WWD Law Review: The Red Sole Battle Walks On, Hacking Woes and Italian Taxes

The legal battles over Christian Louboutin’s red sole are seemingly unending. The Paris-based footwear brand is back in court in the Netherlands and facing off against Dutch shoemaker Van Haren for its own red-soled high heels. Meanwhile, Forever 21 has revealed that its point-of-sale systems have been subject to a hack, making it the latest in a string of retailers that have been targeted. And Italian design brands are busy working with the nation’s revenue authority to fashion various tax deals, ranging from efforts to boost transparency to initiatives to further boost the reputation of the “Made in Italy” label.

These (Red) Soles Are Meant for Litigating

It may have appeared as though the battle over the bottom of Christian Louboutin’s shoes was over in 2012 when a New York federal court held that the Paris-based footwear brand could rightfully claim protection in its distinctive Chinese red shoe soles (as long as the body of the shoe is a contrasting color). But while it may have ended proceedings involving Yves Saint Laurent, Louboutin was just preparing for a global trademark fight.

The celebrity-favored brand initiated a number of legal matters involving its red sole shortly thereafter, including a trademark infringement lawsuit against Dutch shoemaker Van Haren, which — much to Louboutin’s dismay — was offering a collection of red-soled high-heeled shoes for sale. The two companies have been in and out of court for nearly five years, with Louboutin seeking an order from a Dutch court to force Van Haren to stop selling its own red-soled shoes under its own brand name.

As of now, the case is in front of the Court of Justice of the European Union, the highest court in the European Union, which will determine whether Louboutin’s trademark is valid. Last June, the CJEU Advocate General issued a nonbinding opinion stating that the European Trademark Directive could apply to a shape in combination with a color (in this case, the sole of a high-heeled shoe and Louboutin’s color of choice, bright red).

The CJEU, which heard the matter last week, will determine whether that is, in fact, the case. Its decision is expected in the coming months. It will serve to resolve Louboutin’s ongoing battle with Van Haren, but judging by its relative litigiousness in the past, it is not the end of the brand’s fight to protect and defend its red sole.

The Business of Being Hacked

Forever 21 is the latest retailer to suffer from a data breach. The Los Angeles-based fast-fashion giant confirmed last week that following a tip from a third party, it initiated an investigation that uncovered that hackers had, in fact, compromised point-of-sale devices at stores. That resulted in unauthorized access to data from credit and debit cards used at a number of the retailer’s brick-and-mortar locations. The company declined to indicate which of its 815 stores in 57 countries were affected by the hack, but did reveal that the transactions at issue occurred in stores between March and October.

The retailer revealed in a statement, “Because the investigation is continuing, complete findings are not available, and it is too early to provide further details on the investigation. Forever 21 expects to provide an additional notice as it gets further clarity on the specific stores and timeframes that may have been involved.”

The news comes after a large-scale breach was reported by Amazon in May, and before that by the TJX Cos., Target Corp. and Neiman Marcus Group, among others. The number of hacks of customer data has doubled in the past year among online retailers, in particular, as retailers and brands continue to seek an increased amount of information from consumers to increase regular sales, as well as additional digital marketing activities.

Such hacks, while increasingly common, are proving to be public relations and financial disasters for the brands involved. As for whether they have lasting effects on consumer perception, that is also very much on the table, with more than half of surveyed consumers routinely stating that they are “not at all likely” or “not very likely” to do business with an organization that had suffered a data breach involving credit or debit card details. With that in mind, analysts have been quick to reveal that the damage of reputation that comes hand-in-hand with such breaches can translate directly into a drop in sales, and retailers have escalated such concerns as a top priority in terms of legal and strategic efforts.

Trending in Milan? Taxes

Three years after an investigation by Milan prosecutors as part of a tax avoidance probe in connection with Prada’s Miuccia Prada and Patrizio Bertelli, which was formally dropped in December 2016, the Italian luxury fashion house has revealed that it recently signed a cooperative compliance agreement with Italy’s tax authorities in an attempt to minimize risk and “promote…fairness and compliance with the law.”

The cooperative compliance regime, which was launched in Italy in 2013 as a pilot project, was enacted in 2015 as a way to “promote new forms of communication and enhanced cooperation between the tax administration and taxpayers, as well as to prevent and resolve tax controversies.”

While Prada is the most recent party to partner with the country’s tax authorities to “strengthen the level of certainty on the most relevant tax matters,” it is not the first fashion house to collaborate with the nation’s tax body. Fellow Italian brand Salvatore Ferragamo partnered with the Italian Revenue Agency early this year in furtherance of a new optional benefit that reduces taxation for income derived from the direct use or license of intellectual property assets.

Enacted in December 2014, the program, called Patent Box, is aimed at protecting Italian IP property and further boosting the country’s “Made in Italy” reputation by establishing the country as an attractive home for foreign investment and research and development activity, and in exchange, the participating IP holders are subject to favorable tax treatment.

Julie Zerbo is the founder of The Fashion Law.

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