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5 relationships between brands and e-commerce

The business model of fashion brands for decades has been to control the way they are represented and where their goods are sold. This has been central to the way they have traditionally made money. Sure, they have produced wonderful products too.

The controls fashion brands have evolved and used create an air of exclusivity about their products.

Consumers have been prepared to pay more for wonderful products with an air of exclusivity.

Over the last dozen years or so, the increasing adoption of e-commerce - involving online trade via eBay and other "e-tailing" websites - has challenged the control mechanisms of fashion brands.

These generally involved controlled supply chains and distribution arrangements with consumers buying products from bricks and mortar stores operated by "authorised" local licensees or distributors. In return for a national or local legal monopoly, the licensees or distributors paid the owners of the fashion brands a sum to secure rights and regular "minimum performance" sums to maintain their status as the appointed exclusive licensees or distributors in the supply chain.

E-commerce operators have tended to fall outside or to fit only into parts of this supply chain. The power of legitimate operators has come from disintermediation [Wikipedia definition], and thereby generating cash flow directly from local wholesalers or consumers.

Trade mark law litigation has been among the means brands have used to respond to this challenge. Hence we've seen a stream of cases against pirates and others producing counterfeit goods. There are also many cases where the brands have taken on distributors of genuine goods claiming that the law is on the side of the brand owners.

Trade liberalisation has become a globally adopted and rarely questioned norm. Brands have focused on seeking to use trade marks law to protect positions, including their arrangements with licensees or distributors. However, in Australia and elsewhere some changes to intellectual property laws made in the 1990s are proving unfriendly to brand owners. Keeping it simple, in Australia for example many changes were made to copyright and trade marks laws which can have the effect of facilitating free trade or trade liberalisation, lowering the scope of controls brands can exercise in regard to parallel importation [Wikipedia link].

Still, the controls enjoyed by the brands have have not been fully disrupted.

Instead, in the U.S. Europe and elsewhere there are ongoing and many turf wars, market tussles and movements.

Here's a working simplification, categorising various contemporary developments or collisions in the theatre of war involving the destiny of fashion brands.

  1. Some brand responses are purely legal, involving litigation against alleged infringers.
  2. Some are political, seeking national, bilateral or transnational "reform" of intellectual property laws ("IP").
  3. Some are communal, such as the open source movement's criticism of the application of IP by big brands.
  4. Some are reactive, involving brands setting up their own online websites in the fashion of "If you can't beat them, join them".
  5. Some are even more creative, involving brands innovating their supply chains more broadly to reformat old distribution arrangements and incorporate new ones.

Given this complex matrix, uncertainty is at play.

To illustrate by way of conclusion, consider the two eBay cases below involving e-commerce in goods trade, whether counterfeit goods or legitimate goods.

Tiffany (NJ) Inc v eBay

diamond_ringIn this 2010 U.S. case Tiffany alleged eBay was liable for contributory trade mark infringement, where a large proportion of Tiffany jewellery offered for sale on eBay was counterfeit.

It was determined that eBay had "generalised notice" that some of the jewellery being offered for sale was counterfeit. However this was not enough to impose an obligation on eBay to remedy the problem.

What was required for positive action by eBay was contemporary, specific knowledge of actual infringement. This recalls a comparable test applied at first instance in the U.S. copyright case and first instance decision in Viacom v YouTube.

Louis Vuitton v eBay

Across the Atlantic, in February 2010 the Paris District court ordered eBay pay damages of 200,000 euros to Louis Vuitton, for failing to prevent the sale of branded cosmetics and perfumes made by Louis Vuitton.

An injunction had previously been placed on eBay, preventing eBay from selling the goods, after it was found that fake Louis Vuitton goods had been offered for sale. However, the injunction also prevented eBay from offering for sale genuine Louis Vuitton goods, on the basis that eBay was not an authorised reseller of the branded goods.


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