From the left, Back Row – John Farrell (Reconnaissance International), Robert Glenn (Stretchline Holdings Limited), Julie King (head of department fashion and textiles De Montfort University), Malcolm Ball (ASBCI chairman), Dids Macdonald (ACID), Simon Tracey (Davenport Lyons solicitors), Chrissie Morse (Timberland and the ACG), John Scrimshaw (Fashion Business International) Front row: Sarah Wright (Olswang solicitors), Alan Holder (Pentland Group) and Rachel Parman (Shoosmiths solicitors)

Fashion and textile professionals from across the fashion industry assembled at the recent ‘Protect the Brand – fighting the copycats and fakes’ conference in London to hear how they can best protect their intellectual property and brand identity from the world’s unscrupulous design pirates and counterfeiters. Organised by Fashion Business International in conjunction with the suppliers’ forum for clothing and textiles, the ASBCI, the conference assembled some of the UK’s foremost anti-counterfeiting and design theft specialists.  Speakers’ urged the fashion industry to unite in raising consumer awareness on the humanitarian cost of producing counterfeit goods and dispel the myth that it is a ‘victimless’ purchase with thousands of workers, including children, working in unregulated even brutal ‘underground’ sweat shops.

Delegates heard how the $900 billion global counterfeit industry is organisationally linked to international terrorist and criminal enterprises. Meanwhile, designers and brands were urged to audit their design development trails, patent their original design wherever possible then brand, protect and be prepared to publicly defend their intellectual property, IP, in a united bid to deter the copycats. Speakers also appealed to governments and customs authorities to impose higher legal and financial penalties with the ultimate sanction of criminalising the consumer for purchasing and owning a fake.

The conference provided keynote speaker Dids Macdonald, CEO of ACID an opportunity not only to put the case against copying for designers, but to extend the message to 9 million listeners on the Radio 4 Today programme.

The event focused on the serious issue for many designers who often see their work “stolen” – copied by powerful and unscrupulous players, seeking an easy shortcut to consumer appeal. The theme of the day also concerned the billions of pounds diverted worldwide from the business of leading fashion brands by counterfeiters who benefit illegally from the investment these brands have made in their name and reputation. In the spate of recent high profile cases such as Chloe against Top Shop and Jimmy Choo against Marks & Spencer, Macdonald outlined the plea on behalf of many designers and creators who face a real threat through design theft, to urge retailers and manufacturers to support designers by commissioning original design, thereby creating their own signature ranges and, therefore, their own intellectual property. In this way retailers and manufacturers would not only support designers but also one of the UK’s greatest USP’s – design and innovation. By respecting the intellectual property rights of designers and brand owners, retailers and manufacturers would also negate the risk of being legally challenged over look alikes.

Macdonald also urged Government to place IP theft higher up the political agenda. According to Simon Tracey of Davenport Lyons who had undertaken a survey into Fake Luxury Goods and their social acceptance, the most effective way of changing consumer behaviour was to highlight the fact that often the proceeds are going towards the funding of organised crime or in worst-case scenarios – terrorism. Nearly 80 per cent of consumers said they would be put off buying counterfeits if they knew this to be the case. Also, amazingly, 20% of fake-buyers were from the £50,000+ bracket of salary earners.

Karl Mackie of CEDR with Dids Macdonald CEO ACID

At the first ACID intellectual property (IP) Mediation Theatre, held at the UK Intellectual Property Office, demonstrating the dynamics of two “real life” disputes involving a patent and design right infringement, ACID (Anti Copying In Design) joined forces with CEDR (Centre for Effective Dispute Resolution) to demonstrate the effectiveness of mediation as a real alternative to litigation. According to CEDR £33 billion is lost each year in the UK through time lost in conflicts in the workplace.

In the first “theatre” with lawyer representation, CEDR Mediator Alan Limbury, calmly and creatively facilitated and guided the patent dispute, whose parties were in deep disagreement over ownership of the invention, into the crafting of an agreement with both parties into a manufacturing and licensing deal. Prior to the mediation both parties were determined to go to a final court hearing to determine ownership of the invention.

The second “IP theatre” with parties only, using an actual ACID case study, involved a design right issue between a UK and Danish company, both in the trimmings business. Patrick Walker, Director of Advocacy at ACID Accredited law firm Hammonds, used his mediator skills effectively to draw out the key points of the dispute quickly and effectively to create a sound basis for bargaining and negotiation between the two parties. What could have resulted in a slanging match between professionals, not to mention legal proceedings, resulted in a framework for a productive and long term licensing relationship.

In her summary, Dids Macdonald CEO of ACID, a keen supporter of mediation, said, “I can honestly say that none of the 1800 or so mediations that we have facilitated have been the same but one consistent theme is how effective mediation is as a real alternative to litigation. I believe there is a need for a) mediation to enter the legal dispute equation sooner in accordance with Crown Prosecution Rules and b) there is a huge learning curve to be achieved so that those companies who follow the litigation route in disputes are fully aware of access to, and the availability of, effective mediation by trained and experienced experts in the field of alternative dispute resolution”.

According to CEDR “A New case brings impassioned plea from High Court Judge for more mediation”   Lord Justice Ward delivered the following comments in the judgment for the case of Egan v Motor Services (Bath) [2007] EWCA Civ 1002:

“What I have found profoundly unsatisfactory, and made my views clear in the course of argument, is the fact that the parties have between them spent in the region of £100,000 arguing over a claim which is worth about £6,000.  In the florid language of the argument, I regarded them, one or other, if not both, of them, as “completely cuckoo” to have engaged in such expensive litigation with so little at stake.”

Mark Jefferies, June Davies and Steve Probert from UKIPO

Thank you for your continued support of ACID it is very much appreciated. We rely on our highly valued members to help us continue our fight against IP theft.  ACID’s objective remains the same today as it was 10 years ago when the organisation was started to ensure that our members designers and manufacturers, pan-industry  receive the best possible service in design protection plus expert advice and guidance should their work be copied. ACID is also active in government lobbying to improve design laws, as well as educational programmes in IP for young designers.

We have made some positive changes to support our SMEs and, as a result of membership feedback, we have re-allocated the turnover categories so that a lower category has been created, ensuring that some of our members will be eligible for a reduction in membership fees.  We have also merged the previous top three categories to help you quickly assess which category of membership is appropriate to your business. To those of you that have not returned our recent communication regarding your turnover declaration we would ask that this is returned to us as soon as possible.  This will enable us to identify your correct category and renewal fee and issue your renewal request promptly.

ACID has endeavoured to keep membership costs as low as possible; in fact, we have not increased our fees during the last 9 years of operation. However, in order to maintain and expand our high level of member support services, educational programmes and lobbing activity, we are compelled to increase our membership fees in line with other trade organisations.  To make life easier, we offer a number of different ways to pay for ACID membership including a great new benefit a Direct Debit facility so payment can be paid annually or spread over the year in monthly or quarterly instalments.  Please note, Direct Debit mandates must be returned no later than the 14^th December to ensure inclusion on the Direct Debit list for 2008.  Alternatively, we still welcome payment by credit/debit card, cheque or direct bank payment.  Membership renewals are due on Ist January.

Over the years we have seen ACID grow from a small action group to a leading trade association (with over 1,000 member companies) fighting IP theft at all levels.  My heartfelt thanks to you for continuing to be part of this organisation and helping us lobby for a better deal for individual designers and design-led companies.

Art Meets Matter merchandise showing the licensed imagery from Penguin Books

For creative artists and gift and product designers licensing can be one of the most   effective and profitable relationships. Licensing is an extremely sound way to expand your business and develop long lasting commercial partnerships. However, it’s a two-way deal and only works when each party respects the other. For licensing to succeed, like any other commercial relationship, a sound and effective communications framework is essential, two way positive and constructive feedback being a key ingredient. If this is backed by a legally structured licensing agreement which has been negotiated in good faith on ethical grounds then, if the relationship is sound, licensing may well be an effective route to company and brand expansion.

Often callers to the ACID legal hotline will ask, how much or what percentage should I ask in royalties? There are no hard and fast rules, but clearly for any licensing arrangement to work effectively the level of royalties need to be acceptable for both parties. For the originator and design creator, sufficient so that they feel that their creativity is adequately rewarded and for the manufacturer/distributor enough to offer good profit margins. Basically, a small percentage of volume sales may be as good as a large percentage of small sales, so realistic discussion about potential levels of sales is key, possibly with built-in review dates based on success. In this way if a designer/creator has established a good and honest relationship with a manufacturer/distributor the goal posts can change depending on the success of a particular product range. This will encourage the artist/designer to work positively within that partnership and can lead to better returns all round.

So what are the watch points when setting up a licensing deal? Who owns the rights?
If the licence agreement clearly states who owns the rights then if there is a problem further down the track you can refer to the agreement. It is also important to agree who is going to be responsible for pursuing any rights infringement you or the licensee? Understand the difference between assigning your rights and licensing your right. By licensing your rights you are effectively permitting someone else to exploit those rights for a certain period of time, usually in return for a ROYALTY. After that period the rights revert back to you. If you assign your rights you are TRANSFERRING ownership of those rights for good.

What’s the difference between an exclusive, sole and non-exclusive license agreement?

1. Basically an exclusive licence restricts the licensor from granting a licence to anyone else AND exploiting those rights themselves. Thus, if you were to grant an exclusive licence to a retailer to manufacture and sell one of your designs, you would be restricted from doing the same yourself and you could not allow anyone else to manufacture or sell that design either.
2. The benefit of granting this type of licence is that the ROYALTY you receive is likely to be greater than the royalty you would receive if you granted a non-exclusive licence.
3. If you grant someone a sole licence, the only people allowed to exploit those rights are you and the licensee. You would not be allowed to grant a licence to someone else.
4. If you grant a non-exclusive licence you would still be able to exploit those rights yourself and you could allow others to do so. Although the ROYALTY you would receive under these terms would be less than under an exclusive licence, the benefit would be (subject to market demands and/or geographical restrictions in the licence itself) that there would be no limit on the amount of licensees you may appoint.

Financial provisions
Most important – always ensure that you fully understand who is paying what and how royalties will be managed. There are many companies who specialise in forensic license audits and who can advise you about the best way to ensure that you are getting what is rightfully due to you. Safeguards include regular audited communications of sales. The bottom line is that if what you are licensing proves to be a good product for a licensee they will want to ensure that the relationship is based, not only on agreed method of financial probity, but of trust and fairness. By rewarding the creativity that makes a design or artwork commercially successful for both parties this makes for a better long-term relationship. It is a short term and negative strategy when licensees do not fulfil their obligations and brings licensing into disrepute. A good safeguard is to speak to others with whom the licensee works – are they trustworthy? Do they honour royalties? What is their reputation with other designers?

Adaptations/Modifications
Often modifications or adaptations are necessary to take a product to market by a licensee so it is important that you establish and clarify who will be responsible for these and how much control you have as a licensor – what you don’t want to happen is for one of your products to be modified or adapted in a way that is not acceptable to you or your brand identity.

Territories and duration
What are the limitations for use and how long will the license run? Is it just for the UK or in other territories? This must be clear and unambiguous so that if there are any disputes you can always refer to the small print.

Termination
How do you intend to terminate the agreement? Try and consider bottom line scenarios so that you have clear guidelines, acceptable to both parties, if one party wishes to terminate the agreement. How much notice is necessary, what will be the conditions for termination?

How can Intellectual Property be used creatively and successfully?
A fantastic example of a successful, long term and developing licensing relationship is that of ACID members Arts Meets Matter with giants Penguin, owners of the iconic trade mark “Penguin Books”. Tony Davis, by recognising the natural affinity between books and coffee/tea drinking, pencils and deckchairs translated this into an exciting range of award winning products sold throughout the UK. Equally, Penguin books had the vision to see the potential of this synthesis. Tony Davis had not only the creative thought to broker the deal but the business savvy and acumen to make it happen. One of the most important aspects of any collaborative design work is the agreement upon which the relationship is based. ACID has worked with both product designers and manufacturers to produce a simple to read and user-friendly re-usable licence/royalty agreement which creates a level playing field between both parties. This is positioned as an industry standard agreement to which bespoke clauses can be added to suit both parties.  The most important aspect of any relationship is NEVER have to rely on the small print but in the unlikely event that you do, ensure that the small print works for you.  Details of ACID’s re-usable industry standard licensing/royalty agreement are available from the ACID Trading area.

Franchising remains a popular way for brands to grow. Whilst ACID’s main focus has been on intellectual property protection, one of the organisation’s other key objectives is to ensure that IP is viewed as a positive force and fully utilised to commercialise and leverage a brand’s full potential. One of the most lucrative ways to extend a successful brand is to consider franchising. Last year the franchising industry grew twice as fast as the UK economy, according to a recent survey carried out by Nat West and the British Franchising Association.  Turnover in the sector has grown ten-fold since the 1980s to nearly £11 billion.

Dids Macdonald, ACID’s Chief Executive talked to Tom Bridgford, Head of Franchising at ACID’s accredited law firm Hammonds who explained that, “A franchise is a business method in which a firm which already has a successful product or service (the franchisor) allows other businesses (franchisees) to operate under the franchisor’s brand.  The franchisor provides intellectual property, know-how, training and guidance.  In return, the franchisees provide fees, royalties, an advertising levy (for the franchisor to re-invest in advertising the brand nationally), but above all, the will to expand the brand’s reach”.

So why is franchising so popular?

Franchising is a tried and tested way of doing business which allows brand owners to grow their businesses with relatively low capital investment.  It offers the opportunity to secure distribution for products or services faster than would be the case if the franchisor had to train its own employees and develop its own internal organisation.  Moreover, as franchisees are usually investing their own money, they are normally very committed and motivated to grow the businesses aggressively.The numbers speak for themselves.  The respondents to the Natwest/BFA survey showed 93% of franchisees reporting profitability and 82% of franchisors forecasting an improvement in their business.

What are some of the the benefits?

1)   If you wish to create additional outlets, franchising will enable you to expand by allowing others to finance and manage their newly created franchise

2)   In return you receive franchise “fees” or you can negotiate a mark up on what is sold

3)   A franchisee will run the outlet themselves, therefore releasing you from further management

4)   The more successful a franchisee becomes, the more your brand will become known so that you can capitalise on growth and development opportunities

5)   The more successful a franchise becomes, the greater the opportunities are to create possible savings through increased purchasing power.

What are the watchpoints?

Most importantly, a franchisee is only as good as the support, encouragement and motiviation you provide. A franchisee who does not represent yours and the brand’s best interests will have a detrimental effect on the brand’s credentials. Always ensure that regular, positive, communication channels have been established. Investment in developing and marketing the franchise is key, as are the franchisees that you select. so ensure that you have a strict criteria which you apply when vetting potential franchisees. Unless there are continuity of standards and service delivery within the franchise, there will be inconsistency, therefore the creation of your operations manual is important communicating the minimum standards to which the franchisee must adhere. Regular checks are an integral part of maintaining your standards. If you have not set up an IP audit or health check of your intellectual property rights before setting up a franchise operation, you run the risk of leaving your brand’s protection open to challenge. Always consult an IP specialist or an organisation such as ACID to advise on your legal protection for any trade marks, copyright, design rights or patents.

In a recent article, ACID explored the benefits of franchising as a means for brand expansion and growth. These benefits were underpinned by figures released by Nat West and the British Franchising Association, which indicated that the franchising industry grew twice as fast as the UK economy confirming that turnover in this sector has grown ten-fold since the 1980s to nearly £11 billion. Franchising is clearly a tried and tested way for brand owners to achieve these objectives with relatively low capital investment. So how do you set up a franchise which will offer the opportunity to secure distribution for products or services faster than would be the case if you had to train your own employees and develop your own internal organisation?  First and foremost, for a franchise to succeed,  it is important to remember this is a long term investment for all parties and should not be built on a one off idea, fad, gadget or lone product – the business model should be a successful tried and tested format upon which to expand. In the second of this series on franchising Dids Macdonald, ACID’s (Anti Copying In Design) CEO talked to Tom Bridgford of ACID Accredited Law Firm Hammonds on some key points to consider when setting up a franchise.

The System

You will need a concept or system which is capable of being franchised.  This will usually be a successful product or service with an established route to market, backed by a strong brand. As well as the brand, the franchisor will usually provide trade secrets, know-how and training to its franchisees.  This may include market knowledge and experience, sourcing expertise, customer contact details or manufacturing processes.  It is usually contained in a detailed operations manual which enables franchisees to trade effectively from day one.  All this is protected by confidentiality provisions in the franchise agreement. In addition to receiving a franchise royalty from franchisees some franchisors also sell their product to franchisees which gives added benefit, providing an important additional revenue stream for franchisors.

Protection of Intellectual Property

Protection of the franchisor’s brand and intellectual property rights are paramount.  They should be registered where possible, as they will form part of the franchise package.  This may include trade marks, design rights, patents or domain names. Information on registration can be obtained from The Office for Harmonization in the Internal Market or the UK Intellectual Property Office
Registration of intellectual property rights provides a franchisor with exclusive rights to prevent others from infringing those rights.

Franchisees

Finally, of course, you will need franchisees.  The most attractive franchisees are those not only with access to sufficient cash to fund their businesses, but also with the skills, enthusiasm and energy to drive their franchises forward. Clearly, a strategic plan for the development of the network backed by sound processes for franchise recruitment and selection will pay dividends. Sharing your commitment to succeed and each party looking at this as a long-term relationship will also play a vital role in franchise success.

Further Help

There are various organisations like the British Franchise Association who can help find franchisees. The online site provided by the BFA is also very useful. The Royal Bank of Scotland and some of the other high street banks have dedicated franchising teams who can offer advice. They will also provide financial advice and support geared to the specific needs of individual franchise businesses. Both organisations also hold seminars regularly. So if you’ve got a great product or service, a strong brand and the right franchisees, you’ll soon be in business!” Tom Bridgford is head of the International Franchising Group at law firm Hammonds.

Often callers to the ACID legal hotline will ask, how long it will take to set up a franchise? Clearly for any franchise to work effectively it will take time, patience and initial investment to set up the necessary systems and processes. Realistically, most organisations and advisors will say allow between 4 and 6 months. For franchising to succeed, like any other commercial relationship a sound and effective communications framework is essential, two way positive and constructive feedback being a key ingredient. If this is backed by a legally structured franchise agreement, which has been negotiated in good faith on ethical grounds then, if the business model is sound, franchising may well be an effective route to brand expansion.