Meryl Bernstein joins industry executives at Fashion Law Institute’s 14th Annual Symposium, “In the Bag”

Antitrust challenges to consolidation in the fashion sector

In August 2023, luxury goods maker Tapestry (which includes the Coach, Kate Spade and Stuart Weitzman in its brand holdings) announced its acquisition of Capri and its Versace, Jimmy Choo and Michael Kors brands. The FTC challenged the deal, arguing that combining the brands into a single company would reduce shopper choices for affordable luxury handbags and potentially result in increased prices. Speakers on the kick-off panel at the Symposium highlighted the weaknesses in the FTC’s argument, with speakers largely arguing that even the combined Tapestry-Capri would be far smaller than other key players in the market, and that the market for affordable luxury accessories is so vast such that the transaction would not have an anticompetitive impact.

The test, one speaker commented, must be whether the proposed transaction would harm consumers. In the affordable luxury market, prices could not be increased by the combined company due to market dynamics. Put simply, customers would not accept increased pricing from the combined company and would deploy their shopping dollars elsewhere. A finance executive on the panel who specializes in investments in retail commented that there are already limited exit opportunities for fashion brands – there has not been a successful IPO for years, and acquisitions typically occur for distressed brands only. Thus, an antitrust challenge in this segment has a potentially chilling impact that is likely to impact the broader investment community.

A web of new legislation and regulation requires retailers to take note

New legislation and regulation at the federal and state level in the U.S. requires that fashion companies examine their existing business practices. A leading consultant to the fashion industry highlighted the key categories of legislative developments over the past year as relating to labor laws, trade laws, sustainability and regulation of AI.

Of particular note to the audience was discussion of the potential closing of the so-called “de minimis loophole,” pursuant to which shipments to the United States under $800 are not subject to inspection by Customs and Border Patrol. According to the speaker, Republicans and Democrats in Congress alike are interested in closing the loophole, which can be exploited by foreign e-commerce companies shipping considerable volumes of consumer goods into the U.S. on a daily basis.

Sustainability, and the various laws and regulations that have been introduced and passed to ensure sustainable products are being introduced into the stream of commerce, was another key area of discussion. Extended producer liability, regulations at the state level regarding PFAS, and potential updates to the FTC’s Green Guides were hot topics.

Finally, a legal executive for an online eyeglass and accessories company noted the challenges and opportunities presented by artificial intelligence and commented that the EU AI Act may serve as a weather vane for upcoming legislation here in the U.S.

Intellectual property challenges in resale and freedom of expression

The event included a heated discussion of dress codes, mask laws and freedom of speech, highlighting the intersection of individual rights to express oneself through fashion and the impact of mask bans and dress codes. One speaker highlighted the challenges in protecting individual rights to freely don a mask or other garment in the private sector. Dress codes are prevalent in the workplace and can serve various legitimate purposes, a panelist noted. Provided the dress code is applied consistently, and the employer entertains accommodations to those who need them, these policies generally stand up to legal challenge. Where policies are arbitrarily enforced in a manner that prioritizes certain speech or expression over others, however, employers can find themselves on shaky ground.

Further, the event highlighted trademark and other intellectual property considerations in the resale market, which has proliferated with new entrants in recent years. Retailers have turned to resale and rental models with increasing frequency as a way to offer product variety to existing customers in the luxury space and also to attract new shoppers who, without access to a resale or rental distribution channel, would found such luxury products to be unattainable. However, resellers need to be mindful that they refer to branded goods without infringing the brand’s trademark rights and ensuring that their product authentication efforts are thorough and documented to mitigate the risk of counterfeit goods being sold or rented via their platforms.

One panelist, a legal executive at a large clothing retailer, noted that luxury brand owners need to pay attention to emerging platforms (such as resale and rental e-commerce platforms) to understand how their brand is being presented to the market. They should also continuously monitor such emerging platforms for use of the brand’s marks and the product-related claims and marketing. To better position themselves in the event of a claim relating to trademark infringement or counterfeiting, resellers and rental platforms should conduct thorough due diligence on their sourcing partners and exercise caution when they develop marketing and imagery of, and relating to, the brands they offer for sale. In some instances, the speaker noted, brands partner directly with resale platforms to offer a win-win opportunity that drives revenue to the reseller and the brand while ensuring that the brand’s marks are presented consistently with the brand’s overall market strategy.

***

To learn more about our capabilities in the Consumer sector, please click here.

Authored by Meryl Bernstein.