When fashion houses and designers divorce, who gets the IP?

Posted by Charles Colman

According to Women's Wear Daily, Gianfranco Ferré's new owner, Paris Group (which, contraire au nom, is based in Dubai), has fired Ferré creative directors Tommaso Aquilano and Roberto Rimondi.  As readers of this blog are undoubtedly aware, this follows on the very high heels of Christian Dior S.A.'s divorce from its chief designer, John Galliano.

Of course, the (sometimes premature) dumping of fashion talent is nothing new.  PPR's Gucci Group dismissed the exquisitely talented Alber Elbaz after acquiring the Yves Saint Laurent label, for which Elbaz had designed just three collections.  Dior ditched the real, live Yves Saint Laurent in 1960, a mere two years after the young designer saved the house from financial ruin.  And to get really old-school, the once-famous but now lesser-known Paul Poiret was forced out of the Maisons Doucet and Worth early in his career due to clashes of personality and taste, respectively.  In short, the fashion world is brutal, and has been for a very long time.  (But buck up, recently-fired creative types; each of the three designers just mentioned recovered from their setbacks and moved on to greater fame and artistic achievements.)

LOF has already written about designers losing the rights to their names when a brand and its namesake part ways.  (Hopefully la Rei-na will be gentle with the fantastically creative Tao Kurihara, whose eponymous brand under the Comme des Garçons umbrella folded earlier this year.)  LOF has also addressed the sometimes-problematic situation of "joint authorship."  By contrast, today we are concerned with the fate of non-jointly authored copyrightable material after a designer is unceremoniously dumped from a label to which she has contributed blood, sweat, and -- more importantly, for copyright purposes -- creativity.

To be sure, the "ceremony," or lack thereof, at the end of a professional relationship might very well influence how the designer reacts, since the flames of litigation are fanned by anger as well as money.  But the ceremony -- specifically, of the papyraceous variety -- that occurs at the outset of the relationship probably has a greater impact on the actual rights of each party following a design divorce.  So what can a fashion house (or any company, for that matter) do in the way of IP prenups?

Well, in the U.S., at least, there are various means of getting one's ducks in a row when it comes to intellectual property created by hired parties.  The best arrangement, from the hiring party's point of view, is to get the hired party's contributions into the so-called "work made for hire" box.  Why?  If a work (for instance, a design that is, for one reason or another, eligible for copyright protection) is deemed "made for hire," then the hiring party is "considered the author" for purposes of U.S. copyright law.  It's good to be the "author" of a copyrighted work -- better, even, than being the so-called "assignee" of intellectual property rights transferred from another (and far better than being a mere "licensee" of the rights a company wants or needs.)

The catch: there are only two ways to get a creation into the "work made for hire" sweet spot.  The first is if the work is "prepared by an employee within the scope of his or her employment"; the second is when the work is "specially ordered or commissioned for use as a contribution to a collective work [or] compilation" (or other, narrow categories of works) if the hiring and hired parties "expressly agree in a written instrument signed by them that the work shall be considered a work made for hire."

In other words, if the hiring party either doesn't have a "written instrument" from the creator, or the created work doesn't fall within one of the qualifying categories of "specially ordered or commissioned" works, the hiring party had better be prepared to show both that the contested work was created a) by an employee (rather than an "independent contractor"), and b) that the work was created within the scope of employment.

The trouble is, there's no "bright-line" test to determine if someone is an employee or an independent contractor, for copyright purposes.  In a 1989 case called Community for Creative Non-Violence v. Reid, the Supreme Court ruled that the employee/contractor determination should be guided by principles of the "common law of agency," with courts looking to numerous factors, none dispositive.  Per Justice Thurgood Marshall, writing for a unanimous Court, the relevant factors include:

"the skill required [to create the copyrighted work]; the source of the instrumentalities and tools [used in its creation]; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when an how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the work is party of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party."

(Internal citations omitted.)  So if you thought you could make someone an employee or an independent contractor (again, for copyright ownership) just by describing the relationship in the certain way, or by sending your helper a W-2 versus a 1099 at the end of the year, think again.  Sure, a document stating the hiring party's preferred employment status for the contributor is better than nothing -- especially if the contributor signs it -- but if push comes to shove, that document won't ultimately determine whether the contributor is an employee or an independent contractor (or, by extension, whether his creations are "works made for hire.")

But don't fret, employers.  When it's simply impossible to get a creative contribution into the "work made for hire" box, there are other options to lock down (or at least, tame) errant copyrights.  For example, if a party can get "a note or memorandum of ... transfer", it might qualify as the assignee of the copyright(s) at issue, which is pretty darn close to being the "author" of a copyrighted work.  (The biggest difference between authorship and "assignee" status is that a creator who assigns his copyright can eventually terminate that assignment -- that is, take back the rights he sold or gave away -- as many authors will be able to do for the first time in 2013, to the extreme anxiety of publishers and other rights-consolidators, no doubt.)

After an assignment, the next-best option for a rights-consolidator will often be a "license" to use a copyrighted work.  While one can "own" a license (and sometimes sell it, grant sublicenses based on it, etc.), licenses themselves aren't really "ownership" of a copyright in the traditional, non-legal sense.  Still, licenses aren't so bad, especially those of the exclusive, irrevocable, royalty-free variety.  It's worth noting that licenses can be implied from the circumstances, but as in all things legal, it's generally best to get an express license, preferably on paper (or at least over e-mail.) 

(A quick word: in practice, contracts drafted for rights-consolidators frequently run through the entire litany of rights-management mechanisms LOF has just discussed, from most desirable to least, just to make sure all bases are covered.  Such contracts also typically address moral rights -- a creator's right to attribution and the integrity of his work -- even though moral rights, which are European in origin, exist only in a very limited form in the U.S.)

Finally, there is a grab bag of legal tools for the hard-pressed rights-consolidator who can't, for whatever reason, back up a "work made for hire"/assignment/license argument.  These last-ditch options include venerable but fuzzy legal concepts like estoppel, waiver, and laches.  If you're a rights-consolidator who finds himself digging this far down in the grab bag, you're already at -- indeed, way past -- the point where you need to hire a lawyer.

Oh, and to bring this far too legalistic discussion back around to fashion, the designers discussed at the beginning of this post (barring unusual circumstances unknown to LOF) were most likely company "employees," and their creations "works made for hire" -- at least under U.S. copyright law (which wouldn't apply to most of the situations discussed anyway), and of course, only where the creations at issue were somehow eligible for copyright protection in the first place.  (When it comes to foreign copyright law, all bets are off, at least for this U.S.-trained attorney.)  But what fun would it be to just say "the companies are probably fine" and stop there?  You know, "the journey," and all that stuff...

[This post is for entertainment and informational purposes only, and does not constitute legal advice or create an attorney-client relationship among any individuals or entities.  Do not use the information in this post (or any other blog post, people -- use some common sense!) as a substitute for consulting a real, live attorney.]