Walpole Luxury Summit: The Americas in association with Covington

On 30 June 2016, over 150 people attended the Walpole Luxury Summit: 2016 The Americas, which was ran in association with Covington in London.  Louise Nash from Covington welcomed all of the attendees to the event and an impressive line-up of speakers presented on the latest developments and opportunities in the American market.  Topics that were discussed included “Tech Innovation & The Future of Retail”, “Retail Detail: How the Traditional Store Model is Evolving” and “The Key Growth Opportunities for Luxury Brands”.  Speakers included John, Hooks, CEO of Pacific Global Management, Maria McClay, Industry Head of Fashion at Google, Bonnie Takhar, President at Charlotte Olympia and Anne-Marie Verdin, Brand Director at Mulberry, to name but a few.  Additional information about the event can be found here.



Upcoming European Chemical Restrictions in Apparel Raise Concerns

The European Commission intends to ban the use in apparel of hundreds of Cat. 1A and 1B carcinogenic, mutagenic and toxic for reproduction substances (“CMRs”) within the next year. To do so, the Commission expects to use the so-called “fast-track” procedure to ban CMRs under Regulation 1907/2006 (“REACH Regulation”), instead of the standard procedure for prohibiting substances. Historically, the fast-track procedure has been reserved for mixtures that contain CMRs and are intended for the general public.  The Commission has indicated that its proposal to ban the use of CMRs in apparel is a “test-case” of its intention to also ban Cat. 1A and 1B CMRs in articles (i.e., objects) intended for consumers on a regular basis in the near future.  This fast-track procedure allows less scientific input from the European Chemicals Agency (“ECHA”) and industry, and the related restrictions would create significant barriers to international trade.

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ISPs ordered to block websites infringing trademarks and must pay for implementation

On 6 July 2016, the Court of Appeal of England and Wales upheld the validity of injunctions requiring the five leading Internet service providers (“ISPs”) in the UK to block consumer access to websites marketing counterfeit goods and infringing trademarks.  Significantly, the ISPs, as intermediaries for the infringement, were burdened with the costs of implementing the blocking injunctions.

The ruling confirms the status of online blocking injunctions as an important tool for brand owners seeking to prevent the online infringement of their trademarks.  The decision is a logical extension of the rights afforded to trademark owners to reflect the rights given to copyright owners, and made express under UK copyright legislation.

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Legal Workshops at Central Saint Martins


Covington announced its support of the MA Fashion course at Central Saint Martins (CSM) towards the end of last year.  Since then, we have provided a number of practical workshops to the students enrolled in the course.   Our aim is to equip aspiring designers with important legal and commercial knowledge as they near graduation.

The first workshop that we provided to the students explored some of the key issues involved in building a brand, including aspects to be considered when negotiating contracts with suppliers and manufacturers, licensing designs, working with brand representatives and agents and complying with advertising standards and data protection regulations. To round off the session, Wilson PK, a CSM alumnus, provided an insight into his experience as a fashion graduate.  Wilson was thrown into the spotlight in 2014 when his collection was snapped up by Lady Gaga and we explored some of the legal and commercial challenges he has encountered and overcome in the last few years, which provided colour to some of the topics that we covered in the workshop.

The second workshop that we ran included a session which explained how important it is to protect one’s intellectual property rights when setting up a business. It also included a segment on the legal considerations that budding entrepreneurs should bear in mind when setting up a company.  We also spoke about the implications involved in financing a brand and the various routes that the students should consider when raising capital to fund their businesses.  The workshop ended with an interactive Q&A session with Bola Marquis, the founder and creative director of Okun Beachwear.  Bola provided important advice to the students about the obstacles he faced when he was setting up his business.

German Court sends online sales bans to ECJ

On 25 April, the German Higher Regional Court in Frankfurt filed a request for a preliminary ruling with the European Court of Justice (“ECJ”) in a case that turns on the ability of branded goods manufacturers to protect the reputation of their brands by controlling online trade.

Coty is suing one of its authorised distributors, Parfümerie Akzente, claiming that, by selling perfumes on Amazon Marketplace, Akzente infringed the condition of Coty’s selective distribution system that prohibited sales on open online platforms (the marketplace ban).  The German Court referred four questions to the ECJ, most relevantly including:

  1. Whether, in a selective distribution system, a supplier can prevent its distributors from selling the supplier’s products via third party online platforms, regardless of whether the online platform fulfils the selective criteria;
  2. Whether a sales ban on third party online platforms amounts to a restriction of ‘passive sales’.

This case follows a number of earlier cases regarding online trade restrictions, particularly restrictions on sales on third party platforms, such as eBay or Amazon. For example, the German Federal Cartel Office (“FCO”) has considered Asics’ and Adidas’ selective distribution systems, which restricted sales on online marketplaces on their retailers.  While Adidas removed the problematic provisions from its distribution agreements, in February 2016, Asics appealed the FCO’s finding that its restrictions were anti-competitive (the appeal is pending).  Other recent investigations involve headphones and headset manufacturer Sennheiser and backpack maker Deuter in Germany, Adidas and Samsung in France and Hewlett-Packard in Austria.

Many branded goods suppliers also use their trademark rights to protect the value of their brands against the perceived reputational damage of supply on online marketplaces. In certain circumstances a licensee may have breached the terms of its licence in a manner that means that the rights holder has not “consented” to the marked goods being put on the market in the EEA.  The ECJ has found, in relation to breaches relating to the quality of the goods, that trademarks are not “exhausted” in these circumstances. (Case C-59/08, Copad SA v Christian Dior SA).  This exception to the exhaustion doctrine is not being reconsidered by the ECJ in the present case.

UK CMA Opens Investigation into Online Sales of Licensed Sport and Entertainment Merchandise

The UK Competition and Markets Authority (“CMA”) has opened an investigation into suspected anticompetitive arrangements relating to online sales of licensed sport and entertainment merchandise and other consumer products.

The opening of the investigation follows raids on December 1, 2015 at the headquarters of Trod Limited, a UK retailer of toys and sports products (doing business as Buy 4 Less, Buy For Less, and Buy-For-Less-Online).  The house of one of the company’s officers was also searched.

The CMA expects to reach a decision on whether to proceed with the investigation or close it in April 2016.  Until then, the CMA will continue gathering information (including through information requests).

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FTC Closes Investigation of Watch Manufacturer’s “Made in USA” Claims

In a reminder that the agency still has an interest in “Made in the USA” claims, on November 20, 2015, staff from the U.S. Federal Trade Commission (“FTC”) issued a letter to Niall Luxury Goods, LLC (“Niall”) closing an investigation of the company’s claims that its watches are made in the United States.  Although the Missouri-based company’s watches were marked “USA Made,” the watch movements were manufactured in Switzerland.  The FTC expressed concern that a “USA Made” claim would not be appropriate in these circumstances but closed the investigation in light of remedial steps the company had taken to clarify the marking on its product.

The FTC’s letter to Niall stated that “unqualified ‘Made in USA’ or ‘Built in USA’ claims likely suggest to consumers that products are ‘all or virtually all’ made in the United States.” The agency added that it may analyze a variety of factors in determining whether a product is all or virtually all made in the United States, noting three factors in particular: (1) the proportion of the product’s total manufacturing costs attributable to process and production in the United States, (2) “how far removed any foreign content is from the finished product,” and (3) “the importance of the foreign content or processing to the overall function of the product.” Continue Reading

French probe of Adidas’ online sales restrictions closed

On 18 November 2015, the French competition authority announced that it had closed its investigation into Adidas’ online sales terms, after the company changed the terms. The French competition authority carried out this investigation in cooperation with the German Federal Cartel Office (the Bundeskartellamt).

Adidas operates a selective distribution system under which distributors were prohibited from selling Adidas products on online, open, third-party platforms. Both the Bundeskartellamt and the French authority took the position that this restriction went beyond what was justifiable to ensure quality.

As a consequence, on 2 July 2014, Adidas removed this provision from its German distribution agreements, allowing distributors to also sell on online markets, including Amazon.com and eBay. On the same day, the Bundeskartellamt announced that it had closed the proceedings against Adidas. Wednesday’s decision by the French competition authority brings to an end all pending investigations into Adidas’ online sales terms.

The parallel investigations confirm the appetite of national competition authorities to police suppliers imposing tighter restrictions on online sales by branded goods suppliers that go beyond what is necessary to ensure quality and, as a result, reputation.

Covington to provide workshops to Central Saint Martin’s MA Fashion Students

Covington recently announced its support for the highly esteemed MA Fashion course at Central Saint Martins (CSM) in London. CSM has an outstanding reputation for educating fashion students. Successful alumni of CSM include Alexander McQueen, Christopher Kane, Simone Rocha and Roksanda Ilincic. MA Fashion is the only course that has a show on the official London Fashion Week schedule. The course offers four pathways of study: Womenswear, Menswear, Knitwear and Textiles for Fashion.

As part of the relationship, Covington will offer several workshops during the duration of the course with the aim of helping students with the legal and business matters that they are likely to encounter in the fashion industry.

Fabio Piras, the MA Fashion Course Director, said: “I regard our relationship with Covington as a great opportunity to help the MA Fashion course bring our students the initial insight and general awareness they will need as designers entering the industry”.

Louise Nash, partner at Covington and head of Covington’s brands practice that the firm is “absolutely thrilled to be supporting Central Saint Martins and to be working with Fabio and his students to help them develop a better understanding of the business environment brands need to navigate in order to succeed”.



EU’s Highest Court Invalidates Safe Harbor with Immediate Effect

Today, the Court of Justice of the European Union (the “CJEU”) invalidated the European Commission’s Decision on the EU-U.S. Safe Harbor arrangement (Commission Decision 2000/520 – see here). The Court responded to pre-judicial questions put forward by the Irish High Court in the so-called Schrems case. More specifically, the High Court had enquired, in particular, about the powers of European data protection authorities (“DPAs”) to suspend transfers of personal data that take place under the existing Safe Harbor arrangement. The CJEU ruled both on the DPAs’ powers and the validity of the Safe Harbor, finding that national data protection authorities do have the power to investigate in these circumstances, and further, that the Commission decision finding Safe Harbor adequate is invalid.

This decision affects all companies that rely on Safe Harbor. They now need to consider alternative data transfer mechanisms.

The Powers of the DPAs

First, the CJEU emphasized that the DPAs cannot invalidate a Commission adequacy decision themselves; only the CJEU has this power. However, the DPAs must have the power to examine complaints brought by data subjects against transfers on the basis of Safe Harbor or other adequacy decisions of the European Commission based on Article 25 (6) of the EU Data Protection Directive and be able to engage in legal proceedings to make a reference for a preliminary ruling by the CJEU with the aim of examining the decision’s validity. In addition, the European Commission struck out the provision in the Safe Harbor decision which allows the DPAs to suspend data flows, subject to restrictive conditions establishing a high threshold for intervention. According to the CJEU, this provision denies the DPAs the powers which they have under the EU Data Protection Directive and the Commission has no competence under Article 25(6) to restrict the DPAs’ powers under Article 28 of the Directive.

Safe Harbor

Second, the CJEU declared the Safe Harbor decision invalid, without providing for a transitional period, based on the following reasoning:

  • Article 25 (6) of the EU Data Protection Directive empowers the Commission to find that a third country ensures an adequate level of protection. The CJEU held that, once the Commission has made such a finding, it must check periodically whether the finding is still factually and legally justified, especially when evidence gives rise to doubt.
  • The CJEU further held that, although Article 25 (6) cannot be interpreted as requiring a level of protection identical to that guaranteed in the EU legal order, the level of protection must be essentially equivalent, by reason of the third country’s domestic laws or its international commitments. In other words, the legal order of the third country must prove to be effective, in practice, to meet this level of protection.
  • In the present case, the Court decided that the standard of “essentially equivalent” is not met by the United States, in particular, because:
    • The United States public authorities are not required to comply with the Safe Harbor Principles.
    • Where U.S. law imposes an obligation conflicting with the Safe Harbor Principles, certified U.S. organizations must comply with the law.
    • The applicability of the Safe Harbor Principles may be limited on the basis of a broad “national security, public interest or law enforcement requirements” exemption contained in the Safe Harbor decision.The general nature of this derogation interferes with the fundamental rights of the individuals concerned, and the Safe Harbor decision does not contain any reference to rules adopted by the U.S. which would limit such interference. In fact, the Commission itself had found that the U.S. authorities were able to access and use transferred personal data for purposes that go beyond what is strictly necessary and proportionate to the protection of national security. In the CJEU’s view:“Legislation is not limited to what is strictly necessary where it authorises, on a generalised basis, storage of all the personal data of all the persons whose data has been transferred from the EU to the U.S. without any differentiation, limitation or exception being made in the light of the objective pursued and without an objective criterion being laid down by which to determine the limits of the access of the public authorities to the data, and of its subsequent use, for purposes for which are specific, strictly restricted and capable of justifying the interference which both access to that data and its use entail.”The CJEU further found that the Safe Harbor decision also does not refer to the existence of effective remedies against interference of this kind. “Legislation not providing for any possibility for an individual to pursue legal remedies in order to have access to personal data relating to him, or to obtain the rectification or erasure of such data does not respect the essence of the fundament right to effective judicial protection.

What Does It Mean in Practice?

The judgment applies to everyone (erga omnes), not only to the parties in the case. It is definitive without possibility of appeal and has immediate effect.

The judgment will have an important impact on organizations and the broader political discussions regarding EU-U.S. data flows.

  • Organizations relying on Safe Harbor to transfer personal data to the U.S. will have to consider alternative transfer mechanisms in order to transfer personal data lawfully to the U.S. Immediate short-term alternatives are likely to include standard contractual clauses and, in more limited instances, consent and possibly other statutory derogations (Article 26 (1) of the EU Data Protection Directive). Binding Corporate Rules are another alternative, but would require more time to put in place.
  • Negotiations on the revised EU-U.S. Safe Harbor framework are still under way (see our earlier posts here and here). It will be interesting to observe the impact that the CJEU’s findings have on these negotiations. The European Commission is determined to continue these negotiations, as Commissioner for Justice, Consumers and Gender Equality Věra Jourová confirmed in a press conference today (the full statement is available here).

Interestingly, the CJEU does not consider a system of self-certification in itself to be contrary to Article 25 (6) of the EU Data Protection Directive; however, it seems that such a system may be open to challenge unless the domestic law or international commitments of the third country ensure a level of protection which is essentially equivalent to that guaranteed in the EU legal order.

A working group of the Article 29 Data Protection Working Party—an EU advisory body, comprised of representatives of the DPAs of all EU Member States, the European Data Protection Supervisor and the European Commission—is meeting later this week to discuss the implications of this ruling. Moreover, the European Commission will release guidance shortly.

It is hoped that the DPAs will come up with pragmatic solutions as thousands of companies will be struggling to put in place alternative data transfer mechanisms which, in many cases, cannot be done overnight.