The Knockoff Economy

by Kal Raustiala

  While copyright is generally concerned with art forms that lack an obvious function, patent law is focused on functional inventions and new designs. At least in theory, novel fashion designs could be protected against copying via a “design patent.” Design patents offer 14 years of protection for “new, original, and ornamental” designs. As a practical matter, however, design patents are rarely useful for clothing. Unlike copyright, which extends to all “original” expression (that is, to all expression not copied in its entirety from others and that contains at least a bit of creativity), design patents are available only for designs that are truly “new.” As a result, design patents do not extend to designs that are merely reworkings of older designs.18 Because so many fashion designs fail this test, they do not qualify for protection.19

  Patents are also hard to obtain. The application is expensive, the waiting period lengthy, and the prospects of ultimately gaining protection uncertain. (The United States Patent and Trademark Office rejects roughly half of all applications for design patents.) Given the one or two season life of many fashion designs, design patents are simply too slow and unpredictable to be practical. The fashion industry’s primary use of design patents has been in the world of handbags and shoes, which tend to have slower turnover in style and, as already noted, cost more, and are quite a bit more profitable, than the average garment.

  What about other forms of intellectual property (IP)? Trademark is by far the most significant. Trademark law stops others from a using a mark—that is, a brand name or a logo—when that use would likely confuse consumers about the source of a product, or would dilute the value of the mark. For example, Adidas’ famous three-stripe mark cannot be used by another firm in a way likely to confuse consumers about who made the shoe—as discount shoe purveyor Payless discovered to the tune of more than $50 million (reduced from an initial jury award of over $300 million) when Adidas sued it for selling look-alike sneakers with two rather than three stripes. Compared with confusion, dilution is a bit more difficult to imagine. Say that a manufacturer of kitchen appliances uses a three-stripe mark to identify its toasters. This might be considered dilution if a court finds that the use of the mark on toasters will weaken the mark’s ability to help consumers identify Adidas’ athletic shoes, even if the consumers don’t actually believe that Adidas is the source of the three-stripe toaster.

  Trademarks are critical in the fashion industry because they help to maintain a prestige premium for particular brands. As a result, many apparel firms invest heavily in policing their marks. (That said, many fashion goods sold by street vendors are counterfeits that plainly infringe trademarks, such as the cheap handbags and watches often found in areas such as Canal Street in New York and Santee Alley in Los Angeles.)20 Trademark law does little to protect fashion designs, however. Occasionally a fashion design will visibly integrate a mark so that it becomes an element of the design. Burberry’s distinctive plaid is trademarked, for example, and many Burberry products incorporate it into the design.

  For this rare category of goods, the logo is part of the design, and as a result trademark law provides significant protection against design copying. But for the vast majority of apparel goods, the trademarks are either inside the garment or subtly displayed on small portions such as buttons. For these garments, trademark law is not a useful weapon against design copying.

  Trademark law also protects “trade dress,” a concept designed originally to protect distinctive packaging, but which has also been applied to product design. Like copyright, trade dress is limited to nonfunctional design elements.21 Additionally, the design must signify the garment’s source or producer to the consumer.22 In other words, the trade dress must essentially function as a label. When a consumer sees the design, she must recognize it as the work of a particular producer.

  As the Supreme Court has acknowledged, this rarely happens. In a case involving knockoffs of children’s clothing, the Court said that product design “almost invariably serves purposes other than source identification.”23 As a result, a designer seeking trade dress protection must show that, “in the minds of the public, the primary significance of a product feature… is to identify the source of the product rather than the product itself.”24 Implicit in this approach is the idea that customers may admire a design, but they rarely link designs with particular brands. It is certainly possible that consumers may link some truly iconic designs with brands. For example, savvy consumers might associate with Chanel a group of trade dress elements consisting of contrasting-color braided piping along the lapels of a collarless, four-pocket woman’s jacket. But few apparel design elements are likely to meet such an exacting standard.

  The bottom line is that American intellectual property law presents a mixed bag for the fashion industry. Trademark is very significant, and many apparel makers work mightly to capitalize on their brands and cultivate an image of desirability. Patent counts for little outside of the important, but limited, world of accessories (and even there is used infrequently). Trade dress is mostly irrelevant. Copyright could be very relevant, but under existing law it simply does not apply to clothing, absent a few minor exceptions such as fabric design and appliqués. The result is a world of powerful and valuable fashion brands, but very extensive—and perfectly legal—copying of fashion designs.

  RESTRAINING COPYING: THE FASHION ORIGINATORS’ GUILD OF THE 1930S

  Proposals to amend American law to protect garment designs against copying are nearly as old as the American fashion industry. Writing in 1934, a federal judge in New York noted the prevalence of copying but stated that he could do nothing about it, because although “in recent years bills have been introduced in the Congress to amend the copyright statutes” to include apparel, none of the bills had yet passed.25

  That same year, British economist Arnold Plant described in detail how copying worked in Europe—and what its effects were:

  The leading twenty firms in the haute couture of Paris take elaborate precautions twice each year to prevent piracy; but most respectable “houses” throughout the world are quick in the market with their copies (not all made from a purchased original), and “Berwick Street” follows hot on their heels with copies a stage farther removed. And yet the Paris creators can and do secure special prices for their authentic reproductions of the original—for their “signed artist’s copies,” as it were.26

  The British certainly had no monopoly on copying. During the 1930s and 1940s, American firms also copied designs widely, and some of the more upstanding ones paid a fee to Paris houses like Balenciaga and Dior that entitled them to send their best sketchers to France to copy original looks for manufacture back at home.27

  It was against this backdrop that, in the 1930s, the burgeoning American apparel industry established an unusual cartel to limit copying, at least among their compatriots. The “Fashion Originators’ Guild of America” registered American designers and their sketches and urged major retailers to boycott anyone known to have copied a registered design. Participants signed a “declaration of cooperation” in which they pledged not to deal in garments copied from American designers.28 Guild members were left free, however, to knock off foreign designs.

  To police this system, the Guild employed some 40 investigators to discreetly browse in member stores and ensure that the clothing for sale complied with the rules. Any store that defied the cartel was subject to “red-carding”: its name was distributed to all the participating manufacturers, who in turn would refuse to fill its orders. Those who violated the boycott faced Guild-imposed fines.

  The Fashion Originators’ Guild was fairly effective at limiting copying among its members. And its membership was substantial. By 1936, over 60% of women’s garments sold in the United States for more than $10.75 (approximately $177 in 2012 dollars) were sold by Guild-affiliated firms.29 In all, nearly 12,000 retailers across the nation signed the Guild’s cooperation agreements. The Guild, in short, made a difference in the market.

&n
bsp; As with most cartels, however, the Guild faced internal conflict. Much of it turned on the differing interests of retailers and designers. The retailers wanted to sell as much clothing as possible, and, but for the threat of a boycott, would prefer to carry knockoffs in addition to original designs. So the retailers chafed against the cartel’s rules. A signature example of this conflict—and one that ultimately led to the downfall of the Guild—is the lawsuit brought against the Guild by Wm. Filene’s Sons Co., progenitor of the famous (and recently bankrupted) Filene’s Basement chain of stores.

  At the root of Filene’s lawsuit was a disagreement over the scope of the cartel’s rules. The conflict was sparked by what some retailers saw as “high-handed abuse of the Guild’s position.” As a contemporaneous story in Time Magazine colorfully recounted the events, the dispute began with a single incident in 1936: “one day last month at Strawbridge & Clothier, a swank Philadelphia department store, a Guild investigator became quietly uppish.” The investigator demanded that “a certain dress, in her opinion a copy, be removed from the floor and that she be told the name of the manufacturer.”30 Strawbridge & Clothier’s management refused, believing that they maintained the right to determine what was and what was not a copy.

  Two days later, the store was served with notice that it had violated Guild rules and that it was now subject to a boycott. Within a few days the same had happened at Bloomingdale’s in Manhattan and at R. H. White in Boston, a Filene’s-owned department store. All three red-carded emporiums were members of the Associated Merchandising Corp., a buying cooperative. Soon, 16 out of 20 Associated Merchandising Corp. members had been red-carded. The Filene’s suit against the Guild, charging a conspiracy in restraint of trade that violated American antitrust law, was a counterpunch.

  “Five years ago the possibility of a group of dress manufacturers being powerful enough to draw fire on grounds of monopoly seemed so remote as to be funny,” wrote Time. The garment industry in the 1930’s was a “hodgepodge of feverishly busy small houses” competing intensely. “Dirty tricks” were ubiquitous. And aside from the prices, Time’s description of copying could have been written last week:

  Among such tricks was the universal and highly developed practice of copying original styles. By the early Depression years it had gone so far that no exclusive model was sure to remain exclusive 24 hours; a dress exhibited in the morning at $60 would be duplicated at $25 before sunset and at lower prices later in the week. Sketching services made a business of it; delivery boys were bribed on their way to retailers.31

  The Guild’s purpose was to squelch this sort of behavior, though in its early years it concentrated solely on higher priced dresses (largely those wholesaling for more than $16.75—about $275 in 2012 dollars). The Filene’s suit stemmed from the Guild’s decision to start clamping down on copying of cheaper garments as well. As Time noted, high and low priced garments were seen by many industry insiders as different markets, with different rules. “It was one thing to guard against copies in expensive lines,” wrote Time, “and another thing to give the same attention to lower-priced dresses, which are bought in greater quantities and sold to people who cared not at all whether they were copies or not. The retailers did not like the prospect of competing in these lines under Guild restrictions with the chain stores,” which were not party to the Guild system.

  In a narrow sense, the Filene’s lawsuit against the Guild failed; a federal court held that the Guild’s actions were legal. But the Guild won the battle only to lose the war. The Federal Trade Commission, which is tasked with protecting consumers from unscrupulous sellers, took notice of the suit. Agreeing with Filene’s, the FTC decreed that the Guild was operating an illegal cartel and suppressing competition. In its defense, the Guild pointed to the difficulties of eradicating copying in the apparel industry. Its practices, the Guild’s lawyers argued, “were reasonable and necessary to protect the manufacturer, laborer, retailer, and consumer against the devastating evils growing from the pirating of original designs and had in fact benefited all four.”32

  The Guild’s view was rejected by the Supreme Court. In its 1941 decision in Fashion Originators’ Guild of America v. FTC,33 the Court acknowledged that rampant piracy might be a fact of life in the fashion world. However it did not give manufacturers a license to violate antitrust law and collude against competition. With that decision, the Guild was abruptly out of business.

  The demise of the Guild did nothing, of course, to address the underlying issue of copying. But if the former Guild members could no longer organize a private cartel to stop copyists, perhaps they could have Congress do the work for them. Amending American law to protect fashion designs soon reemerged as a cause of some designers, just as it had been in the 1920s and early 1930s, before the Guild was organized. In the wake of the Supreme Court’s decision, Maurice Rentner, the former head of the Guild, devoted himself to lobbying Congress to extend copyright protection to fashion designs. Unless Congress acted, he warned, resurgent fashion piracy following the fall of the Guild would “write finis” to the dress industry. Rentner urged Congress to adopt the French system of protecting garment design.

  Others in the industry were less sure. Leon Bendel Schmulen, of New York’s famous Henri Bendel department store, told the New York Times that design copying posed “no danger to the business” and was instead “a natural consequence of fashion.” “By the time a design of ours is copied in the cheaper dress lines,” said Bendel, “it’s probably time for it to go.”34

  Leon Bendel and Maurice Rentner represent polar, and enduring, views in the long American debate over apparel and copying. Bendel believed that design copying was not only inevitable but perhaps even an essential part of the ecology of fashion. As he suggested, a design that was widely copied was a signal to start over and sell something new, and of course one made money by selling new things. This view has a distinguished pedigree in fashion; no less a figure than Coco Chanel claimed that “being copied is the ransom of success.”35 Maurice Rentner, on the other hand, saw copying as a serious threat that would eventually drive the industry under. Without protection, how could designers afford to keep designing? This view too had a distinguished pedigree, for it was the basis of the entire apparatus of copyright law in America (and much of the world) and it possessed an impeccable-seeming logic.

  Nontheless, Bendel’s view prevailed. Rentner’s efforts to convince Congress to adopt French-style copyright protection for fashion went nowhere, despite his prediction that 500,000 American garment employees would lose their jobs due to piracy. And subsequent events belied Rentner’s doomsaying. In the decades after the fall of the Fashion Originator’s Guild, the US apparel industry boomed. Moreover, while in recent decades manufacturing has largely moved overseas in search of cheaper labor—leading to the decline of the manufacturing segment of New York’s Garment District—American designers are more numerous and more successful than ever. Since the fall of the Guild, in other words, the American apparel industry has survived and even thrived despite widespread—and entirely legal—copying.

  THE COPYING DEBATE TODAY

  Copying has remained an issue of enduring interest within the fashion industry, even as the Guild and its red cards are a distant memory. In particular, the meteoric rise of fast fashion retailing in recent years has led to the renewal of the arguments first pressed by Maurice Rentner in the 1940s to amend American law to protect garment designs from copying.

  These new calls for reform have arisen against a changed backdrop of American copyright law. In particular, over the past half-century, the strength and scope of restrictions on copying have markedly increased. Since Rentner’s unsuccessful efforts, Congress has expanded rules against copying in a wide variety of areas, ranging from buildings to boat hulls. Congress has also expanded the breadth of rights granted to copyright owners. And Congress has expanded the length of copyright protection. In 1976, and again in 1998, the term of protection was markedly increased.36 Adding
force to these measures was a more powerful rhetoric of property rights, which increasingly characterized copyright (as well as trademark and patent) not as the regrettable-but-necessary government interventions into the free market they once were thought to be, but instead as a sacrosanct species of property that ought to be staunchly defended—not balanced against the value of wide public access to creative works, or other economic and social concerns.37

  Against this backdrop, in 2006 the Design Piracy Prohibition Act (DPPA) was introduced in Congress. The DPPA was championed by the New York-based Council of Fashion Designers of America, and, in particular, by the group’s president, wrap-dress impresario Diane von Furstenburg. The group pursued the reliably counterproductive approach, at least as far as the US Congress is concerned, of appealing—as had Rentner himself decades earlier—to the example of France. Proponents argued that because France and many other nations afforded copyright protection to apparel designs, the United States ought to as well, lest it lose out in the global fashion competition.38

  Despite a determined lobbying campaign, the DPPA went nowhere. A revised version, now titled the Innovative Design Protection and Piracy Prevention Act (IDPPPA), was introduced in 2009. Representative Bill Delahunt of Massachusetts introduced the bill with this dire—and familiar—prediction: “One of our most vibrant industries—the fashion industry—is currently at risk because the copyright laws of the United States, unlike virtually all other industrialized countries, fail to protect fashion designs.”39 Updating Maurice Rentner’s now six-decade-old prediction of catastrophic job losses (Rentner had predicted 500,000), Delahunt declared that 750,000 jobs were at stake due to design piracy, and that the proposed law would, in his words, promote and protect the nation’s entrepreneurs “by ensuring a just and fair marketplace at home, and a level playing field abroad.”*