The Knockoff Economy

by Kal Raustiala

  Many of Forever 21’s customers may have been unaware of Foley + Corinna’s dress, and simply bought Forever 21’s model because they liked it. Others may have been aware of the original but preferred the cheaper copy. As Ms. Corinna argued to the Post, “A lot of people don’t know they’re buying a knockoff, or they just don’t care, they’d rather buy the cheaper one…. If you’re in Forever 21 in whatever city, you see it and think, ‘Oh, that’s pretty,’ and you buy it.”

  The story of Forever 21 knocking off Foley + Corinna is not unusual.* Every season—indeed, every day—clothing designs are copied, reinterpreted, and “referenced” by other firms in the apparel industry. Some well-known apparel companies, such as Allen B. Schwartz and Faviana, center their business strategies around copying striking designs. The practice is so widespread that the magazine Marie Claire features a regular section titled “Splurge vs. Steal” that pairs an expensive version of a given design (perhaps the original, but not necessarily) against a far cheaper version.3 At times the two versions are virtually indistinguishable.

  The ubiquity of knockoffs in the fashion world is the direct result of a gap in American copyright law. Copyright protection in the United States does not extend to fashion designs, and in the more than 200-year history of US law regulating creative endeavors it never has. As we will explain in a moment, some elements of clothing, such as the label or the fabric print, are protected against copying. But for designs, it’s a free-for-all. Anyone can copy or reinterpret a successful design, and there is nothing the original designer can do about it. In the case of Foley + Corinna, the Lower East Side designers received substantial attention from the incident, which struck a chord with reporters and bloggers alike. But they did not receive any legal judgment, nor could they stop Forever 21 from copying their work.

  The standard justification for rules against copying is practical and purposeful. Since copying is cheaper than creating, the theory holds, creators will not create if they know that others will simply copy their ideas. Restrictions on copying are necessary to ensure that copying does not drive out creativity. Granting creators a monopoly over the right to make copies of their work is a strategy to achieve the goal of more innovation. We call this the monopoly theory of innovation.

  The monopoly theory has important implications for the story of Anna Corinna, Dana Foley, and Forever 21. It suggests that the behavior at the heart of the dispute—the pervasive copying of creative designs—ought to precipitate a crisis in the fashion industry. Innovation should be driven out by the specter of fast and easy imitation, and investment should dry up. The industry should be in a freefall economically (something like what we see in the mainstream music industry today, perhaps). Yet quite the opposite has happened. The American apparel industry has boomed over the past 50 years in the face of uncontrolled copying, and it has been vibrantly creative.

  What is perhaps most striking is that despite the ubiquity of copying, there is a greater diversity of designs available to consumers today than ever before. To be sure, some fashion insiders bemoan today’s world of high-end fashion, in which designers are under relentless pressure to come up with something new.4 But it is hard to contend that the contemporary world suffers from too few designs or too little creativity. New labels abound, clothing is cheaper than ever, and designs come pouring out of small niche firms and major international design houses alike.

  Copying, in short, is commonplace in the fashion world, yet it has not destroyed the incentive to innovate. This is not to say that designers are not sometimes harmed by copying—perhaps Dana Foley and Anna Corinna might have sold more of their original design in a world without Forever 21’s knockoff. But the industry as a whole has thrived.

  Why do fashion designers continue to create in the face of such widespread copying? And what does this tell us about the nature of innovation?

  A VERY SHORT HISTORY OF THE FASHION INDUSTRY

  The world of fashion—with its flamboyant personalities, ruinously expensive runway shows, and sometimes outrageous and borderline unwearable designs—strikes some as fundamentally silly. (Just watch Zoolander.) It is anything but. Conservative estimates suggest that worldwide the apparel industry sells more than $1.3 trillion of goods annually5—a number larger than the combined revenues of the motion picture, software, books, and recorded music industries. While not all of this fits most people’s definition of “fashion,” the world of apparel is large, rich, diverse, and truly global—with iconic brands, enormous advertising budgets, integrated international supply chains, and, increasingly, retail footholds in every corner of the world.

  Fashion was not always a global industry. For a long time it was, in its higher forms at least, synonymous with Paris. The great couture houses operated there, and elites throughout the world looked to Parisian designers for guidance on how to dress.6 Today, Paris is a major node in the contemporary fashion network, and remains the center of the relatively tiny market in elaborate, handmade dressmaking.

  Traditionally, of course, all clothing was handmade and the market for “ready-to-wear” apparel—which today is essentially all clothes bought in the United States—was very small. The industrialization of apparel-making, which would ultimately transform the industry, began with the invention of the sewing machine in the mid-19th century. The United States was in fore-front of the move away from traditional custom-tailored clothing to premade garments purchased off a rack. Indeed, by the early 20th century, America was the acknowledged world leader in ready-to-wear.7 In 1902 a British apparel trade magazine presciently bemoaned the dangers of an American-led “ready-made invasion,” noting that “a visit to America cannot fail to impress the stranger with the relative importance of the ready-made clothing industry there…. It seems ludicrous to say so, but there is a considerable and respected trade in ready-made suits.”8

  Over the course of the 20th century, handmade clothing essentially died out in the West, save for the ever-shrinking couture industry and a tiny slice of high-end custom menswear. The rise of ready-to-wear not only meant cheaper clothing, made using some of the same mass production techniques pioneered by Henry Ford; it also meant that average consumers were now presented with a wide range of predetermined choices aimed to entice them to buy. In this way, our contemporary idea of fashion—apparel produced for fickle consumers in an ever-changing array of styles developed by competing designers—was born.

  The American apparel industry grew dramatically during the 20th century. As the Triangle Shirtwaist fire of 1911 illustrated, early in the century New York already had a large garment industry. The onset of the First World War meant that American editors and buyers could not travel to Paris to see the latest designs. American designers like Claire McCardell became overnight sensations as the nation increasingly looked to New York to fill the style void.9 The industry grew further when, during the Great Depression, the federal government imposed punitive duties on imported clothes as an element of the infamous Smoot-Hawley tariffs.10 By the Second World War the United States had become an important player in fashion, and many of the features of the contemporary fashion industry had fallen into place: an increasingly international set of brands; diversified, factory-based production of ready-to-wear clothing; and, over time, declining prices as the cost of production fell.*

  For true luxury apparel, less had changed by mid-century. In the early postwar years France retained its central role in the high-end markets for women’s fashion. (For men, Mecca remained further north, on London’s Savile Row and Jermyn Street.) But as the world economy recovered in the early 1950s, Italian and American firms increasingly displaced Parisian firms as the central players in the burgeoning high end of the ready-to-wear market. And at the same time, brands and labels were replacing tailors and dressmakers at the center of consumers’ attention. Early licensers, such as Pierre Cardin, tapped into this new mind-set to market an enormous array of goods that were manufactured by many different firms, but which all shared the (then-prest
igious) Cardin trademark.

  The postwar era was a time of continued growth and diversification for the American fashion industry. Established national brands such as Brooks Brothers, founded in 1818, were soon joined by a new wave of sophisticated homegrown (if not always home-born) postwar designers: Bill Blass in the 1950s, Halston (Roy Halston Frowick) in the 1960s, Ralph Lauren and Diane von Furstenberg in the 1970s, as well as associated editors and tastemakers, such as Diana Vreeland, Grace Mirabella, and Baron Nicolas de Gunzburg. New York, with its still-thriving garment district, increasingly became a world center of apparel design and brand management rather than mere assembly and tailoring.

  During this era the high end of the fashion industry also became truly global. Expensive boutiques stocking the leading labels opened around the world, catering to an increasingly mobile and moneyed elite. In the 1970s, the Arab oil states became major destinations for fine clothing and helped keep the faltering—and now breathtakingly expensive—haute couture market alive in the face of an onslaught of top-quality ready-to-wear. For many major firms, couture functioned (and still does function) as a loss leader—a way to polish the image of an apparel brand and foster lucrative licensing opportunities, but not a business that itself makes money. Indeed, by 1993, Jean Francois Debreq, who engineered the purchase of Yves Saint Laurent’s eponymous firm, would go so far as to joke that “if [Yves Saint Laurent] dies, I think I make even more money because then I stop the couture collections.”11

  Fashion continued to globalize and grow in the 1980s and 1990s. Italy became the new hotspot due to the dramatic rise (or rebirth) of firms such as Gucci, Giorgio Armani, Versace, and Prada. Japan too became a first-tier player, both as a source of innovative designs (Rei Kawakubo, Issey Miyake) and, for a time, the number one luxury goods market in the world. Russia, after the fall of communism, likewise became a major market packed with new money. And New York continued to grow as a center for design, with New York Fashion Week increasingly prominent among the global circuit of fashion shows. All of this growth fueled the introduction of tens of thousands of new designs every season by a very large number of fashion firms of all sizes. A small group of increasingly global brand names dominated the public consciousness: Armani, Chanel, Louis Vuitton, and the like. However, these firms, as famous as they became, have never comprised more than a small part of the industry’s total turnover. The fashion industry has always been, and remains, competitive.

  The economic boom of the 1990s produced many millions of new consumers with money to spend on fashion, and particularly on luxury ready-to-wear. Magazines such as Vogue and Elle grew fatter with advertising pages touting both global brands and high-end niche producers. Fashion also became a popular fascination, epitomized by the hit series Sex and the City’s silent fifth friend, Manolo Blahnik. Fashion grew ever more synonymous with coveted brands, which were applied most profitably to accessories rather than actual clothing. (The average price of a luxury handbag, which can sometimes cost as much as a new car, is 10 to 12 times the production cost.)12 Just as couture had become a loss leader for many fashion firms, for some firms even ready-to-wear functions, if not as an actual money-loser, nonetheless as more of a vehicle for image management than an actual profit center.

  The modern conception of the fashion industry—large factories rather than small ateliers; large firms rather than small family shops; the brand (protected by trademark law) the dominant value of the firm—was by the mid-1990s fully developed. In this system many labels were sometimes consolidated under one roof, usually with an acronymic name, such as GFT (Gruppo Finanzario Tessile), LVMH (Louis Vuitton-Moet Hennessy) and PPR (Pinault-Printemps-Redoute). These giants controlled a relatively small but important and highly visible slice of the industry. The mass market, however, was and is still contested by a welter of smaller firms producing for and selling through huge-volume retailers such as JCPenney, Walmart, and Old Navy.

  At the same time, another front in the business of apparel was opening: the market in so-called fast fashion. By the end of the 20th century, rapidly shrinking tariffs and shipping costs meant that new labor sources, such as China and Bangladesh, could produce clothing at astonishingly low cost. Fast fashion retailers tapped into this global supply chain (as well as local producers closer to home) to churn out cheap but stylish articles at a very rapid rate. The Spanish firm Zara reportedly offers some 10,000 new products a year; UK-based Topshop perhaps 15,000.13 Some of these firms have long histories—fast fashion darling H & M was founded in 1947 in Sweden—but others, such as Zara and Forever 21, only grew globally prominent in the 2000s. (Zara opened its first US location in 1989, in New York). By the end of the last decade, fast fashion retailers were challenging the established design houses on a surprising number of fronts.

  Today, fast fashion is epitomized by Los Angeles-based Forever 21. Started by Korean immigrants who placed their first store, opened in the 1980s, in then-seedy downtown L.A., Forever 21 is today a nearly $2 billion business. As Anna Corinna and Dana Foley discovered, Forever 21 can quickly and fairly accurately ape a striking and salable design. Its ability to do this—and at amazingly cheap prices—keeps customers coming back for more on a regular basis. Not all the customers are 21; indeed, many are the mothers of 21-year-olds who navigate the store in an effort to stay on trend and inexpensively fill out closets. But as much as many consumers love Forever 21, some designers loathe it. At her Fall 2007 runway show, designer Anna Sui gave out T-shirts emblazoned with “Thou shalt not steal” and the likenesses of the co-owners of Forever 21, portrayed as wanted criminals.14

  By the 21st century, fashion had become a popular obsession. Traditional fashion magazines are only a small part of the buzz around the industry. The Gray Lady’s fashion reporting has expanded with the addition of the New York Times Style Section (now twice weekly). Many celebrity-driven magazines, such as People and US Weekly, feature substantial coverage of trends and designers. Blogs such as Fashionista and The Sartorialist are widely read and increasingly influential. Perhaps most striking is the rise of apparel-oriented television hits such as Project Runway, What Not to Wear, and America’s Next Top Model, which, particularly in the case of the first, try to illuminate the creative process behind fashion design—and have millions of viewers. The same fascination with fashion and its workings is shown in the success of films such as Unzipped, The Devil Wears Prada, and The September Issue.

  In short, over the 20th century, apparel was transformed from a largely small-scale, often handmade and relatively expensive craft to a much more diverse and creative industry producing garments in vast and far-flung factories for a global audience attuned to trends and on the hunt for something new. A tiny alternative world exists, exemplified by high-end menswear, which still adheres to the ideal of traditional styles tweaked by expert tailors into custom clothing. But for the vast majority of customers, ready-to-wear is the only thing they have ever owned. More than any other nation, the United States led the way to this new world of apparel.

  Today, the fashion industry is a riotous blend of high and low: the extremely cheap (and largely disposable) clothing offered by firms like H&M standing side by side with stratospherically priced brands like Tom Ford. Occasionally odd hybrids occur, such as Vogue-darling Rodarte designing a collection for mass retailer Target. Hunting and gathering at all these price levels are ever-more sophisticated fashion consumers, often armed with the latest magazine spreads and photos from their favorite street fashion blogs. Perhaps the signal feature of American fashion today is its dizzying diversity of design and style—and the frequency and speed with which appealing designs are knocked off.

  WHY ARE KNOCKOFFS LEGAL?

  Striking or popular fashion designs have long been reinvented, reinterpreted, and sometimes simply ripped off. Complaints about copying date back at least to the beginning of the 20th century, and probably further. Writing in the 1920s, Columbia business school professor Paul Nystrom declared that “the extent of the
evil of copying is almost unbelievable. Every known device is used by the style creators to prevent their designs from going into the hands of imitators and copyists, particularly before the products of the design are offered for sale.”15 Yet in the United States, the copying of fashion designs has never been against the law and has remained legal even as a world-class fashion industry grew up in New York.

  Why have fashion designs never been protected against copying? To explain this requires digging into some detail about the structure of our laws against copying. The lack of protection in American law does not arise from any conscious decision. Rather, it flows from a more general feature of the American approach to copyright law: so-called useful articles usually can be copied freely. Useful articles are goods, like apparel, furniture, or lighting fixtures, in which creativity is closely compounded with practicality. A painting has no functional use, whereas a dress is functional, even if it is also a work of art. Copyright law is generally aimed at art forms that either have no function (such as music) or have only the most minimal functional attributes.16

  The useful articles concept leads to some curious results. Jewelry can be copyrighted, because it is considered ornamental, not useful. But an ornate dress that barely covers the body is considered functional, and consequently is not protected. A two-dimensional sketch of a fashion design is protected as a drawing. But the three-dimensional garment produced from that sketch is not protected. The same basic principle—two dimensions are protected, but three are not—applies to prints that appear on fabric. A printed fabric is protected, just as an ink print or drawing would be. But the cut and shape of the garment that employs the fabric can be copied at will.

  Rules against copying are not totally inapplicable to apparel, however. Following the same basic principles, copyright law can sometimes apply when the garment’s expressive component can be separated from its useful function.17 For example, a jeweled appliqué stitched onto a sweater may be protected because it can be physically separated from the garment. It can also be conceptually separated in the sense that the appliqué does not contribute to the garment’s utility. (The sweater is just as warm with or without it.) Very few fashion designs are separable in this way, however. The expressive elements in most garments are not “bolted on” in the manner of an appliqué but are instilled into the form of the garment itself—for example, in the cut of a sleeve or the shape of a pants leg. The bottom line is that most of the fashion industry’s products, aside from fabric prints and some accessories, can be freely and legally copied.