and (ii) JLL may also continue to use in the UK the Trademark on products ancillary to the JLL products which (for the avoidance of doubt) include solely shoe care trees, shoe care products, belts, cases and riding boot accessories;

          • pursuant to clause 2, JLSAS would make annual financial payments to JLL, over two consecutive periods of five years (the first annual payment fell to be made in respect of the period from March 2007 to March 2008 and the final annual payment of GBP35,000 fell due for payment on or before 10 March 2017);

          • pursuant to clause 3, JLSAS shall (in its absolute discretion) carry out the registration and renewal of the existing future trademarks, and shall remain the sole judge of the measures to be taken and will bear the costs of filing, renewal and defence of the Trademark; JLL shall however be obliged, at its own cost, to give JLSAS any reasonable help and assistance it may request;

          • pursuant to clause 5, the term of the 2008 agreement is from 9 March 2007 and to continue without limit of time, subject to a right of termination vested in JLSAS, in the event of a change of control of JLL to a party or parties outside the Lobb family and further subject to a right of pre-emption which apply in the event of an intended sale of shares in JLL outside the Lobb family and in the event of an intended sales of shares in JLSAS outside Hermes;

          • pursuant to clause 6, the 2008 agreement is governed by, and construed in accordance with, the law of England & Wales, the parties submitting to the exclusive jurisdiction of the English courts, subject to an obligation to use reasonable endeavours to resolve problems through discussion at senior management level.

          There are five annexes to the 2008 agreement, in particular annex B which sets out a list of trademarks registered in various countries, which correspond to the TMK portfolio.

          From 2008 to 2017, the parties operated under the terms of the 2008 agreement without issue.

          On 19 April 2017, Clintons, JLL’s solicitors, sent a formal letter of claim to DLA, JLSAS’ counsel (the ‟Letter of claim”). The Letter of claim set out the grounds of challenge to the validity of the 2008 agreement, and asserted that it was void on the basis of common mistake.

          The above-mentioned last annual payment of GBP35,000, which fell due on or before 10 March 2017, was tendered by JLSAS but returned by JLL.

          2. John Lobb Ltd v John Lobb SAS: the procedure

          Since ‟reasonable endeavours to resolve problems through discussion at senior management level” apparently failed, JLL started litigation proceedings by claim form issued on 22 May 2020. JLL’s case is that:

          • the 2008 agreement was void from the outset on the basis of common mistake;

          • JLL is the beneficial owner of the TMK portfolio, except for the Trademark;

          JLL’s particulars of claim were amended via some amended particulars of claim (the ‟Amended particulars of claim”).

          Paragraph 26 of the Amended particulars of claim set out that ‟the 2008 agreement was entered into by both (JLL) and (JLSAS) on the basis of a fundamentally mistaken and commonly held belief as to the ownership rights in the (TMK portfolio)”.

          So the alleged common mistake which is relied upon by JLL is ‟a fundamentally mistaken and commonly held belief as to the ownership rights in the (TMK portfolio)”.

          To beef up its claims, JLL set out, in the Amended particulars of claim, that the Letter contained the following material assertions of fact:

          • in 1975 Eric Lobb began negotiating with Hermes for the sale to Hermes of a majority of the shares in JLSAS. Part of that agreement was to be the acquisition by Hermes of the rights to the Trademark throughout the world;

          • in March 1976, the agreement for the purchase of the shares was signed and Eric Lobb confirmed that, before he received any payment for the shares, he would transfer the trademark rights to Hermes/JLSAS;

          • consideration for the transfer of the trademark rights was instalment payments calculated as a percentage of turnover payable over a number of years from 1976 to 1985;

          • between 1976 to 1992, JLSAS, exercising its acquired trademark rights, applied for registered protection for the Trademark around the world;

          • in 1992, Eric Lobb, JLL and JLSAS entered into a further agreement, the Radlett agreement, with the aim of confirming JLL’s right to use the Trademark only for the manufacturing and commercialisation of made-to-measure hand-made footwear and confirming JLSAS’ exclusive rights to everything else.

          JLL then alleged, in the Amended particulars of claim that the Letter contained fundamental errors of fact, as follows:

          • the Letter asserted that in 1975/1976 Eric Lobb agreed to transfer to Hermes, and did so transfer, the right to protect and exploit the Trademark throughout the world (i.e. to assign to Hermes/JLSAS the entire worldwide goodwill and reputation in the ‟John Lobb” name built up by the predecessors in title to JLL over a period exceeding 125 years);

          • this assertion is manifestly false, having regard in particular to the terms of the Prior agreement pursuant to which all that Eric Lobb was agreeing to transfer in terms of trademark rights was the Trademark, which JLSAS required in order to conduct the French based business which it was (in substance) acquiring;

          • accordingly, it was also incorrect that the consideration (payable under the Prior agreement) was for ‟the trademark rights” as asserted and described in the Letter;

          • it was also incorrect that JLSAS applied for registered protection for the Trademark exercising its acquired trademark rights;

          • accordingly, any agreement subsequently made between the parties to the Radlett agreement, which reflected this wholly inaccurate series of factual assertions and which assumed JLSAS’ ownership of the TMK portfolio would not be one which accorded with the intention of the parties, but would be one which assumed a fundamentally different and false set of factual and legal premises – in particular to the ownership of the ‟John Lobb” marks outside France;

          • the 2008 agreement was just such an agreement.

          JLL’s case is that it only agreed to enter into the 2008 agreement because it believed to be true and accurate the assertions made in the Letter and the assertions made in the course of discussions by representatives of JLSAS as to the ownership of the TMK portfolio (the ‟Negotiations”). Therefore, according to JLL, JLL and JLSAS entered into the 2008 agreement on the basis of a fundamentally mistaken and commonly held belief that JLSAS owned the TMK portfolio, on the basis and for the reasons set out in the Letter and Negotiations. The true position, JLL contended, was that the beneficial ownership in the TMK portfolio was in fact vested in JLL, with the sole exception of the Trademark.

          The principal relief sought by JLL, in its Amended particulars of claim, is:

          • declaratory relief, comprising a declaration that JLL is not bound by the terms of the 2008 agreement on the basis that it is void from the outset for common mistake, and

          • a declaration that JLL is beneficially entitled to the ownership of the TMK portfolio, including their registered protections, with the exception of the Trademark.

          JLSAS filed a defence in the action, and made an application by application notice dated 4 August 2020, denying JLL’s right to any of the relief claimed as follows:

          • JLSAS sought, as relief, an order striking out the Amended particulars of claim, pursuant to 3.4.(2) (a) of the Civil Procedural Rules ( ‟CPR”), on the basis that the Amended particulars of claim disclosed no reasonable grounds for bringing the claim, or

          • JLSAS sought, as relief, summary judgment against JLL on the whole of the claim pursuant to 24.2. (a) (i) CPR, on the basis that JLL had no real prospect of succeeding on the claim and that there was no other compelling reason why the case should be disposed of at a trial;

          • consequential on this relief, an order for dismissal of the claim and costs was also sought by JLSAS.

          In a judgment dated 24 May 2021, the high court judge, deputy master Marsh, concluded that:

          • JLSAS was unable to show that JLL’s case on limitation was bound to fail because JLL could not establish the second element or the fourth element identified in Great Peace;

          • the first element identified in Great Peace (i.e. the requirement that the parties have entered into a contract under the common assumption as to the existence of the state of affairs) (the ‟First element”) was met;

          • the second element identified in Great Peace (i.e. there must be no warranty by either party that that state of affairs exist) (the ‟Second element”) was met;

          • the third element identified in Great Peace (i.e. the non-existence of the state of affairs must render performance of the contract impossible) (the ‟Third element”) was met;

          • the fourth element identified in Great Peace (i.e. the state of affairs may be the existence, or a vital attribute, of the consideration to be provided) (the ‟Fourth element”) was met;

          • JLSAS had not demonstrated that JLL had no real prospect of success;

          • JLSAS’ application was dismissed, both in relation to the application for summary judgment and the application to strike out.

          JLSAS appealed the first-degree judgment on the following grounds:

          • the judge went wrong in his approach to the doctrine of common mistake by failing to apply correctly the elements of the doctrine, specifically the Second element and the Fourth element, as set out by the court of appeal in Great Peace;

          • the judge was wrong to reason that the 2008 agreement could not be construed on an application for summary judgment or strike out, when it gave rise to a short point of law and construction, which was capable of being determined in the absence of any dispute, for the purposes of JLSAS’ application, about the relevant matrix of act and/or on the basis of the facts alleged by JLL;

          • the judge was wrong to regard the doctrine of common mistake as being insufficiently settled;

          • the judge misunderstood the Fourth element as being concerned with something less than impossibility of performance of the contractual adventure, and instead treated this element as asking whether ‟performance is essentially different to that common assumption”;

          • if the judge had correctly applied the law of common mistake, he would have been bound to conclude that there was no reasonable grounds for JLL to bring the claim for rescission of the 2008 agreement and should either have struck out the claim pursuant to CPR 3.4. (2) (a) or should have concluded that JLL’s claim had no realistic prospects of success and was suitable for summary disposal under CPR 24.2.

          In a seminal appeal judgment handed down on 8 September 2022, Justice Edwin Johnson found for JLSAS because:

          • the judge’s decision in relation to the Second element identified by Lord Philips in Great Peace was inexact because a warranty on the state of affairs actually existed in the 2008 agreement (i.e. the 2008 agreement sets out that JLSAS is the legal and beneficial owner and registered proprietor of the TMK portfolio throughout the world and has the rights in the TMK portfolio, save for the rights enjoyed by JLL as set out in clause 1 of the 2008 agreement);

          • the 2008 agreement allocated the risk, in the event that the assumption was wrong, to JLL, by the combined operation of recital G and clause 1.3. of the 2008 agreement;

          • the prior judge’s decision in relation to the Fourth element identified by Lord Philips in Great Peace was inexact because the alleged non-existence of the state of affairs did not either render the performance of the 2008 agreement impossible or render the subject matter of the 2008 agreement essentially and radically different from the subject matter which the parties believed to exist;

          • the claim that the 2008 agreement was void from the outset on the basis of common mistake cannot succeed;

          • JLL has no real, or indeed any prospect, of succeeding in its claim to avoid the 2008 agreement on the basis of common mistake;

          • JLSAS is entitled to summary judgment against JLL and there is no reason for JLL’s action to go to trial;

          • although this conclusion is strictly academic, given judge Johnson’s conclusion on the summary judgment application, the first degree judge was right to decline to strike out JLL’s claim pursuant to CPR 3.4.(2) (a).

          Consequently, the outcome of the appeal was that:

          • the appeal was allowed on the basis that the judge was wrong to dismiss JLSAS’ application so far as JLSAS sought summary judgment against JLL;

          • judge Johnson made an order for summary judgment against JLL on the whole of its claims in the action, and

          • judge Johnson made an order for the dismissal of JLL’s claims in the action.

          3. A lack of self-awareness and impartial analysis which leads to a public relations’ disaster, for John Lobb Limited

          What were JLL’s management and its counsel, Clintons, thinking?

          Before launching themselves into fully-fledged litigation, they should have assessed, in an impartial, thorough and rigorous manner, whether they had enough ammunitions to put into their ‟common mistake” gun, instead of blindly following the ‟intuition” of family member, qualified solicitor and new JLL’s in-house lawyer Nicholas Lobb, who joined the family business in 2013 and put this whole craziness into motion.

          The crux of the issue, here, is that JLL wants out of the 2008 agreement, which is permanent, perpetual and cannot be terminated, except in case of major change of share ownership in either JLL or JLSAS. Probably, like in the Chanel saga, JLL and the Lobb family want to get more money from the TMK portfolio and renegotiate the terms of the 2008 agreement in this respect.

          Well, OK, that is understandable, especially after the Covid 19 pandemic and economic recession which have left many fashion and luxury businesses on their knees (or lead them to their grave). But using the ‟common mistake” case law in this case was amateurish and naive, at best.

          The parties, and signatories, to the 2008 agreement – among them many members of the Lobb family – were all professionals and capable adults: they cannot seriously claim that they ‟misunderstood” the explicit and clear terms of the 2008 agreement, especially in respect of the subject of which party owns which trademark.

          This is a stark warning to commercial practitioners, like DLA and Clintons, of the results that ambiguity in legal drafting can cause but also the significance where allocation of risk is found within a contract and the consequences this can have on the findings of common mistake as the case is here.

          It would have been way more astute for JLL’s management and legal team to enter into confidential good faith negotiations with Hermes and JLSAS in order to renegotiate the amount of the final annual payment of GBP35,000 due by 2017, by amending clause 2 of the 2008 agreement. They could have asked for additional annual payments to be made, every five or ten years of execution of the 2008 agreement, since its term is without any limit in time (i.e. it is perpetual).

          This litigation case, which splashes out in front of the UK high court, and then the UK appeal court, confidential terms set out both in the Radlett agreement and the 2008 agreement, drawing public attention to the business of John Lobb for all the wrong reasons, is a public relations’ disaster for JLL and – by ricochet – JLSAS.

          If good faith negotiations with Hermes and JLSAS, to renegotiate the payments owed to JLL on the grounds of the TMK portfolio, fail, then JLL should bring a court claim to request a renegotiation or termination of the 2008 agreement, which term is perpetual and without limit, in particular claiming that there has been an unforeseeable change in circumstances and/or force majeure (valid reasons to renegotiate a long-term contract in jurisdictions such as China, France, Germany and Japan).

          If the court claim fails, then it may be time for the Lobb family to sell out, by triggering clause 5 of the 2008 agreement, and negotiate the highest payment they can get, for all 10,000 shares in JLL, from Hermes – which has a pre-emption right – or any other interested bidder.

          https://youtu.be/y49Zhwdt_6M
          Crefovi’s live webinar: John Lobb Ltd v John Lobb SAS – an analysis – 7 February 2023



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            How Chanel kissed goodbye to France and fully embraced the United Kingdom, for tax reasons

            Crefovi : 18/01/2023 8:07 am : Articles, Banking & finance, Consumer goods & retail, Fashion law, Hostile takeovers, Law of luxury goods, Mergers & acquisitions, Private equity & private equity finance, Restructuring, Tax, Unsolicited bids, Webcasts & Podcasts

            In the background, far from grabbing headlines and the limelights, the shareholders of Chanel – the Wertheimer family – have relentlessly restructured and reorganised the Chanel business, since Brexit. Sensing a massive tax opportunity, Chanel has completed its Frexit in September 2022, kissing goodbye to the nosy and invasive strategies and idiosyncrasies of the French tax administration and control systems. The United Kingdom, and in particular London, is reaffirming its position as a tax haven for the rich and powerful, post Brexit, while France has lost one of its crown jewels, and does not even understand its massive financial loss, blinded by the belly-dancing charm offensive put up by Chanel’s top management in France. How did this happen?

            1. Chanel: a corporate genesis

            Gabrielle Chanel, whose nickname was Coco Chanel, founded the couture ‟maison” ‟Chanel” in 1910, in Paris, France. She was financially backed by her boyfriend, Englishman Arthur ‟Boy” Capel, via a loan to rent her company’s offices at 21 rue Cambon, Paris. While, initially, the Chanel house was only selling hats, Coco Chanel quickly expanded into clothing, when she opened her first shop in Deauville, France, in 1912. In 1915, a second shop was opened in Biarritz, another French seaside resort town.

            At the end of the first world war, Gabrielle Chanel paid back Arthur Capel’s loan, and became financially independent. She opened a third shop at 31 rue Cambon, in Paris, in 1918.

            The 20s were a boom era for Chanel, and several new boutiques, ateliers and offices were set up, at 31 rue Cambon in Paris, and later at numbers 25, 27 and 23 rue Cambon in Paris. A boutique was also opened in Cannes, another seaside resort town on the French Riviera.

            French perfumer, Ernest Beaux, suggested to Coco Chanel to create her own perfume, ‟nº5”, which, in 1921, was sold solely in Chanel’s boutiques, but then became available in perfumes retail shops around the world. ‟Chanel nº5” is one of the most sold perfumes in the world, even today.

            In 1924, Gabrielle Chanel met, at the Longchamp horse racetracks, Pierre and Paul Wertheimer, two powerful French Jewish brothers who owned the Bourjois perfumes, among other businesses. Together, they created the company ‟Parfums Chanel” (or ‟Société des Parfums Chanel”), for the manufacturing of ‟Nº5” on 16 April 1924. This new business was financially-backed by the Wertheimer brothers, and the shareholding of ‟Parfums Chanel” was owned:

            • at a stake of 10 percent, by Gabrielle Chanel (in exchange for the transfer of ownership in her name, via a license, and a 2 percent share in the annual income on the perfume sales, i.e. around USD1 million in 1947);

            • at a stake of 70 percent, by the Wertheimers (who bear all financial risks), and

            In parallel, Ms Chanel started making makeup products, and in particular a “blood red” lipstick, from 1924 onwards.

            Many more perfumes are created, from 1924 onwards: Ernest Beaux creates Gardénia” in 1925, Cuir de Russie” in 1927 and ‟Bois des îles” in 1928.

            However, from 1928 onwards, Coco Chanel and the Wertheimer brothers starting having some disagreements. Ms Chanel considered that the Wertheimers were making money ‟on her back” and became vocal about it, publicly shaming the Wertheimer brothers by calling them “bandits”. She also snubbed the board meetings of ‟Parfums Chanel” and, consequently, in 1933, its shareholders decided to remove her from the management and board of their company. In 1934, she instructed a young lawyer, René de Chambrun, to defend her interests and renegotiate the 10-per-cent partnership she entered. But the lawyer-to-lawyer negotiations failed, and the partnership-percentages remained as established in the original business deal among the Wertheimers, Bader and Chanel.

            Then, the second world war started and Gabrielle Chanel shamelessly collaborated with the nazis, denouncing the Wertheimer brothers as Jewish, in order to attempt to gain full control over the ‟Parfums Chanel” business.

            Following the war declaration in 1939, Coco Chanel closed down her couture house in Paris, leaving only her perfumes boutique opened. She went to live in the South of France, where she owned the beautiful villa ‟La Pausa, but came back to Paris the following year.

            During the second world war, the Wertheimers fled to the United States. Gabrielle Chanel attracted the attention of the French Pétain collaborationist government, on the fact that the Bourjois and ‟Parfums Chanel” companies had majority shareholders who were Jewish, using the laws against Jews and foreigners during the Vichy regime. But the Wertheimer brothers had transferred their shareholding in ‟Parfums Chanel” and ‟Bourjois” into the hands of a trusted, and non-Jewish, friend (Félix Amiot), acting as proxy, so Coco Chanel’s attempts to take over the shareholding of all the other shareholders in ‟Parfums Chanel” failed.

            At the end of the second world war, the Wertheimers got their shareholders in ‟Parfums Chanel” and ‟Bourjois” back. The ‟war” with Coco Chanel continued until 1948, when the parties settled their dispute by renegotiating the 1924 contract that had established ‟Parfums Chanel”: Gabrielle Chanel got her share in the turnover of ‟Parfums Chanel” in 1948 (i.e. USD400,000 in cash (wartime profits from the sales of perfume ‟Nº5”)), a 2 per cent running royalty from the sales of ‟Nº5” ‟parfumerie”, and a perpetual monthly stipend that paid all of her expenses. In exchange, Gabrielle Chanel sold to ‟Parfums Chanel” the full rights to her name ‟Coco Chanel”.

            Coco Chanel decided to sell the ‟haute couture” business to ‟Parfums Chanel” in 1954 (following her failed attempt to return into the fashion world, post second world war), while keeping its direction and management until her death in 1971. To replace her, Karl Lagerfeld became artistic director of Chanel in 1983, reinvigorating the dwindling ‟haute couture” business, and creating its ‟prêt-à-porter” line. In 2019, when Mr Lagerfeld died, Virginie Viard, who had worked with him at the fashion house for over 30 years, became Chanel’s new creative director.

            Following this above-mentioned acquisition of the ‟haute couture” business by ‟Parfums Chanel”, the company took the new name ‟Chanel SA” (‟Chanel Société Anonyme”) and registered with the registrar of the Nanterre ‟greffe” of the commercial court, on 27 August 1954.

            In 1954, date of the reopening of the couture house, the perfume boutique located at rue Cambon is refurbished. The perfumer Henri Robert takes over: the first men’s ‟eau de toilette”, ‟Pour Monsieur”, is launched in 1955. Then, Jacques Polge becomes Chanel’s ‟nose”, in 1978, and ‟Egoiste Platinium” is launched in 1993, then ‟Allure” in 1996, then ‟Coco Mademoiselle” in 2001, then ‟Chance” in 2003, then ‟Bleu de Chanel” in 2010. In 2014, Jacques Polge’s son, Olivier, joins him, in order to succeed him as the ‟maison”’s perfumer. In February 2015, Olivier Polge becomes the new nose of Chanel, at 40 years’ old.

            Meanwhile, Paul Wertheimer died shortly after the second world war and his brother, Pierre, bought his stake in Bourjois and ‟Les Parfums Chanel”. Following Pierre Wertheimer’s death, in 1965, his only son, Jacques, aged 56 years’ old, took over the group’s management. However, it was not a good fit and Jacques was ousted in 1974, and replaced by his more-capable son, Alain Wertheimer.

            Alain’s mother, Eliane Fischer, divorced from Jacques (with whom she had Alain and Gérard), became a business lawyer working at the law firm of Samuel Pisar in Paris. Mr Pisar and Ms Fischer actively counselled Alain when he took over the management of the group, and ‟Chanel SA” in particular, in 1974. Since, Ms Fischer founded the law firm Salans (now Dentons) in 1978, and became the ongoing and longstanding private practice lawyer of Chanel.

            So Alain, with his brother Gérard Wertheimer, became the owner of ‟Chanel SA”, the Bourjois cosmetics, the hunting guns’ brand Holland & Holland (bought by ‟Chanel SA” in 1996), the swimming costume brand ‟Eres” (purchased by ‟Chanel SA” in 1996 too) and the book publishing house ‟La Martinière”. The Wertheimer brothers, whose wealth was ranked at number two in France in 2018, with USD40 billion, also own the wineries ‟Château Rauzan Ségla” in Margaux and ‟Château Canon” in Saint-Emilion.

            On 24 December 1998, ‟Chanel Société Anonyme” was transformed into ‟Chanel Société par Actions Simplifiée” (‟Chanel SAS”), which is a more flexible type of French companies than ‟sociétés anonymes”.

            2. Chanel: a recent change of corporate structure which puts the UK on the map, post Brexit

            Alain Wertheimer incorporated ‟Chanel International B.V.” in 1979, as the Netherlands-based financial holding company controlling ‟Chanel SA” and around 90 subsidiaries.

            A holding company is a company whose primary business is holding the controlling interest in the securities of other companies. A holding company does not usually produce goods or services itself. Its purpose is to own shares of other companies to form a corporate group.

            While the Chanel group’s corporate structure chart is extremely opaque, I understand that Chanel International B.V. was still the ultimate financial holding company for the Chanel group, until recently. The Chanel Group is still privately-held (i.e. not listed on the stock market). The Dutch entity held the group’s subsidiaries across the globe and consolidated its accounts. Chanel International B.V.’s main subsidiaries were, via a cloud of shell companies such as Mousse Investments Limited incorporated in the Cayman Islands:

            • Chanel SAS, a private company limited by shares, incorporated in France on 16 April 1924 (and transformed into a ‟SAS” on 24 December 1998), owned by a sole shareholder which name is kept secret by both Chanel’s management and the French authorities (!), which current president is Bruno Pavlovsky, and which current managing director and chief financial officer is Luc Dony, and

            • Chanel Limited, a private company limited by shares, incorporated in London, United Kingdom, on 6 February 1925 (and renamed from ‟Parfums Chanel Limited”, to ‟Chanel Limited” in 28 November 1957), wholly-owned by Mousse Investments Limited as sole shareholder, which current global executive chairman is Alain Wertheimer and current global CEO is Leena Nair.

            As set out in the 2021 annual accounts of ‟Chanel SAS, the tax integration group in place in which ‟Chanel SAS” was also the parent-company was terminated on 1 January 2021. A new tax integration group was set up, from 1 January 2021 onwards, preserving ‟Chanel SAS” as its top company.

            It is set out, in the 2021 annual accounts of ‟Chanel SAS”, that, according to the integration agreement, the parent-company is the sole beneficiary of the corporate tax credit and additional contributions’ credits, resulting from the application of the group’s tax regime, and is the sole company due to pay these taxes. The companies member of the integration group are however jointly liable to pay these taxes, within the limit of the amount which would be due by each one of them if they had not opted for the group’s tax regime. Each company member of the integration group is liable to pay to ‟Chanel SAS”, under its participating share of corporate tax owed by the latter, a sum equal to the corporate tax which would have been deducted from its turnover, if it had been taxed separately.

            It is further set out, in the 2021 annual accounts of ‟Chanel SAS”, that the French tax administration conducted a tax control on its 2016, 2017 and 2018 tax years’ results, and that ‟Chanel SAS” had to pay some additional taxes to the French taxman for the 2016 tax year, while it was still disputing the outcome of the tax investigations for the 2017 and 2018 tax years.

            Finally, it is mentioned, in the 2021 annual accounts of ‟Chanel SAS”, that UK-based Chanel Limited is the consolidating entity of the group, which ‟Chanel SAS” is a party of, as a subsidiary.

            Indeed, in the 2021 annual accounts of Chanel Limited, are set out the consolidated financial statements, which comprise the financial results for Chanel Limited and its subsidiaries (including ‟Chanel SAS”). ‟Subsidiaries included in the consolidation are all entities over which the Group (i.e. Chanel Limited and its subsidiaries) exercises control. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The concept of control generally implies owning more than half of the voting rights of an entity, although that is not a requirement to demonstrate power over an entity. The existence and effect of potential voting rights that are exercisable or convertible are taken into account in the assessment of control”.

            Then, in the notes to the 2021 consolidated financial statements of Chanel Limited, it is set out that, as far as the ultimate parent company is concerned, ‟the consolidated financial statements of Chanel Limited and its subsidiaries represent the largest group in which the financial statements of Chanel Limited and its subsidiaries are consolidated and publicly available. Chanel Limited’s, and its subsidiaries’, immediate and ultimate parent company is Litor Limited (now renamed Mousse investments Limited), a company incorporated and registered in the Cayman Islands”.

            So why has Chanel shifted its group’s control and financial power, away from France, and into the UK and, ultimately the Cayman Islands?

            Because France and its tax administration are too nosy and demanding, what with their constant tax investigations and controls, which imply that Chanel has to pay back taxes, and penalties, relating to its previous tax years’ results, all the time.

            The UK, post Brexit, has become a tax haven, where successful business groups and wealthy individuals can hide the exact shareholding of their holding companies and operating subsidiaries, as well as the exact ownership of their assets, via a flurry of shell companies usually incorporated in tax havens like the British Virgin Islands, the Cayman Islands, Bermuda, Jersey, Guernsey and the Isle of Man.

            Besides, the UK tax authorities are far less controlling and invasive than the French tax administration, by a wide margin. By consolidating its accounts within its UK entity, Chanel Limited, and shielding its global consolidated revenues in the UK, the Chanel business is ensuring that all this French state’s constant micromanagement is put to an alt. Additionally, the corporate tax rate is lower in the UK, compared to France, and in its 2021 annual report, Chanel Limited set out that its effective tax rate had fallen from 28 percent the previous year, to 25.70 percent.

            Moreover, Chanel’s management is spread between New York (where Alain Wertheimer is located, at the 40th floor of the Chanel tower, located at 9 West 57th Street), Cologny in Switzerland (the golden Genevan suburb where silent shareholder Gérard Wertheimer is located), London (where Chanel’s new global CEO, British citizen Leena Nair, is based) and Paris (where Bruno Pavlovsky is based). So it makes sense for London – an English-speaking place – to be the centre of control of Chanel, due to its easy access by plane and train and its cosmopolitan culture, when the management needs to meet up for board meetings.

            Speaking of the board of Chanel Limited, in addition to Leena Nair, Chanel has also named to its board entrepreneur Martha Fox Lane, who served as digital adviser to David Cameron during his time as British prime minister and who also sits in the House of Lords and on Twitter’s board. Alex Mahon, who chairs the British public broadcaster Channel 4, has also joined Chanel Limited’s board.

            This shift of power and control to London has been in the making for many years: after Brexit, in 2018, the Wertheimer brothers started relocating some of Chanel’s staff (in the legal, HR and finance divisions) from New York to London, into the head office of Chanel Limited, citing the need to ‟simply and rationalise the company’s structure.

            In September 2022, the long restructuring process was completed with the appointment of Alain Wertheimer as the head of the board of Chanel Limited, which has become the parent company of the group, controlling all of Chanel’s global subsidiaries and which financial results consolidate all of its accounts. ‟The decision to turn Chanel Limited into the operating holding, common to all Chanel companies, was taken in 2018, with the goal of simplifying and modernising Chanel’s administrative and legal organisation, as well as its decision centre which used to be in New York”.

            So the Netherlands-based financial holding, Chanel International B.V., is less prominent, today, since all the financial interests are now concentrated into Chanel Limited, the operating holding, as well as its sole shareholder, Mousse Investments Limited (previously named ‟Litor Limited”), the Cayman Islands-based family holding company of the Wertheimers. The family office that manages the Wertheimers’ stake in Chanel, Mousse Partners, is based in Bermuda, another British Crown territory. Both the Cayman Islands and Bermuda were listed on the European Union (‟EU”)’s list of fiscally uncooperative countries until 2020.

            In 2019, when the Cayman Islands were still on the EU’s blacklist, Chanel Limited paid dividends of USD1.6 billion to its parent company Mousse Investments Limited. In 2021, these dividends reached USD4.98 billion. During the same period, the Wertheimer brothers’ financial structure lent USD382 million to Chanel Limited, which repaid the loan in January 2021.

            Of course, the French tax authorities did not take it well that Chanel was doing a Frexit, but Chanel’s Bruno Pavlovsky and Chanel SAS went on an efficient charm offensive, especially with French president Emmanuel Macron and his minions. Mr Pavlovsky seats on the board of prestigious French luxury institutions, such as the ‟Comité Colbert” and ‟Fédération de la haute couture et de la mode”, which he presides. He centralises and coordinates relations between Chanel and the French state. On 20 January 2022, Mr Pavlovsky inaugurated with Mr Macron and his wife the building 19M, located on the borders of the 19th arrondissement and poor suburban two of Aubervilliers. 19M houses 11 specialised artisans, the majority of whom work for Chanel’s ‟haute couture”.

            Operationally, the group benefited greatly from the UK’s government’s funding opportunities for business during the Covid-19 pandemic. It received GBP600 million (Euros694 million) from the Bank of England’s and Treasury’s support programmes, in 2020. These short-term loans have since been repaid by Chanel Limited.

            This restructuring and reorganisation towards London is strategic, as it precedes the inevitable handover between Alain and Gérard Wertheimer, now 74 and 71 years old respectively, and the fourth generation of the shareholder’s family. Gérard’s children, Olivia and David Wertheimer, have taken little interest in the business, while Alain’s three offsprings, and in particular Nathaniel, have taken a closer interest. The changing of the guard will take place between London and the two British Crown dependencies which house the Wertheimer family’s holdings, Bermuda and the Caymans, and far away from France.

            If you think that your own company needs a similar restructuring, come to us, at Crefovi, we will be delighted to support you in your endeavours!

            https://youtu.be/Nm-eWxOGBn4
            Crefovi’s live webinar: How Chanel kissed goodbye to France & fully embraced the UK for tax reasons – 24 January 2023



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              University of Massachusetts v L’Oréal: a patent infringement claim turns into a disaster for global cosmetics behemoth

              Crefovi : 16/08/2022 12:39 pm : Antitrust & competition, Articles, Consumer goods & retail, Fashion law, Intellectual property & IP litigation, Law of luxury goods, Life sciences, Litigation & dispute resolution, Webcasts & Podcasts

              1. University of Massachusetts v L’Oréal: the facts

              On 23 July 2002, the United States Patent and Trademark Office (‟USPTO”) issued United States (‟US”) patent number 6,423,327, entitled ‟Treatment of Skin with Adenosine or Adenosine Analog” (‟Patent 327”) to inventors James G. Dobson and Michael F. Ethier. While Patent 327 lists Mr Dobson and Mr Ethier as inventors, it sets out that the University of Massachusetts, a public institution of higher education in Massachusetts, is the assignee.

              The Patent 327’s application is a continuation of US patent application number 09/672,348, filed on 28 September 2000 – now Patent 327 – which is a continuation of US patent application number 09/179,006, filed on 26 October 1998, now abandoned.

              Patent 327 summarises the invention as follows: ‟a method for enhancing the condition of unbroken skin of a mammal (i.e. a human) by reducing one or more of wrinkling, roughness, dryness or laxity of the skin, without increasing dermal cell proliferation, the method comprising topically applying to the skin a composition comprising a concentration of adenosine in an amount effective to enhance the condition of the skin without increasing dermal cell proliferation, wherein the adenosine concentration applied to the dermal cells is 10.sup.-3 M to 10.sup.-7 M”.

              On 11 November 2003, the USPTO issued US patent number 6,645,513, also entitled ‟Treatment of skin with adenosine or adenosine analog” (‟Patent 513”), to the same inventors, Mr Dobson and Mr Ethier. University of Massachusetts is also the assignee listed on Patent 513.

              Patent 513, which was filed on 28 June 2002, is a continuation of Patent 327 (together, the ‟Patents”). The Patents share the same title, abstract, inventors, specification, assignee, and some of their claims. Indeed, claims 1 and 9 of the Patents are also identical, except for the claimed concentration of adenosine applied to the dermal cells. Specifically, Patent 327 claims an adenosine concentration of 10-4 M to 10-7 M, while Patent 513 claims a concentration of 10-3 M to 10-7 M.

              The Patents also share the same exclusive licensee.

              Teresian Carmelites Inc. is a Massachusetts’ based religious company, which presents itself as a ‟non-profit Christian monastery dedicated to prayer, contemplation, and service to the poor and marginalised” (‟TC”). TC‘s president and director is Dennis Wyrzykowski, a self-described ‟former monk turned investor – spiritual and entrepreneurial guide – educator”, who seems to have led a rather colourful and secular life so far, in spite of the strict values towards a hermit and monastic life, prescribed by the Roman Catholic mendicant religious order the Carmelites.

              I understand that through Mr Dobson’s long-standing relationship with the religious order, TC became aware of the technology covered by the Patents. TC, led by ex-brother Wyrzykowski, who, in addition to a taste for outrageous moustaches, is a business-savvy and pretty pugnacious individual, negotiated a licence and founded Carmel Laboratories, LLC (‟CL”), a wholly-owned for-profit subsidiary of TC, which profits were to be used to support TC’s charitable works.

              In their ‟first amended complaint for patent infringement”, filed on 18 August 2017 (the ‟Complaint”), the University of Massachusetts and CL claim that the former is the assignee, and the latter the ‟exclusive licensee”, of the Patents, although it appears that CL may have been dissolved by court order on 30 June 2021.

              In the Complaint, the University of Massachusetts and CL (together, the ‟Claimants”) set out that CL is the exclusive licensee of the Patents for all cosmetic applications, and has been since 2008. Using the patented adenosine technology, CL allegedly developed ‟Easeamine”, an anti-aging face cream that it released for sale in 2009.

              Further to some research, it appears that the website www.Easeamine.com has now shut down, and that there were several possible allegations of credit card and debit card charge scams, from ‟EASEAMINE CARMEL LABS 508 MA”, over the years.

              The Claimants filed a lawsuit, with the US district court in Delaware, against:

              • its US wholly-owned subsidiary, Delaware incorporated, L’Oréal USA, Inc. (‟L’Oréal USA”),

              (together, the ‟Defendants”), on 30 June 2017, which was later amended via the Complaint, in August 2017.

              In the Complaint, the Claimants allege that:

              • the Defendants use the technology patented under the Patents, without having secured any licence or assignment of rights from the Claimants;

              • the Defendants have been aware of the Claimants’ adenosine technology and the Patents since at least 2002, as evidenced by the numerous references to the Patents, set out in the Defendants’ (failed) US patent application number 10/701,495 entitled ‟Method for softening lines and relaxing the skin with adenosine and adenosine analogues” (which was rejected), and then set out in the Defendants’ (granted) US patent applications number 9,018,177 and 9,023,826 and 9,072,919 and 9,107,853;

              • in fall of 2003, an agent of the Defendants contacted Mr Dobson to discuss the Patents but failed to secure a licence to the Patents from him;

              • nonetheless, after speaking with Mr Dobson, and in full knowledge of the technology exclusively licenced to CL, the Defendants began creating, marketing and selling cosmetic products using the patented adenosine technology, in particular for L’Oréal’s brands Biotherm, the Body Shop, Carita, Decleor, Garnier, Giorgio Armani, Helena Rubinstein, Kiehl’s, L’Oréal Paris, La Roche-Posay, Lancôme, Maybelline, Roger&Gallet, Shu Uemura, Vichy and Yves Saint-Laurent (together, the ‟Accused Adenosine Products”);

              • such Accused Adenosine Products are sold, in particular in Delaware, by L’Oréal USA;

              • due to public focus on the Accused Adenosine Products, projected sales of the CL’s Easeamine did not materialise, resulting in lost revenues to CL and, ultimately, to TC;

              • TC’s plummeting funds left it unable to pay the monastery’s mortgage, and to lapse payments on obligations it undertook to finance the launch of Easeamine. TC was forced to sell off certain properties it owned to prevent foreclosure on the monastery, and was unable to maintain health insurance for its members. The monastery was unable to use the projected Easeamine profits to fund its charitable works, and

              • in March 2015, Mr Wyrzykowski, president of TC and CL, sent a letter to Jean-Paul Agon, CEO of L’Oréal, stating his belief that the Accused Adenosine Products infringe the Patents, and affirming that CL is the exclusive licensee of the Patents but no out-of-court settlement was reached by the Claimants and the Defendants.

              In the Complaint, it is set out that the Claimants sue the Defendants for:

              • infringement of Patent 327;

              • infringement of Patent 513;

              • willful and deliberate infringement of the Patents, entitling the Claimants to increased damages and to attorney’s fees and costs incurred in prosecuting the action as well as prejudgment and post-judgment interest, and

              • a permanent injunction enjoining the Defendants from further infringing the Patents.

              2. University of Massachusetts v L’Oréal: procedural history

              As mentioned above, the Claimants filed their legal action against the Defendants on 30 June 2017, asserting causes of action for the alleged infringements of the Patents.

              On 4 August 2017, L’Oréal USA filed a motion to dismiss the Claimants’ original complaint.

              The Claimants subsequently filed the Complaint on 18 August 2017.

              In response, L’Oréal USA filed a motion to dismiss the Complaint on 23 August 2017, alleging that the causes of action failed to state a claim.

              L’Oréal followed suit on 16 October 2017, filing a motion to dismiss for lack of personal jurisdiction and failure to state a claim upon which relief can be granted.

              The US district court for the district of Delaware, in its judgment handed down by Sherry R. Fallon US magistrate judge, on 13 November 2018, decided to:

              • deny L’Oréal’s and L’Oréal USA’s motions to dismiss the Claimants’ causes of action for direct infringement of the Patents, under the allegations of failure to state a claim, finding that the Claimants had properly pled direct infringement, knowledge and intent, in the Complaint;

              • deny L’Oréal’s and L’Oréal USA’s motions to dismiss the Claimants’ causes of action for induced infringement of the Patents, finding instead that the Claimants had properly pled induced infringement, in the Complaint, in particular by demonstrating that the Defendants had induced customers to use the patented method;

              • deny L’Oréal’s and L’Oréal USA’s motions to dismiss the Claimants’ causes of action for contributory infringement of the Patents, under the allegations of failure to state a claim, finding that the Claimants had properly pled contributory infringement in the Complaint, in particular by pleading that the Accused Adenosine Products have no substantial non-infringing use;

              • deny L’Oréal’s and L’Oréal USA’s motions to dismiss the Claimants’ causes of action for wilful infringement of the Patents, under the allegations of failure to state a claim, finding that the Claimants had properly pled wilful infringement, knowledge, wilfulness and intent, in the Complaint, and

              • grant L’Oréal’s motion to dismiss the Claimants’ cause of action for lack of personal jurisdiction of the Delaware court over French company L’Oréal, without permitting the Claimants to conduct jurisdictional discovery.

              With the case then proceeding only against L’Oréal USA, the district court ruled on a dispute about the proper construction of one limitation of the claim that is representative for present purposes (Claim Construction Order, University of Massachusetts v. L’Oréal USA, Inc., No. 1:17-cv-00868 (D. Del. Apr. 9, 2020), ECF No. 114). Relying on the construction, the district court subsequently held another limitation of the claim indefinite (University of Massachusetts v. L’Oréal USA, Inc., 534 F. Supp. 3d 349 (D. Del. 2021) Summary Judgment Opinion). On that basis, the court entered into a final judgment of invalidity of the asserted claims, against the Claimants.

              The Claimants timely appealed the judgment of the US district court for the district of Delaware, to the US court of appeals for the federal circuit, challenging both the indefiniteness and personal-jurisdiction rulings.

              The US court of appeals for the federal circuit, in its judgment handed down by Colm F. Connolly US chief judge, on 13 June 2022, decided to:

              • reject the district court’s claim construction, on which the indefiniteness ruling depends, as understood by both parties on appeal;

              • vacate the indefiniteness ruling because the claim construction was rejected;

              • remand for further proceedings;

              • conclude that the Claimants were entitled to jurisdictional discovery, and

              • vacate the dismissal of L’Oréal.

              3. What on earth was – is – L’Oréal thinking?

              L’Oréal has obviously played the card of the titan against the midget, so far, ignoring the Claimants’ cease-and-desist letter, as well as every possible attempt made by the Claimants to settle the dispute out of court.

              L’Oréal has then proceeded onto implementing bullying strategies to dismiss the case, again and again, for futile reasons (lack of personal jurisdiction, claim construction, indefiniteness). These tactics worked with the first degree court and judge, but were rejected by the more enlightened and grounded appeals’ judge.

              In the meantime, while muddying the waters, L’Oréal attempted to diverge everyone’s attention from the real legal issue at stake here, which is that it is very plausible that they have violently, wilfully and repeatedly breached the Patents, as well as all the contractual and intellectual property rights of the Claimants.

              Since such breaches have been going on for around 10 years, with the sales of the Accused Adenosine Products by L’Oréal around the world, the amount of damages due to the Claimants may reach stratospherical heights.

              Also, since the appeal judgment confirmed that the Claimants are entitled to jurisdictional discovery, L’Oréal is now going to be constrained to disclose ALL confidential documents, data, know-how requested by the Claimants, to the Claimants and the courts, within the course of the discovery process, irrespective of the fact that L’Oréal is a French company and that both France and the USA are parties to the Hague Convention of 18 March 1970 which sets out provisions for the communication of evidence in the scope of foreign court proceedings.

              In other words, L’Oréal is screwed.

              Its only plausible and sensible option is to settle with the Claimants, in order to do some damage control, and attempt to preserve the remainder of its reputation, as well as its wallet. Such settlement must be confidential, for L’Oréal to mitigate this PR disaster and alleviate its image as a vulture and bully, which had no qualms in squeezing to death a then Roman Catholic group focusing on supporting the poor and most fragile members of society, in order to sell even more litres of creams and potions to unsuspicious members of the public.

              It is obvious that the Claimants are open to discussions, in order to licence the Patents to L’Oréal, even more so now that CL has been wound up on the grounds of bankruptcy, and that TC is facing extremely serious financial difficulties after the debacle of the launch of their Easeamine products.

              However, it is up to L’Oréal to make a serious offer, by offering the right price, to buy the (possibly permanent and irreversible) rights to the Patents, as well as the silence of the Claimants, via a confidential – and preferably out of court – settlement agreement.

              Good luck, Yannick Chalme, ex-group general counsel at L’Oréal: you magistrally fucked up this case, so far, but it is never too late to right a wrong, stop acting like a bully, and think like a real legal strategist, no matter how easy it seems to slaughter the lamb facing you.

              https://youtu.be/QCq1cmRoBGQ
              Crefovi’s live webinar: University of Massachusetts v L’Oréal – patent infringement case analysis – 24 August 2022

               

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                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 dependent 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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                  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?

                  1. 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 lifesaver. They took off during the pandemic and retail customers have now gotten used to shopping online.

                  It is therefore time to make your e-commerce 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 regard 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 e-commerce 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 e-commerce 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, Insolvency & workouts, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, Life sciences, Litigation & dispute resolution, Mergers & acquisitions, Music law, Private equity & private equity finance, Product liability, Real estate, Sports & esports, Tax, Technology transactions, Trademark litigation, Unsolicited bids

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

                    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, Curaçao, 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 an 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 an 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 an 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 occurred.

                    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 regard 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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