When Donna Karan International went public in 1996 — opening with much fanfare at $24 per share — many eager buyers failed to realise the implications of an important clause in the company's prospectus. The label’s trademarks, typically the most valuable asset for a fashion brand, were owned completely and separately by Karan and her husband, Stephan Weiss — and not by the entity that had just gone public. The couple earned royalties from a range of licensing agreements. And in the 1990s, as the brand struggled and its stock price plummeted, Karan and Weiss kept raking in millions. In 1999, Gabrielle Studio, the company controlled by the couple, made $25 million in royalties, while DKI made only $10 million in profit.
The unusual arrangement ended in 2000, when Karan and Weiss agreed to sell the trademarks to LVMH for over $400 million, as the luxury conglomerate made a parallel (and smaller) offer for the operating company. (Karan has since left her namesake brand, which LVMH sold in 2016, trademarks and all, to the G-III apparel group for $650 million).
Karan has described selling the rights to her name as a highly emotional decision, as it is for many designers who have to contend with the fact if they want partners to grow their business, they will likely lose control over their trademarks, often rooted in their very own name.
Consider the cases of both Roland Mouret and Jil Sander, who have both walked away from their namesake brands after disagreements with owners. Mouret later reacquired the rights to his name and Sander eventually returned to her namesake brand — twice — before leaving again in 2013. Then, there's Kate Spade, who along with her husband Andy Spade, stepped down from her namesake in 2007 to pursue other projects. Before launching a new line, Francis Valentine, in 2016, she changed her name to Kate Valentine to distinguish the two businesses.
When a designer’s name is core to the power of their brands — as is so often the case in a fashion industry where the myth of individual creative genius and cults of personality still hold tremendous sway — the legal implications of a sale or investment can be complex. So, what is the smartest way to structure such agreements? And what are the implications for designers if they do decide to one day leave — or are terminated?
Staking a Claim
From the designer’s perspective, there are two fundamental points to address. First, while there are many compelling reasons to label a fashion business with one’s name — including the branding power of the industry’s creator cults and the potential to build a label that lives on for generations, in the tradition of legends like Ralph Lauren and Yves Saint Laurent — founders could certainly save themselves some legal headaches if they do not name their brands after themselves. “It becomes much more difficult when it is wrapped up in family legacy, a personal name,” said Douglas Hand, a founder partner at Hand Baldachin Amburgey LLP, which represents companies such as 3.1 Phillip Lim, Rodarte and Anna Sui.
Second, regardless of whether a designer chooses his or her own name, the earlier the trademark is registered in every relevant category and country — and categories and countries that might be relevant in the future — the better for buttoning up control if and when a buyer enters the picture. “Whoever actually registers the trademark is the owner of the trademark,” said Gail Zauder, founder of Elixir Advisors, a financial advisory firm specialising the luxury goods, beauty and retail and apparel sectors that has represented Donna Karan, Joseph Altuzarra and Narciso Rodriguez.
Selling the Mark
In the current market, once a brand reaches the point where it decides to seek an investor or buyer and enter a new stage in the business, designers must realise that arrangements like the one Karan had — where she owned her trademark and intellectual property separate from the operating business — are no longer a likely reality.
“The fact of the matter is: the company has to have an irrevocable right to the trademark, otherwise no one will invest in it,” said Zauder. “You want to give an investor certainty about the fact that there is a business here. When you are a designer brand with a name on the brand, the real asset is the trademark.”
When you are a designer brand with a name on the brand, the real asset is the trademark.
"Buyers want to make sure they have all the IP relating to the business, as they see it as the core asset of the business they are investing in," said Ariel Ohana, co-founder of investment bank Ohana & Co, which has advised Thakoon, Charlotte Olympia and J. Mendel on sales.
If for whatever reason, voluntary or otherwise, a designer leaves his or her namesake company in the future after a sale, they will likely be unable to use their name, or any derivatives of their name, to conduct business ever again.
Menswear designer Joseph Abboud had a long, public disagreement with his former partner JA Apparel and its parent company in the 2000s after selling his trademark to the business for $65 million in 2000. Abboud said at the time that he thought the agreement secured his creative control of the label as chief creative officer, but it was not stated in the contract. JA Apparel wanted him to continue to consult and promote the brand in personal appearances. JA Apparel and Abboud took their disagreement to court after the designer left to start a new line, Jaz. The judge ultimately ruled in 2010 that Abboud was free to use his name in connection to Jaz — not as a trademark on labels or packaging, but as a description of the brand. Abboud reunited with his name in 2013 when Tailored Brands — formerly Men's Wearhouse, which by then had hired Abboud — acquired the business for $97.5 million.
Publicity Rights and Carve-Outs
There are many ways designers can think about protecting themselves in the present and future as they cede control of their names, and avoid the kind of ongoing litigation in which Abboud found himself embroiled.
In an era when designers are often celebrities themselves, the right of publicity, or the right that an individual has to use their name, image, likeness or identity for commercial purposes, is important to consider and negotiate. Perhaps a designer wants to appear as a judge on a reality television show, or write and direct a feature film. “The world has become very different now,” said Zauder. “You can’t be so restrictive of the use of someone’s persona rights.”
Typically, a designer agrees that the namesake brand can use his or her name and likeness to promote the business. A designer could also ensure that he or she can use the name in certain non-competing categories, for example, to write a book or design furniture. In Michael Kors’ 2003 agreement with owner and billionaire textile mogul Silas Chou’s Sportswear Holdings, Kors agreed that the company had exclusive rights to his signature and likeness and that he “may use the name Michael Kors as his legal name only,” and for “activities that do not compete with any businesses” of the brand.
Those activities can be specifically outlined. “You can clearly carve things out at the beginning [of a negotiation] that you reserve for yourself,” said Zauder. “‘I want to do books, I want to do designs for the theatre, the movies, an educational website’… That’s where I really talk to the client.”
These carve-outs change in the case of a departure. How will the brand’s right to a designer’s name and likeness change? If a designer becomes the creative director at another label, does he or she have the right to promote that label by bowing at the end of a runway show or appearing in a Vogue editorial? For example, John Galliano promotes Maison Margiela, where he is creative director, in interviews and appearances, while his namesake brand continues without him since he was dismissed in 2011. All of these points and more need to be considered and negotiated because they become much more complicated — albeit not impossible — to secure after a designer leaves the namesake company.
Karan’s agreement with LVMH allowed to her launch Urban Zen, and use her name and likeness to promote it while she still worked for the namesake brand. She couldn’t use her name on the actual labels, but she could use the phrase “philosophy of living by Donna Karan” because it was descriptive enough to not be a derivative of the trademark that no longer belonged to her.
Veto Rights and Creative Independence
A designer can also negotiate the ability to veto sales of the company for a set number of years after the initial sale, or have the right of first refusal or right of first offer to match a sale before it occurs. Future buyers might not have the same priorities or strategy for the company that the initial buyer did, so being able to block those transactions is extremely valuable — and rare.
Designers can also negotiate for creative independence, which means they can not only have control over what types of products bear their name in the market, but they can also block an owner from, for example, suddenly deciding to drop a brand’s price point.
When Michael Kors went public in 2011, the designer secured a lifetime employment agreement that ensured him “creative and aesthetic control” of anything produced under his name, “provided that the exercise of such control must be commercially reasonable.” The company agreed not to enter into any new line of business without his consent.
Creative independence is extremely valuable, and its own form of protection.
Creative independence is extremely valuable, and its own form of protection. If the brand is acquired by another company, the new buyer will likely inherit the terms of that agreement.
Of course, in practice, negotiation is both science and art. A designer with more options has greater leverage over the process. Sometimes a business is in dire need of financial rescue and cannot afford to turn down offers, but ideally a designer has multiple interested parties and the luxury of being able to compare terms.
“If you have a super 'hot' designer being very successful, you will get a higher monetary [benefits] and exit plans,” said Pierre Mallevays, founder and managing partner of Savigny Partners LLP. “It is about how many people you have interested, or your investor thinks are interested,” said Zauder.
“The people that really have a problem are the people who didn’t have good advisors at the very beginning,” said Zauder, underscoring the need for an expert representative, lawyer or banker, from the beginning of the process. Abboud’s ownership of his trademarks and his creative independence with partners in the early years of his namesake brand might have saved him some legal drama.
At the end of the day, a partner with an aligned strategy for the future of a brand, who understands that the designer’s creative vision is the most important asset worth safeguarding, is the best brand protection. When Chou’s Sportswear Holdings bought Kors from LVMH for reportedly close to $100 million in 2003, it wasn’t clear that they would be successful in their quest to turn Kors into the next great American designer brand. He had filed for bankruptcy 10 years earlier. But the partnership led to the 2011 IPO, which raised $944 million.
"The number one protection a designer can get is to sell to a 'good buyer,' one that will give the brand the proper exposure and that is committed to investing in the brand for the long-term," said Ohana. "When you think of successful brands," said Mallevays, "it is people who have trusted one another."