Arbitration Clauses Help Resolve Disputes in the Fashion Sector

Behind the glitz and glamour of the fashion industry lies a billion-dollar global industry with high-stakes contracts that merit careful attention to detail.

Disputes in the fashion sector will increase as businesses focus on preserving capital, managing liquidity, and navigating supply chain disruptions in uncertain times.

While dispute resolution decisions are rarely a top priority for fashion executives, arbitration clauses are being used more frequently to maximize efficiency and mitigate risk.

Arbitration as Fashion Armor

Arbitration is a private and consensual mechanism for parties to resolve legal disputes early into their relationships, wherein an arbitral tribunal of one or three arbitrators renders a final and binding decision.

Parties must affirmatively consent to arbitration and most often express their consent to arbitrate through a clause included in some type of executed agreement. Thus, each contracting moment provides an opportunity for fashion executives to take advantage of the benefits of arbitration.

Arbitration clauses are by no means one size fits all. They merit careful consideration and must be drafted to comport with the company’s business goals.

Typically, an arbitration clause will designate the arbitral institution chosen to administer the arbitration, the seat of the arbitration, the governing law for procedural and substantive aspects of the dispute (and often the arbitration clause itself), the method of selection for the arbitrators, the number of arbitrators, and the language of the proceeding.

Drafting of the arbitration clause should consider the size and type of the dispute, location of the parties, and their assets, especially the counterparties that you may need to enforce against.

An arbitration clause may also provide for the use of negotiation and/or mediation, and thought should be given to whether these additional alternative dispute resolution methods should be employed simultaneously, or as conditions precedent to the arbitration.

Also relevant to consider are the inclusion of enhanced confidentiality protections, limitations on discovery, a prevailing party clause—especially in relation to contracts involving parties from the US where there is no loser-pays regime—and use of expedited arbitration procedures.

A Fit for Fashion-Related Contracts

Arbitration can make sense for fashion companies in many ways. It’s faster, simpler, less expensive, and final. For companies transacting internationally, arbitration use is particularly useful since it helps to promote enforceability, in accordance with the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and ensures a fair and impartial process with an arbitral tribunal that possesses expertise in the industry.

As the industry continues to grow and fashion companies enter into new types of agreements with more counterparties across jurisdictions, arbitration is growing more popular. Unsurprisingly, as many brands expand their global footprint, there is more potential for disputes.

And while many brands may not have used arbitration in the past when their business was confined to a smaller territory, protection of their interests across jurisdictions has required a shift in mentality when it comes to dispute resolution.

This has become especially important when brands enter new and unfamiliar markets where the legal regimes are varied.

Brands with numerous international counterparties can incorporate consistent arbitration and governing law provisions across their contracts to enhance predictability and risk mitigation that might not otherwise be present in local courts of various counterparties involved.

An arbitration clause can also help brands navigate disputes that arise in relation to protected trademarks, copyrights, and design patents. For instance, Valentino, Louis Vuitton, and Nike all received favorable arbitral awards requiring that various domain names be transferred back to the companies.

Fashion brands forge innovative partnerships. The range of collaborations necessitate brand protection and provide contracting opportunities that should include use of arbitration for any potential future disputes.

To keep partnerships functioning smoothly and efficiently, the benefits of arbitration are useful now more than ever.

Building arbitration into agreements helps companies sell, expand, and protect their brands in the face of a changing economy. And future innovations in technology and sustainability provide even more fertile ground for arbitration in the fashion industry.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Camila Chediak is a Fox Rothschild associate advising companies in trademark and copyright matters, including licensing, prosecution and litigation.

Samantha Kunin is a member of Fox Rothschild’s litigation department, advising clients on risk and business disputes.

Erika Levin is partner in Fox Rothschild’s international group and leader of its Latin America practice.

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