The 10 Worst Things About the New Design Piracy Bill

Senate Bill 3728 was introduced on Aug. 5, 2010, by Sen. Charles Schumer (D–N.Y.). The stated purpose of the bill is to “protect those designs which are so original as to approach art rather than utilitarian fashion and to do so in a way that limits any collateral costs such as frivolous litigation.” If passed, this bill will, for the first time in American history, grant a government-sponsored monopoly as to the cut, sew and drape of a garment.

The California Fashion Association is a strong proponent of protecting the creativity and artistic efforts of the fashion industry, but passing SB 3728 is not the way to do so.

SB 3728 articulates the concerns of the few at the expense of the many. This bill causes battle lines to be drawn between premium-priced and moderately priced merchandise and between the design community of the East Coast and West Coast. What is lost in the process is the voice of the thousands of producers and their consumers. 1. The designer does not have to offer any proof of originality to claim that he/she has provided “a unique, distinguishable, non-trivial and non-utilitarian variation over prior designs for similar types of articles.” There is no process for protecting designs. Designers, under this bill, do not even need to apply for a copyright. How is anyone put on notice that the design even exists, much less whether or not it is unique? How is originality proven? There is no database from which to prove or disprove the claims. There is no register at any government office. To enforce the claim of originality, the designer/plaintiff pleads that he or she did not copy any other design—the bill places the burden on the plaintiff to prove the absence of something. In reality, the burden of proof is on the defendant! The process demands that the defendant put into evidence the presence of a prior, similar design. 2. It undermines the value of collateral. The legislation will force banks and factors to make their own determinations as to whether or not a client’s designs are “original enough”—making lending to apparel companies even more precarious than under current conditions. Inventory and accounts receivable are a lender’s primary collateral; if this legislation is enacted, both would be called into question because of the potential for litigation. The law would dilute the value of these assets and reduce credit availability. If a company cannot obtain credit, it will be forced to shut down and, subsequently, lay off its workers. The country certainly cannot afford to increase joblessness and limit entrepreneurship in this shaky economy. 3. Retailers may still be liable. Currently, most major retailers are “private-label” developers of apparel products with “house brands” designed at their behest. Retailers are intimately involved in the design process, not only as private-label merchandisers but also for a significant percentage of all apparel produced. If private-label merchandise (sold by the retailer) is proven to be substantially identical to something covered by this legislation, the retailer would then also be liable. The proposed legislation attempting to limit the risk to retailers recognizes a simplistic, but incorrect, notion that retailers play no role in the process that is allegedly harming a designer plaintiff. Currently, retailers insist that their suppliers provide them with up-to-date fashions (not that which was introduced three years prior) to retail at modest prices. At the same time, retail buyers are reluctant to purchase merchandise not already proven to be appealing to consumers. This legislation completely ignores that reality. 4. Whose livelihood is being impacted? A vast amount of apparel, footwear and accessory sales results from trends driven by modestly priced manufacturers—all of which will be at risk. Couture business accounts for a very small percentage of the overall industry and is generally purchased by luxury consumers. This legislation protects those who design the $2,500 garment and imperils those who design the $150 garment. The voices of the majority, who turn a single piece of merchandise seen on a plethora of media outlets into a trend for everyday Americans, have not been heard. 5. This legislation is anti-competitive and monopolistic. SB 3728 creates a monopoly to those who claim originality, stifling the entrepreneurs who are the lifeblood of the industry. This legislation will have a profoundly negative impact on the start-ups that cannot possibly afford the legal defense costs that must be anticipated. [Diane von Furstenberg was quoted in WWD (9/9/2010) saying, “There are so many reasons a designer needs a lawyer, and for a young designer, it’s even more important.” However, David Wolfe, senior vice president of the Doneger Group, stated: “For new young designers to sue, they must prove that their designs are either unique or an identifiable image of their brand; neither argument works well for fashion designers who may have been in business only a few months.”] 6. The legislation does offer new jobs—for lawyers—but at the expense of apparel-industry jobs. The system created by this new law will appeal to contingency lawyers cognizant of the fact that simply filing the action places the defendant in a very difficult position. The moment the suit is filed, factors (which provide accounts-receivable financing to the defendant) will institute a “chargeback,” the accounting device that establishes a reserve for an uncollectible receivable. Rather than lose that credit availability, innocent defendants will pay plaintiffs and their contingency lawyers just to settle and get the headache behind them. 7. Proponents falsely claim that the issue is counterfeiting, but this has absolutely nothing to do with counterfeiting. Use of another’s brand name or original print or fabric design or sculpted jewelry is amply covered in existing law. Proponents of SB 3728 have suggested that interpreting the cut and sew and drape of a garment amounts to counterfeiting. It does not! Interpreting a trend can hardly be the same as counterfeiting. 8. This will affect U.S.–branded fashion. Currently, there is a vibrant U.S. fashion industry because consumers have a wide range of designed products and prices from which to choose. Rather than face the risk of litigation, retailers will only offer the most basic products. A three-year monopoly is a trend killer.

9. The bill is an affront to U.S. brands/producers. The target for lawsuits will surely be those brands and products that can be reached by the U.S. court system. Plaintiffs’ attorneys know the difficulty of bringing suit against Asian and European manufacturers/retailers such as Zara, Mango, H&M, Topshop, Benetton and Uniqlo. This legislation will stifle the creativity of domestic companies with little effect on the foreign companies already in U.S. retailing. Why put the American industry at a competitive disadvantage? 10. Who will make the ultimate decisions? This legislation calls for judges and juries to make the ultimate decision as to whether or not a garment design is “substantially identical.” The legislation asks for the interpretation of very vague terms. The issue of originality ultimately leaves the final say to the arbiters in the legal system—not industry professionals—thereby fostering and encouraging frivolous and non-productive lawsuits. The decisions will be costly for all. Finally, who pays the damages to the innocent retailer and seller if the designer’s claims do not prevail?

The California Fashion Association is a trade organization representing apparel manufacturers, textile suppliers and support industries.