Fashion Licensing: How Donna Karan Cleverly Protected Her Namesake Mark
Have you seen the new facade of my blog? One of my dear followers created that wonderful illustration! In today's post, I will talk about trademark licensing, one of the most profitable business models in fashion. When you and your brand becomes famous enough, you can lend the names to those who want to harness the goodwill behind them. However, if you do it the wrong way, you will run into nightmarish situations where you would no longer be able to legally use your mark and, most importantly, your name. Surely, no designers would like to see that happen after years of hard work.
The story of Joseph Abboud can serve as a wake-up call. He was a highly successful designer back in the early 2000s and, to a certain degree, still is. You now might start to wonder why you haven't come across the name before. The answer: a botched business deal in which he sold the trademark of his eponymous brand. Joseph Abboud entered into a purchase and sale agreement with a company that wished to acquire the "Joseph Abboud" trademark. The agreement specified, among other provisions, that he will lose control over the commercial use of his name. However, Joseph Abboud later went on to use his name for a newly launched menswear line. Of course, the acquiring company sued Joseph Abboud for breach of contract, and the Southern District of New York issued a permanent injunction against him, making it forever impermissible for Joseph Abboud to use his name in commerce. See generally JA Apparel Corp. v. Abboud, 682 F. Supp. 2d 294 (S.D.N.Y. 2010). In fashion, the name of a designer is largely synonymous with the brand itself and its fame. Although the case of Joseph Abboud involved the sale of a mark, but similar dangers can lurk behind when you license your name. In extreme cases, you will be deemed to have abandoned your mark in the eyes of the law, and that's called abandonment.
Abandonment occurs when the user of a mark does not use it on an ongoing and continuous basis. Section 45 of the Lanham Act provides that a mark is deemed abandoned when "its use has been discontinued with intent not to resume such use." See 15. U.S.C. § 1127. Of course, no one in real life would run around announcing that "I am hereby abandoning my mark. It's up for grabs now!" So the law looks at the totality of the circumstances to infer the intent. Plus, if you do not use your mark for three consecutive years, it constitutes a prima facie evidence of abandonment. That means, the presumption is that you abandoned your mark. The burden then falls on you to prove that you, in fact, did not abandon.
There is another way you will be deemed to have abandoned your mark: licensing without quality control. Laywers call that "naked licensing". To prospectively avoid the issue, most capable lawyers will include in your licensing contract various quality-control provisions, accompanied by a termination clause, which states that, in the case of non-compliance, the licensor reserves the right to terminate the licensing agreement if the situation is not corrected upon notice. However, as a practical matter, the licensor should do more than that. The licensor has to put an effective monitoring mechanism in place by which he or she can supervise whether the licensee is indeed living up to the reputation of the mark. It doesn't matter you licensed to reputable names in fashion under the expectation that they will take good care of your mark. The famous Judge Easterbrook perceptively observed that "the argument that licensors may relinquish all control of licensees that operate "high quality" businesses misunderstands what judicial decisions mean when they speak about "quality". There is no rule that trademark proprietors must ensure "high quality" goods or that "high quality" permits unsupervised licensing." Eva's Bridal Ltd. v. Halanick Enterprises, Inc., 639 F.3d 788, 790 (7th Cir. 2011). So, it is advisable that the licensor does the annual intellectual property audits to ensure that the licensor effectively oversees what the licensee is doing with the mark.
It is apt to conclude today's post with the sagacious story of Donna Karan. The symbol of American contemporary fashion, Donna Karan is, still to this date, a huge force to be reckoned with in the world of the sartorial. She sold her Donna Karan trademark to LVMH in 2000 for $450 million. (LVMH subsequently sold it to G-III in 2016.) She was smart enough to understand the priceless value of her trademark. She was rightfully worried that her company might face a hostile takeover, thereby losing her control over the Donna Karan mark. So what did she do? She sold her trademark to a company named Gabrielle Studio, and then entered into a licensing agreement with it. Paradoxically, she became the licensee of her name. Next, she became the majority owner of Gabrielle Studio, which effectively allowed her to withdraw consent when Gabrielle Studio attempted to license the Donna Karan mark in ways she found undesirable. That's how she was able to maintain absolute control over her name, and later sold it to LVMH for a huge sum. So, be careful. In fashion, your name is much bigger than you think it is.
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