The scope of this chapter is to give entrepreneurs who intend to invest in Brazil a brief overview of Fashion Law, which gains relevance every year.
In this chapter, we will make notes on the mechanisms of protection of fashion items and will show readers some of the main agreements and contractual provisions that permeate the fashion universe, noting that this is a complex market plain of details and rather than exhausting the topic, our intention it to give an insight into the aspects that seem most relevant to us.
The fashion industry has socioeconomic importance for several countries, becoming increasingly representative from a global perspective. In addition to moving significant amounts of money and covering different segments, such as the textile, footwear, accessories, luxury, jewellery, cosmetics, beauty and other sectors, the fashion industry generates millions of jobs around the world.
The Brazilian Textile and Garment Industry Association (Associação Brasileira da Indústria Têxtil e de Confecções – ABIT) points out that the textile sector is the second largest employer in our manufacturing industry, second only to the food industry. Over the years the textile market has been responsible for the increase in the Brazilian Gross Domestic Product (GDP), elevating Brazil to the ranking of sixth largest textile producer in the world, representing 3.5% of our total GDP1.
Another important fact that fostered the growth and vertical integration of the fashion industry was the liberation of international trade in textiles and clothing, which contributed to the development of new business models such as, for example, e-commerce and its variations, each day more present in the consumer’s journey, notably from 2020 onwards, due to the state of pandemic and social isolation decreed due to Covid-19.
Another interesting point is that Brazil is one of the few countries in the world to have a complete and complex textile chain. In other words, in addition to producing natural (such as cotton, linen, wool and silk) and chemical fibres (such as viscose, modal, elastane and polyester), we also produce clothing – form spinning the raw material, to weaving, knitting and the beneficiation process, until reaching the final consumer.
It is worth mentioning that, in 2019, Brazil accounted for 2.4% of the global textile production and 2.6% of the global clothing production. Such numbers lead us to being the only South American country with prominence in the textile sector2. Furthermore, according to general data from the sector, in 2022 our textile and clothing chain revenue reached as much as BRL 193 billion, which corresponds to an average textile production of 2.1 million tons3.
The country is also the fourth largest knitwear producer in the world and is among the five largest global denim producers and consumers, also being a global reference in beachwear, jeanswear and home wear design, having grown in the fitness and lingerie segments as well4.
1FONSECA, Ana Flávia da. Por que o mercado de design de moda é promissor no Brasil? UNIPE – Centro Universitário de João Pessoa, 09 set. 2015. Disponível em: <http://blog.unipe.br/graduacao/design-de-moda-no-brasil-mercado-promissor>. Acesso em: 08 nov. 2017.
2FEBRATEX. Cadeia têxtil: entenda as oportunidades deste segmento de acordo com a ABIT. Disponível em: <https://fcem.com.br/noticias/cadeia-textil-entenda-as-oportunidades-deste-segmento-de-acordo-com-a-abit/>. Acesso em: 09.nov.2019.
3Dados gerais do setor referentes a 2022 – atualizados em janeiro de 2024 pela ABIT. Disponível em: < https://www.abit.org.br/cont/perfil-do-setor >. Acesso em: 31.jul.2024.
4Idem.
The fashion industry generates thousands of jobs annually. In 2023, the industry provided 1.33 million formal jobs and eight million indirect job posts, 60% of which were occupied by women. According to IEMI – Market Intelligence, in 2023 the sector comprised 24.3 thousand formal production units5.
That notwithstanding, while there may be reasons to celebrate due to the growing representation of this market on the one hand, it is an industry that is still very much prone to informality on the other hand. Therefore, despite the glamorous image, there is also a rather dark side to the fashion industry that requires maximum attention, both from the entrepreneur in charge of the business and from the lawyer providing counsel, who must be prepared to deal with the diverse and complex legal issues involved.
The inception of the law/fashion relationship dates to the year 2000, in France and Italy6. Initial discussion about the need for a sharper and more critical look on the part of the legal community towards the world of fashion, however, began in the USA with Professor Susan Scafidi. Her first initiative related to the world of fashion and law was in 2005, with the creation of a blog called Counterfeit Chic7.
Subsequently, with the purpose of studying and debating issues surrounding the fashion industry and, above all, with the intention of changing US legislation with a view to providing protection to fashion creations (since in that country textile and clothing designs are considered utilitarian, and as such, are not subject to protection either by copyright or by the industrial protection regime), the American professor, in addition to creating a discipline at Fordham University (NY) calling it Fashion Law, also founded the Fashion Law Institute8, a non-profit organization based at Fordham University, the first centre in the world dedicated to fashion law and business.
Currently, several countries and educational institutions are dedicated to supporting and obtaining the best results for companies in the fashion industry, to address issues that are sensitive thereto. In Brazil, the fashion industry is almost two hundred years old and, according to a report by Folha de São Paulo, in 2019 the country had more than fifty fashion colleges spread across 11 Brazilian States.
In Brazil, initial studies on fashion and law began between 2011 and 2012. The first Brazilian institute focused on fashion and law businesses – Fashion Business and Law (FBLI)9 was established in 2012. Years later, in 2017, the first Brazilian postgraduate course in Fashion Law was launched at Faculdade Santa Marcelina, internationally recognized as one of the best colleges dedicated to teaching the subject. In this sense, it is noteworthy that several subsections of the Brazilian Bar Association (OAB) created study commissions to discuss Fashion Lawc. In 2019, the renowned São Paulo Lawyers’ Institute (IASP) organized a Fashion Law study committee, aimed at promoting courses, seminars and opinions involving legal issues in the segment.
Like other countries, Brazil does not have specific laws dealing exclusively with Fashion Law. At this point, in fact, there is a myriad of questions surrounding the topic. One wonders, for example, whether Fashion Law should not be an autonomous law discipline due, among others, to the complexity and economic strength of the industry.
However, even though Brazilian law does not provide for express protections for fashion artifacts (as is the case in France, where such creations find shelter in the French Intellectual Property Code), fashion world creations are indeed protected in the Brazilian legal system by two basic pieces of legislation, depending on the object intended to be supported: (i) Federal Law No. 9,279, of May 14, 1996, which regulates industrial-property-related rights and obligations; and/or (ii) Federal Law No. 9,610, of February 19, 1998, which regulates copyright and related rights.
5https://www.abit.org.br/cont/perfil-do-setor
6SOUZA, Regina Cirino Alves Ferreira de. Aspectos Jurídicos do Fashion Law. Jornal Carta Forense, 02 mai. 2018. Disponível em: <http://www.cartaforense.com.br/conteudo/entrevistas/aspectos-juridicos-do-fashion-law/18184>. Acesso em: 26 jun. 2020.
7http://intro.counterfeitchic.com/
8https://fashionlawinstitute.com/about
9https://www.linkedin.com/company/fashion-business-and-law-institute
As an example, in order to obtain exclusivity over the distinctive signs that identify their services or products, entrepreneurs are advised to register such signs as trademarks to enjoy legal protection and thus prevent third parties’ misuse. And it is not only that. As we know, a registered trademark may become one of a company’s greatest assets, as it adds value to its products and services and conveys credibility to the market and the consumer public, indicating origin and quality and providing the company with a competitive advantage vis-à-vis its competitors. Furthermore, registered trademarks allow consumers to differentiate between equivalent products or services, confer exclusive property rights on their holders and allow holders to license their rights to third parties, or even expand their businesses through a franchise network, thus generating significant additional revenue.
Thus, to protect the brand of their fashion companies in Brazil, entrepreneurs must deposit their trademarks with the National Institute of Industrial Property – INPI (similar, for example, to the US Patent and Trademark Office – USPTO) and wait for the processing of approval or rejection, as the case may be. Once trademarks are granted, registrations shall remain in force for 10 years from the date of granting, extendable for equal and successive 10-year periods provided that the relevant decennial fee is paid. Currently, it takes the INPI an average of 2 years to process a trademark registration request.
Over time, in addition to providing protection to designers’ creations, there was a need for Law to pay attention to other issues emerging from this industry: (i) environmental problems, such as incorrect disposal of textile waste; (ii) labour problems concerning the undue exploitation of labour relations, regretfully even in conditions analogous to slavery; (iii) tax issues, given the high tax burden prevailing in Brazil; (iv) criminal problems arising from plagiarism and counterfeiting, among other crimes; (v) contractual issues resulting from the diversity of instruments involved and, therefore, the need to review the entire set of obligations in which the various themes relating to fashion creations are included, in addition to consumerist and advertising and marketing issues, among others.
In this scenario, Fashion Law may be said to be inter and multidisciplinary, meaning that it “pays court to” and ends up involving the most diverse legal segments of Law: intellectual and industrial property, corporate, international, labour, tax, environmental, criminal, digital, competition and contractual law.
As it specifically concerns contractual law, contracts are essential to the fashion industry because, as mentioned above, in a segment surrounded by informality and, often, without a clearly- and objectively-defined business plan, a well-structured contract in harmony with other contracts involved in the same transaction, is fundamental to mitigate risks and avoid future conflicts.
Among the wide range of contracts already consolidated in Fashion Law transactions, as well as those that are designed every day as a result of new relationships that constantly emerge in this dynamic industry, one may highlight the following:
- Service Contracts with Personal Stylists, for Fashion Consultancy, with designers, with digital influencers, models, photographers etc.;
- Manufacturing Made-To-Order or Tolling Contracts;
- Agency or Commercial Representation Contracts;
- Sponsorship Contracts;
- Non-disclosure Agreements;
- Image Use Licensing Agreements;
- Agreements for the Import and Export of Goods;
- Corporate Transaction Agreements (Mergers & Acquisitions);
- Space Rental Agreements for Events, such as fashion shows;
- Rental Agreements in shopping malls;
- Technology Transfer Agreements;
- Trademarks, Patents and Industrial Design Licensing and Assignment Agreements;
- Franchise Agreements etc.
Each of such contractual types has its specificities. In general, however, the main elements that must be contemplated in drafting a fashion-related contract are: (a) the parties; (b) the recitals that provide the business context; (c) the purpose of the contract; (d) the various obligations of each party; (e) remuneration conditions; (f) possible limitations on territoriality, exclusivity and pre-emptive rights; (g) provisions concerning the ownership of intellectual property; (h) penalties for non-compliance with agreed conditions or for compliance in a manner different from that in which such conditions were agreed; (i) means to terminate the contract and events of contractual termination; (j) confidentiality obligations; (k) anti-corruption conduct – compliance; (l) social responsibility (application of environmental sustainability and social responsibility standards); (m) provisions dealing with exceptional situations such as, for example, hardship in case of international contracts; (n) dispute resolution mechanisms – election of a judicial court or arbitration; and (o) applicable legislation in cases involving parties based in different countries.
Both the lists of contracts and contractual provisions mentioned above are not exhaustive. Each negotiation must be very well thought out and planned, and make use of appropriate instruments, with clearly written and interrelated provision, in order to take into account all peculiarities and needs of the business, faithfully translating the real intention of the contracting parties.
In this scenario, it is worth highlighting that one of the business models that grows every year is the franchise system. Brazil may be said to be a mature market as concerns franchising, especially in the fashion industry. Federal Law No. 13,966, of December 26, 2019, which regulates the business franchise system, prioritizes the principle of transparency, thus providing greater attractiveness to investors and entrepreneurs interested in such business model. In view of that, many fashion entrepreneurs looking to expand their operations, whether in Brazil or abroad, opt for the franchising system, the attractiveness of which lies largely in the fact that it is a business served to the franchisee as a “prét-à-porter” product that eliminates concerns about development and formatting for the start of activities, thus enhancing the venture’s chances of success.
According to the Brazilian Franchising Association (ABF), the industry’s revenue for the fourth quarter of 2023 showed a growth of 14.2% as compared to the same period in 2022. This means that the numbers portray that the sector, in addition to recovering from the pandemic period, also shows clear signs of growth. Projections for 2024 are a 10% growth in revenues, 5% growth in existing networks and approximately 5.5% growth in the number of jobs offered10.
It is noteworthy that, of the fifty largest franchise chains in the country (in number of brands), 16% focus on fashion, clothing and the health, beauty, and wellness segments11, with lower investment models growing at breakneck speed, with emphasis on virtual and home-based operations12. As regards foreign brands operating in Brazil in 2020 – the latest data made available by ABF – there were 205 brands from thirty countries, with health, beauty and wellness ranking second, while fashion ranked third, with twenty-eight brands.
Also noteworthy in the performance survey was the number of new operations, which reached a growth of 17.3% in 2023, against 14.9% in 2022. Along those lines, franchising broke a record number of jobs, with each operation having generated, on average, nine direct jobs thus leading to 1,701,726 new jobs in the country.
Therefore, it is essential for both businessmen and the legal professionals, who are at the forefront of the fashion industry, to adequately understand the demands and reality of fashion companies, so that they can always seek to outline the best strategy, in order to preserve the reputation of brands and mitigate problems, risks and potential contingencies peculiar to this market.
10https://www.abf.com.br/wp-content/uploads/2024/02/Apresentacao_Desempenho_Franchising_2023_Final.pdf
11https://www.abf.com.br/wp-content/uploads/2024/02/Apresentacao_Desempenho_Franchising_2023_Final.pdf
12https://www.abf.com.br/estudo-abf-retrata-50-maiores/
Author: Daniela Favaretto, partner in the Fashion Law area, with emphasis on contracts, and Nathalie Ciriadès Chiarottino, founding partner, specialized in contracts, of Chiarottino e Nicoletti Advogados.
Chiarottino e Nicoletti Advogados
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