The scope of this chapter is to give entrepreneurs who intend to invest in Brazil a brief overview of this new market area – the Fashion Law. In fact, for a few years now, this field has gained more importance and penetration.
In this chapter, readers will find notes on how to protect fashion items, as well as the indication of some of the main contracts and clauses that apply to the fashion universe; noting that it is a complex market full of details, and that the intention of this chapter is to give highlights on some of its aspects.
The fashion industry has socioeconomic importance in several countries, becoming increasingly more representative worldwide. In addition to promoting the circulation of expressive amounts of money, and embracing several segments, such as the textile, footwear, accessories, luxury, jewelry, cosmetics and beauty sectors, among others, the fashion industry creates millions of jobs.
The Brazilian Textile and Garment Industry Association (Associação Brasileira da Indústria Têxtil e de Confecções – ABIT) points out that the garment sector is the second-largest processing industry employer, being second only to the food industry. This market has been responsible for increasing the Brazilian Gross Domestic Product (GDP) over the years, raising Brazil to the 6th place in the ranking of the world’s largest textile producers, representing 3,5% of the Brazilian Total Gross Domestic Product1.
Another important factor that fosters growth and vertical integration in this industry was the opening of foreign trade for textile and apparel goods, which has contributed to the development of new business models, such as e-commerce and its variations, every day more and more present in consumers’ daily life and became even stronger from 2020 onwards, as a result of the declaration of a state of pandemic and social isolation, due to covid-19.
Brazil being one of the few countries to have an entire and complex textile chain is another interesting fact. In other words, in addition to producing natural fibers (such as cotton, linen, wool and silk) and synthetic fibers (such as viscose, rayon, elastane and polyester), we also produce clothing; from spinning, weaving, knitting, and textile processing, until reaching consumers via e-commerce, retail stores, etc.
It is worth mentioning that in 2019 Brazil was responsible for 2,4% of the world’s textile production and 2,6% of the world’s clothing production. These numbers lead Brazil to being the only South-American country with prominent position in the textile industry2. According to general information of the industry, in 2021 the textile and apparel chain revenues reached R$ 190 billion in 2021, and the average textile production was 2.16 million tons in 2021 versus 1.91 million in 20203.
In addition, Brazil is the fourth largest knitwear in the world and is among the five largest denim producers and consumers worldwide, also being a world reference in beachwear, jeans wear and home wear design, also having grown in the fitness and lingerie segments4.
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. Available at: <http://blog.unipe.br/graduacao/design-de-moda-no-brasil-mercado-promissor>. Accessed on: 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/>. Accessed on: 09.nov.2019.
3Dados gerais do setor referentes a 2021 – atualizados em janeiro de 2023. Available at: <https://www.abit.org.br/cont/perfil-do-setor>. Accessed on: 03.mar.2023.
It is an industry that employs thousands of jobs annually, making possible in 2022 1.34 million formal jobs and 8 million referring to indirect jobs, of which 60% are female labor. According to data from IEMI – Market Intelligence – in 2022 the number of companies in the sector was 22,500 formal productive units5.
However, while there are reasons for celebration, due to the beauty and representativeness of this market, it can be said that it is an industry with many filigree that grows through informality, and, therefore, besides the glamourous image, it also has a very dark side, that calls for attentive and smart eyes from entrepreneurs who lead the business, and also from lawyers who must be prepared to uncover various and complex legal matters involved in this sector.
The first signs of the relation between law and fashion appeared in 2000, both in France and Italy6. However, the initial discussion regarding the need of a sharper and more critical eye on the part of the legal community towards the fashion universe began in the USA, with professor Susan Scafidi. Her first initiative regarding the fashion and law universe was in 2005, when she put up a blog called Counterfeit Chic7. Subsequently, with the purpose of studying and debating matters concerning this industry, especially with the intention of changing the US legislation in order to grant protection to fashion creations, given that in that country textile and apparel design are taken as useful goods, and as such not protectable by copyright or industrial protection laws, the US professor, in addition to setting up a school discipline in Fordham University (NY) called “Fashion Law”, also founded “The Fashion Law Institute”8, a non-profit organization headquartered at Fordham University, the first center in the world dedicated to law and fashion businesses.
Nowadays, several countries and educational institutions are dedicated to supporting and obtaining the best results for the companies of this sector, with the purpose of dealing with matters that are sensitive to the industry. The industry is almost 200 years old in the country and according to a report by Folha de São Paulo in 2019, the country had more than 50 fashion colleges distributed in 11 Brazilian states. In Brazil, initial studies on fashion and law began between 2011 and 2012. In 2012, the first Brazilian institute for fashion and law businesses – Fashion Business and Law (FBLI)9 was founded.
Some years later, in 2017, the first Brazilian Fashion Law post-graduation course was created by Faculdade Santa Marcelina, which is internationally recognized as one of the best fashion education colleges. In this sense, it is important to note that several subsections of the Brazilian Bar Association (OAB) established study commissions to discuss the matter. In 2019, the renowned São Paulo Lawyers’ Institute (IASP), established a Fashion Law study commission with the purpose of promoting courses, seminars and legal opinions regarding legal matters related to this segment.
Similarly to other legislations around the world, Brazil does not have specific laws dealing exclusively with fashion law. As a matter of fact, there are many issues in this regard surrounding this matter. It is debated, for instance, whether Fashion Law should be an autonomous academic law discipline in view of, among others, the complexity and economic strength of the sector.
However, even though Brazil does not expressly provide for protection of fashion artefacts in the Industrial Property Law, as is the case in France, which provides for protection of fashion creations in its Intellectual Property Code, it is possible to protect such assets under the Brazilian legal system, as described below.
6SOUZA, Regina Cirino Alves Ferreira de. Aspectos Jurídicos do Fashion Law. Jornal Carta Forense, 02 mai. 2018. Available at: <http://www.cartaforense.com.br/conteudo/entrevistas/aspectos-juridicos-do-fashion-law/18184>. Accessed on: 26 jun. 2020.
Thus, the entrepreneur who seeks to invest in Brazil, depending on the assets intended to be protected, may resort to Law No. 9,610 of 1998, which regulates copyright and connected rights, and/or to Law No. 9,279 of 1996, which regulates industrial property rights and obligations.
In addition, to have exclusivity on distinctive signs that identify products and services, registration is recommended in order to ensure legal protection and thus prevent third parties from undue use of its trademark. And that’s not all. The trademark may become one of the company’s greatest assets, adding value to products and services, transmitting credibility with the market and the consumer public, as it indicates origin and quality, thus allowing the company to have a competitive advantage over the competition. In addition, trademark registration enables consumers to differentiate similar products or services, grants exclusive property rights to the holder and enables the holder to license to other companies, generating revenue for his business, or even allows the entrepreneur to expand its business through a franchise network.
Thus, to protect his/her fashion company trademark in Brazil, the entrepreneur shall also register it, by way of the Industrial Property Law, with the Brazilian Institute of Industrial Property – INPI, which is an agency equivalent to The United States Patent and Trademark Office –USPTO and wait for approval or rejection, depending on the case. If the trademark is granted, the registration will be in force for a period of 10 years, counting from the date of grant, being extendable for equal and successive periods, provided that the fee is paid. Currently, the registration process takes an average of 2 years.
As time went by, besides the need to protect designers’ creations, it was also necessary that Law dedicate attention to other problems arising from this industry: environmental issues such as the improper disposal of textile wastes; labor problems due to exploitation of workers, including cases of slavery; tax matters given the high tax burden; criminal problems arising from plagiarism and counterfeiting, among others; contractual issues, as a consequence of the multiple number of contractual instruments involved and, therefore, the need to analyze the entire set of contractual documents; as well as consumer matters, marketing and advertising issues, among others.
Therefore, we may affirm that Fashion Law is inter and multidisciplinary, meaning that Fashion Law “flirts” with and ends up involving a broad range of legal fields: intellectual and industrial property, corporate, international, labor, tax, environmental, criminal, digital, competition and contractual law.
Specifically with respect to contractual law, contracts arise as an important element in the fashion sector, since, as mentioned above, in a market surrounded by informality and often without a clear and objective business plan, a well-drafted contract which harmonizes with other contracts in the same business is an effective instrument to mitigate risks and avoid future conflicts that often arise from a mismanaged business relationship.
We have a wide range of existing contracts and others are created every day, led by new relations that arise from this dynamic industry. For instance, the following contracts may be highlighted: i) among Rendering of Services, we mention: a) Personal Stylist Agreements, b) Fashion Consulting, c) with designers; d) with digital influencers; e) with models; f) with photographers; ii) Manufacture-to-Order Agreements; iii) Tolling Agreements; iv) Commercial Representation or Intermediation Agreements; v) Sponsorship Agreements; vi) Confidentiality Agreements; vii) Image Licensing Agreements; viii) Import and Export Agreements; ix) M&A Agreements; x) Space Lease Agreements, for events such as fashion shows; xi) Shopping Mall Lease Agreements; xii) Technology Transfer Agreements; xiii) Trademarks, Patents and Industrial Design License or Assignment Agreements; xiv) Franchise Agreements, etc.
Each of such agreements have peculiarities; however, in general, the main issues that should be highlighted when drafting a fashion agreement are: a) parties; b) recitals; c) purpose; d) obligations of parties; e) remuneration; f) territory, exclusivity and preference; g) intellectual property; h) penalties for breach or wrongful fulfilment of obligations; i) circumstances for termination or rescission; j) confidentiality; k) anti-corruption – compliance; l) social responsibility (application of rules in accordance with sustainability, against forced labor etc.); m) protection clauses, such as hardship provisions – for international agreements; n) dispute resolution – choice of court or arbitration.
Both of the above mentioned lists of agreements and clauses are not exhaustive. Each negotiation has to be very well-thought and planned, using the proper instruments, containing well-drafted and interrelated clauses, so as to cover all peculiarities and needs regarding the business, faithfully reflecting the real intention of the contracting parties.
In this scenario, it is worth mentioning that one of the business models that grows every year is the franchise system. We can say that Brazil is a mature market regarding this model, especially in the fashion area, with Law No. 13,699/19 regulating this niche, which brought more legal certainty to the parties and brings transparency as a corollary, which attracts more investors and entrepreneurs10. Thus, many entrepreneurs in the fashion industry, who seek to expand, either in Brazilian territory or in international trade, opt for franchising. It can be said that the attraction of the franchise system is the fact that the business is completely ready, having no concern on the part of the franchisee in developing or formatting the business to start activities, bringing a little more security in relation to the success of the business11.
According to data from the Brazilian Franchising Association (ABF), the sector’s revenue for the fourth quarter of 2022 showed a growth of 12.6% when compared to the last quarter of 2021, demonstrating the best performance in the last 3 years, which means to say that the numbers portray that the sector, in addition to recovering from the period experienced by the pandemic, also clearly shows signs of growth. The projections for 2023 are: growth of 9.5 to 12% in revenue; that networks obtain a growth of 4%; and generate around 10% growth in the employment sector12.
It should be noted that, of the 50 largest franchise chains in the country (in number of units), 14% are focused on fashion and clothing13. It is worth mentioning that the lower investment models have been growing at breakneck speed, with emphasis on virtual and home-based operations14. In relation to foreign brands operating in Brazil in 2020, the latest data provided by the ABF, totaled 205 brands from 30 countries, with health, beauty and well-being occupying 2nd place and fashion 3rd place with 28 brands.
Hence, it is essential that both the entrepreneur and the law professional lead the industry, learning well the demands and the reality of fashion businesses, so they can define the best strategy in order to preserve the reputation of trademarks and to mitigate problems, risks and contingencies that emerge from this market.
Finally, because of more and more attentive and demanding eyes of consumers, concerned with ethical, environmental, moral and transparency matters, a new approach regarding this industry is needed. New business models and opportunities are envisioned, with the need of a multidisciplinary legal work.
10FAVARETTO, Daniela. Contratos da Moda. Franquia e Licenciamento de marca. Editorial Casa, 2022, pg.106.
11FAVARETTO, Daniela. Contratos da Moda. Franquia e Licenciamento de marca. Editorial Casa, 2022, pg.108/109.
13FAVARETTO, Daniela. Contratos da Moda. Franquia e Licenciamento de marca. Editorial Casa, 2022, pg.18.
Author: Daniela Favaretto, sócia da área de Fashion Law, com ênfase em contratos, de Chiarottino e Nicoletti Advogados
Chiarottino e Nicoletti Advogados
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BR-04543-000 São Paulo – SP
Phone: +55 (11) 2163 8989