FL_Module_3

MODULE 3: FASHION NEGOTIATIONS

LICENSING, ASSIGNMENTS AND FRANCHISE AGREEMENTS

Licensing Agreements
Licensing Agreement is a written contract between the owner of a brand,
copyright, trademark or patent also known as the licensor and the licensee who
wants to use, make or sell the goods or services of the owner in exchange of a fee
or royalty1. The agreement defines the scope of intellectual property being licensed
along with the guidelines which will govern the stipulated use2.

Licensing in Fashion Law is referred to as Trademark Licensing meaning thereby,
the grant of right in property to the licensee without transferring the ownership in
the property3. It is a kind of leasing of the right with respect to the Intellectual
property. Licensing agreements are entered into by brand owners in order to enter
new markets both in terms of product markets and geographical markets. The most
common licensing agreements entered into in the Fashion Industry are with respect
to Trade marks where the owner/licensor, licenses the right to produce goods to the
manufacturer/licensee4. Licensing in most cases enables a Brand to acquire a larger
customer base and increase its revenue. Example – Brands like Michael Kors,
Chanel, Prada, Burberry have authorised Luxottica to manufacture and distribute
eyewear under the respective brand’s trademark. Calvin Klein Inc have licensed
the designer’s name to manufacturers of jeans, perfumes etc5.

1 http://www.businessdictionary.com/definition/licensing-agreement.html
2 https://www.investopedia.com/terms/l/licensing-agreement.asp
3 http://www.thefashionlaw.com/learn/licensing
4 http://www.fashionlaw.co.uk/cms/document/Brand_licensing.pdf
5 Ibid 3

Licensing Agreements can be of the following types:
1. Exclusive License – the licensee is the only one who can make use of the
Intellectual property excluding even the licensor for the length of the
agreement.
2. Non Exclusive License – licensee does not enjoy exclusive right of use
under the license, the licensor can grant the same to others as well. These
constitute the most common kind of licenses.
3. Sole Licence – the licensee gets the right to use the intellectual property all
by himself with the sole exception being the licensor who also retains the
right to use the same. It is similar to exclusive license6.

Licensor can either grant a single license covering a whole range of activities like
manufacturing, distributing, promoting, retailing or separate licenses can be
granted for each of the activities to different licensees.

A trademark license should also include a quality and usage control provision
because a successful licensing can increase the value of a brand, whereas an
unregulated use can damage the brand image. The agreement should also reserve
the right of the licensor to terminate the agreement in case of a material breach and
also protect the licensee from any arbitrary action on the part of the licensor7.

Assignment Agreement

6 https://www.upcounsel.com/licensing-agreement
7 Ibid 4

It is a contract where the contractual rights are assigned by one party to the other. It
is a complete transfer of rights in order to enable the assignee to be able to receive
the benefits which arise under a contract8. Assignment agreements are also called
Contract Assignment because they allow the assignment of contractual rights and
responsibilities to another party. Such contracts are subject to the terms contained
in the original contract. Where the original contract forbids the assignment of
rights and duties, an assignment agreement in such a case will not be valid.
Example of this agreement is where a Contractor assigns tasks and entitlements to
a sub contractor in order to get help in completing the job.

An Assignment Agreement contains information like the names of the assignor and
the assignee, other party to the original contract, name of the contract, its
expiration date, whether the original contract requires obligors consent prior to
assigning rights, if yes then when was such a consent acquired, when will the
agreement come into effect etc9.

Franchise Agreement

‘A legal contract in which a well established business consents to provide its
brand, operational model and required support to another party to set up and run a
similar business in exchange for a fee and some share of the income generalised.
The franchise agreement lays out the details of what duties each party needs to
perform and what compensation they expect10’.

8 https://definitions.uslegal.com/a/assignment-agreement/
9 https://www.rocketlawyer.com/document/assignment-agreement.rl#/
10 http://www.businessdictionary.com/definition/franchise-agreement.html

Therefore, Franchise Agreements are legally binding agreements which set out the
obligations of the franchisor and the franchisee. It is a kind of license and is
governed by the terms of a contract. It ensures that the intellectual property of the
franchisor is protected and he can evolve his brand and the consumer offering with
time. Franchise Agreements are usually of 10 years11. These agreements are not
uniform and the format differs in each case. However, they contain certain
standard covenants describing promises, rights and duties between franchisor and
franchisee12.

These agreements are lengthy, complex, adhesive and hence they are not readily
subject to change. A lot of thinking and planning goes into these agreements and
hence the franchisor in consultation with Franchise consultants should first develop
a business plan and a franchise offering and then have a lawyer draft the agreement
of franchise.

These agreements govern the continuous and sustainable growth of what a
company stands for and hence, should imbibe some features of flexibility for both
the franchisor and the franchisee. The franchisor should be allowed to modify the
agreement in accordance with the requirement of the situation, at the same time,
even the franchisee should be allowed the freedom to manage his day to day
business as long as it is done in accordance to meet the brand standards13.

MANUFACTURER, VENDOR, SUPPLIER AND DISTRIBUTION
AGREEMENTS

11 https://www.thebalancesmb.com/franchise-agreement-1350570
12 https://www.entrepreneur.com/article/286680
13 Ibid 11

Manufacturer Agreements

Manufacturer Agreements are contracts between a company or a designer who has
developed something like an article, accessory, clothing or footwear and the
manufacturer. Such an agreement includes details pertaining to quantity, payments,
delivery dates, ownership of Intellectual Property, liability of parties etc14.

Vendor Agreement

Vendor Agreements are entered into in order to govern a variety of areas like
software, marketing, consultants etc15. Under these agreements, the vendor
provides goods and services in exchange of a consideration or remuneration. A
Vendor Agreement provides for the details of the work the vendor has to complete,
quality of the goods he has to supply or services he has to provide, length of the
contract, terms of payment, provisions related to indemnity in case of any losses
which may arise during the course of contract owing to the vendor’s negligence
etc16.

When such agreements involve Intellectual Property as in the case of Fashion
negotiations, the agreement should clearly mention who the owner of the
Intellectual property is, what use will the property be put to, whether a license in
respect of it has been granted to a third party and what terms govern such a grant of
license.

14 https://contracts.onecle.com/type/47.shtml
15 https://www.upcounsel.com/blog/everything-need-know-vendor-agreements
16 https://www.upcounsel.com/standard-vendor-agreement

Therefore, Vendor Agreements contain the terms and conditions which regulate the
goods and services to be supplied by the vendor in detail. A clearly contemplated
and drafted agreement defines the expectations out of such an agreement and
reduces the risk of confusion and conflict. They also include a statement as to the
system of payments to be paid to the vendor17. The customer can make the
payment in a single instalment or as running payment also called as progressive
payments, paid weekly or as and when the vendor submits the invoices. Lastly,
these agreements should be drawn according to the specific requirement of the
customer and the independent contractor so that the risk of a financial or legal
conflict is reduced18.

Supplier Agreement

‘A Supplier Agreement is an agreement between a supplier and a buyer for the
supply and purchase of products. The supplier provides the products and the buyer
purchases these products for business purposes according to the terms agreed upon
under the Supplier Agreement. A supplier may be a distributor, wholesaler,
dealership or a merchant. The agreement specifies the terms regarding the rights
and obligations of parties’19.

Therefore, Supplier Contracts are entered into between a business and an outside
supplier for the delivery of specific goods and services. These contracts access the
performance of a supplier in terms of the fulfilment of responsibilities within the

17 Ibid 15
18 Ibid 16
19 https://definitions.uslegal.com/s/supplier-agreement/

agreed timeframe and alike. These contracts are usually entered into in between
businesses and make it easier to manage the suppliers and the goods and services
provided by them20.

Distribution Agreement

Distribution Agreements are legal contracts entered into between the supplier of
goods and the distributor of goods. The supplier in such contracts may be the
manufacturer or a distributor who is reselling someone else’s goods21. Therefore,
these contracts can also be between two distributors. A basic distribution
agreement includes the terms and conditions of sale, marketing rights, trademark
licensing, duration of the contract, geographical territory covered, performance,
circumstances for termination of contract etc, given either in the body of the
agreement or annexed to the agreement. Distribution Agreements are of two types:

1. Exclusive Distribution Agreement
2. Non Exclusive Distribution Agreement

Exclusive Distribution Agreement

In this agreement the supplier gives the distributor exclusive control with respect to
a territorial area or a product line or a sales channel. In other words, an individual
distributor is made the exclusive distributor to the right of being able to sell a
product within a single or multiple areas.

20 http://www.method123.com/supplier-contract.php
21 https://seqlegal.com/legal-services/distribution-agreement

Non-Exclusive Distribution Agreement

In these agreements, the vendor or the manufacturer supplies to other distributors
as well.

While entering into a distribution agreement, the manufacturer or the vendor as the
case may be, can also decide upon the distribution strategy they intend to adopt. A
selective strategy comprises of a handpicking a small distribution group that covers
the target market, whereas, in an intensive strategy the product in placed in front of
maximum number for prospective buyers through extensive distribution22.

AGREEMENTS RELATING TO MODELLING, CELEBRITY
ENDORSEMENTS, ADVERTISEMENT AND MARKETING

Modelling Agreements
Modelling Agreements are contracts entered into between a model and an agency
where each modelling agency is unique and provides for its own rules, regulations
and guidelines in the agreement.

Modelling Agreements are of the following types:
1. Mother Agency Contracts
Mother agency or mother agent is the first agency a model starts to work
with. They help the models to build their portfolio and guide them to achieve

22 https://searchitchannel.techtarget.com/definition/distributor-agreement

success in their career. These agencies are usually local modelling agencies
and promote the models in the larger markets.
2. Non Exclusive Contracts
These contracts give the models liberty to sign with as many agencies as
they want and even work their side jobs. Commercial models usually enter
into these contracts. The modelling agency under these contracts works on a
commission basis based on per-project.
3. Exclusive Contracts
By entering into Exclusive contracts with an agency, the model can be
represented only by that agency for the duration of the contract. The term
‘exclusive’ may also be limited to time, geography, type of modelling etc.
Wide powers are exercised by modelling agencies under these agreements.
4. One Time Only Contracts
These contracts are entered into for single bookings and end upon the
completion of the project. Advice from an agency is always preferred before
a model enters into these contracts23.

Models usually work as Independent Contractors who are responsible for the
payment of their own taxes and health expenses. Irrespective of the kind of
contract, all modelling contracts include the following provisions like the division
of the model’s earning between the model and the agency, term of the contract
which is usually 1-3 years long, how the model behaves and maintains her
measurements for the length of the contract, the contract should also explicitly
mention that taxes and other expenses will be the responsibility of the model24.

23 https://www.thebalancecareers.com/how-to-understand-modeling-contracts-part-2-of-2-2379402
24 https://www.modelscouts.com/blog/modeling-agency-contracts-models/

Agreements relating to Celebrity Endorsements

Celebrity Endorsement is a famous method by which brands promote their
business and gain mass reputation. Such an arrangement whereby a celebrity is
engaged by a brand for its promotion involves many legal and commercial issues
which the brand owner has to duly take into account. The same is addressed by
entering into an Endorsement Agreement with the chosen celebrity so that the
brand owner’s investment in the form of payment to the celebrity for endorsement
is protected and at the same time the celebrity is also safeguarded25. In a celebrity
agreement the company/brand uses the name, reputation and fan base of a celebrity
in order to promote its goods and services and the celebrity in return gets a fee26.

Brand owners pay large sums of money to celebrities under Celebrity Endorsement
agreements and in return ensure that the celebrity will not associate himself with a
competitive product during the life of the agreement. Example – Charlize Theron
entered into a Celebrity Endorsement agreement with Swiss matchmaker Raymond
Weil and during the course of the agreement was spotted in several high profile
events wearing Dior watch which constituted a breach of contract.

In the present age of digital media, a celebrity’s image can easily be tarnished and
will resultantly affect the brand image of the product the celebrity endorses. In
such a scenario, the brand owner should be able to protect his brand by terminating

25 https://www.covbrands.com/2013/11/01/key-terms-for-celebrity-endorsement-contracts/
26 https://www.rocketlawyer.com/document/endorsement-agreement.rl#/

the contract with the celebrity. The surrounding circumstances for such a
termination should be explicitly provided for in the contract. Example – H&M’s
agreement with Kate Moss, H&M was involved in drug prevention work and
terminated their contract with Kate Moss when photographs of her snorting
cocaine were published.

A Celebrity Endorsement Agreement also stipulates for the trademark and the
intellectual property rights sought to be protected. It also covers the right of the
brand owner with respect to the celebrity’s image and its use in association with
the products of the brand in various advertising campaigns. The celebrity in return
retains control over the use of his name and images. In order to prevent any
disputes or hardships, the detail for the same should be clearly spelled out in the
contract.

Lastly, the present social media age has replaced the traditional television and print
media and celebrities today are being paid even on a per tweet basis by the brand
owners for their promotion. This requires due attention to be paid to consumer
laws and disclosure obligations by the brand owners27.

Marketing and Advertising Agreements

Marketing agreements are entered into by a company or a brand in order to do
advertising, public relations and promotions. Such relations are governed by
entering into Marketing and Public Relations agreements with a consultancy.
Marketing agreements take away the responsibility of promoting a brand from the

27 Ibid 25

owner of the business by engaging a marketing agency or consultant to take care of
marketing the business28. Therefore, these agreements are written contracts drawn
up by one party and agreed upon by all parties involved. It contains the details of
all the marketing work to be conducted by the agency or the consultancy and
clearly defines what all is included in the agreement. An exclusive right is given to
the marketing agency for promoting a specific product, within a particular territory
and over a specified period of time. These agreements usually extend from one to
two years with a clause of extension or termination, as well as the amount and the
mode of payment agreed to be paid. Marketing agreements can be:

1. General Marketing Contracts
2. Project Specific Marketing Contracts

Marketing contracts are not same for all businesses. They do not follow a set
structure even though many similar elements exist in a majority of agreements. A
Marketing Agreement clearly identifies the client and the consultant29. It also
includes the marketing services to be carried out under the contract along with the
number of deliverables agreed upon. The agreement also specifies that the client
will use no other marketing firm during the life of the ongoing agreement.

Where the marketing or the PR agency comes up with unique slogans, taglines or
promotion strategy in order to promote the business of the brand owner, these
agreements also stipulate for the same to become the exclusive property of the
brand owner as part of his Intellectual Property and prevent the agency from using
the same in promoting someone else’s products or business.

28 https://smallbusiness.chron.com/structure-marketing-agreements-42240.html
29 https://www.docsketch.com/contracts/marketing-agreement/

The success of an ad or campaign is usually difficult to determine and hence a
baseline is included in these agreements against which the productivity or success
of the campaign is evaluated. The expectations and details of the scope of the work
to be carried out by the consultancy are extensively discussed and provided for in
the contract and it acts as a record for what is decided in between the parties and
acts as a shield in case the agreement is dissolved prematurely30.

AGREEMENTS RELATING TO EMPLOYMENT, INDEPENDENT
CONTRACTORS, NON-DISCLOSURE OBLIGATIONS AND
CONFIDENTIALITY

Agreements relating to Employment

Employment contracts are entered into by business owners with designers or
directors in order to bring in new emerging talent or to change the business
strategy. High street brand owners attend various Graduate level Fashion Shows so
as to get their hands on fresh talent and enter into the contracts. Therefore, brands
should work out well thought over and comprehensive employment agreements so
that no ambiguities pertaining to the rights of the parties involved arises.

Employment Agreements should give due consideration that the particulars of
employment are included in it. The agreement should ensure that the business’s
intellectual property is adequately safeguarded and the business’s ownership over
its exclusive rights is secured. These agreements should also provide for the

30 Ibid 28

protection of confidential information of the business both during employment and
post termination. The essence is to include provisions in the agreement which
ensure the protection of intellectual property, retain key talent and keep sensitive
information of the company a secret.

For the smooth functioning of the business, an Employee Handbook should be
provided which minimises any chances of confusion. A well thought out and a well
drafted employment agreement regulates the relations between the employer and
the employee and avoids unnecessary expenditure on litigation and changes of
damage to the brand image31.

Employment agreements contain a non-compete clause which mostly forms a part
of the broad terms of the agreement, in some cases it also forms a part of a separate
agreement. Non-Compete clause prohibits an employee from competing with the
employer over a certain period of time, within a specific geographical area and in
the same field as that of the employer. This is done to protect the commercial
interest and Intellectual property of the employer. Example - dispute between
former chief creative officer and co-founder of Jimmy Choo, Tamara Mellon and
her former employer, Jimmy Choo32.

Independent Contractor Agreement

Independent Contractor Agreements are entered into by a firm while working with
creative consultants who create copyrightable work in order to address the issues

31 https://insider.utelier.com/toolkit/legal-corner/law-employment-contract/
32 http://www.fashionindustrylawblog.com/blog/2016/10/17/non-compete-clauses-in-employment-agreement

pertaining to ownership which may arise in due course33. Independent contractors
work as solo business owners and are usually referred to as consultants or
freelancers and mostly work on project basis34. An independent contractor
agreement is often confused with an Employment Agreement, the following points
help in determining the difference between the two- degree of supervision and
control over the worker, method of providing service, means and manner in which
the service is to be provided etc. However, these points cannot conclusively decide
whether an agreement is that of employment or of independent contractor.

Independent contractor enjoys more flexibility and independence and among others
have the liberty to choose his/her working hours, manner in which the work is to
be completed, clients etc, they sometime even enjoy exclusive ownership rights
over their goods and services. They also do not adhere to the policies traditional
employees have to follow35.

In order to safeguard the interest of both the parties to agreement, the agreement
should include a detailed overview of all the terms and conditions agreed upon.
The agreement should specifically provide details of the work to be performed, it
should outline the amount and the time of payment for the services rendered, the
agreement should explicitly mention the worker as an independent contractor, the
fact that the payments to the independent contractor does not include the payment
of their taxes, insurance coverage should also be expressly provided for along with
the clause that the agreement can be terminated with or without notice depending

33https://store.nolo.com/products/independent-contractor-agreement-for-creative-contractor-for-firm-noe3-
pr227.html

34 https://work.chron.com/7-items-should-independent-contractor-agreement-include-20626.html
35 http://www.thefashionlaw.com/learn/models-employees-or-independent-contractors

upon the already mentioned circumstances. Certain restrictive covenants like non
compete and non disclosure clause are also imposed on the independent contractor
in the agreement which restrict them from setting up a competitive business within
a certain area and certain time36.

Lastly, while independent contractor agreements make the person stand at a
different footing than the other employees, they also stand at a disadvantage by not
being entitled to employment related benefits and the absence of job security.

Non Disclosure Agreement

Non Disclosure Agreement is one of the most useful legal documents that
emerging designers and entrepreneurs enter into these days. These are basically
confidentiality agreements which protect a designer’s right with respect to an
invention, idea or design before it is shared with a company or another person i.e.
prior to entering into a possible business relationship. An NDA is entered into by a
designer during the preliminary stages of business negotiations. This agreement is
usually entered between a designer and:

1. Large retailer
2. Factory or Manufacturer
3. Consultants

All of whom have the knowledge of a designer’s ideas and help in either producing
them or publicizing them.

36 https://www.thebalancesmb.com/important-terms-in-an-independent-contractor-agreement-398613

An NDA includes information like the specific parties that are bound by the
agreement, definition of what constitutes confidential information, describing what
the agreeing party is not permitted to do.

Sometimes, a factory or a retailer might already be working on a similar idea as
that of the designer and in order to prevent a potential conflict, it may either
pushback an NDA or make the designer sign the company’s own legal document
before entering into a business relationship. This way even if the designer and the
retailer do not end up working together, the designer is prohibited from suing the
retailer in case he sells similar designs later, which is not an uncommon practice in
the fashion world37.

NDAs do not form a part of standard employment contracts. A Non Disclosure
Agreement maintains a business’s competitive advantage and proprietary
information and prevent the spread of information related to new concept, new
collection etc. Example – the launch of the Louis Vuitton collection in
collaboration with Jeff Koons in Fall/Winter 2017. The company made various
editors to sign away their ability to write about the collaboration because it had
granted Vogue the exclusive privilege to do so38.

Emerging designers or entrepreneurs should be familiar and careful regarding the
use of NDA agreements and should put them into as much use as possible39.

37 https://makersrow.com/blog/2015/12/what-to-know-about-non-disclosure-agreements/#
38 http://www.thefashionlaw.com/home/fashion-wants-creatives-to-just-keep-quiet
39 https://startupfashion.com/nondisclosure-agreements/