When fashion sought to protect itself through private collective action: recalling the Fashion Originators Guild

This Kat has found himself preparing a presentation on alternatives to protecting fashion under formal IP regimes. One aspect of this question is whether there Is there any legal space for private collective action against “piracy”? Stated otherwise, how broad a shadow does competition law/antitrust law cast when copying takes place, but the IP laws are not applicable? Consider the tale of the New York-based Fashion Originators Guild.

The Guild was established in 1932 in the teeth of the Great Depression. After the laissez-faire administrations of Presidents Calvin Coolidge and Herbert Hoover, President Franklin Delano Roosevelt, through his New Deal, signaled that solutions for economic ills could be found in collective action. The Guild can be viewed against this backdrop. Its members designed and manufactured medium to high-priced dresses, for sale to retailers, who selected the merchandise from dresses that were shown in various showrooms in New York City. The members claimed that their dresses were all based on "original designs." Under U.S. law, there was no copyright or patent protection. As such, according to the Guild, other dress manufacturers, which were called "style pirates", designed and sold so-called “unauthorized” copies.

The way that the Guild worked was to reach agreement with a critical mass of dress manufacturers, who undertook to refuse to sell to retailers that traded in dresses that the Guild concluded were “copies” of a member’s design. To the end, members would register their designs with the Guild, and a “Piracy Committee” was set up, which was tasked with determining whether such designs were in fact “original”. The Guild then employed shoppers located various places within the US, who would visit shops and report sales of so-called “pirated” designs.

A retailer carrying such an item would be asked to stop selling the item and return to the seller the “pirated” item; if not, such retailer not would be supplied with any more dresses from Guild members, nor would it have any further access to the show rooms. Generally, retailers had to to warrant to their customers that their dress merchandise was not “pirated”. In that connection, the Guild also provided a label of authenticity. At its zenith, the Guild signed nearly 12,000 retailers to the agreement.

Not surprisingly, the Guild’s collective actions were challenged on antirust grounds and, also, not surprisingly perhaps (it was the 1930’s), the Guild’s program was found to be an unlawful collective boycott, first by the Federal Trade Commission and then by both the Second Circuit Court of Appeals and the Supreme Court. Interestingly, though, the two courts based their respective rulings on somewhat different grounds.

The Second Circuit noted that the Guild’s members may have had common law copyright in the dress designs, but such right, if it existed, was extinguished upon “publication” of the designs. As such, the member who may have created the design had no IP right that it could seek to enforce against the alleged pirates. As such, the court ruled that the Guild was an unlawful “combination seeking to exclude outsiders from a market to which they have as lawful access as it has itself." In so ruling, the court rejected the argument that its actions "were necessary to protect the industry as a whole from 'demoralization' and the 'property' of its members from appropriation."

The Supreme Court did not consider whether the Guild had a relevant property right, focusing rather on whether the Guild’s program constituted a horizontal boycott that--

“effect the direct suppression of competition from the sale of unregistered textiles and copied designs."

The Court ruled that it did so effect competition and thereby constituted a horizontal boycott that was illegal per se. The Court went on, ruling that the--

"combination is in reality an extra-governmental agency which prescribes rules for the regulation and restraint of interstate commerce and provides extrajudicial tribunals for determination and punishment of violations, and thus 'trenches upon the power of the national legislature and violates the statute.'" 

But the hardline per se approach under the U.S antirust laws against collective activity ultimately began to soften from the early 1940’s, when these decisions were given. Indeed, this Kat, as a law student, was witness, in Forrest Gump-like fashion, to the challenge that the likes of then Professor Richard Posner and his colleagues at the University of Chicago were mounting in the 1970’s contrary to this view. Against this backdrop, Professor Robert Merges took issue with the Court’s per se hostility in a situation such as the Guild. Merges argued, in his article entitled “Contracting into Liability Rules: Intellectual Property Rights and Collective Rights Organizations", that the—

“Court should have considered whether the Guild tended to enhance economic efficiency,' and whether it did so at a lower cost than a formal property right in dress design" [recalling the attention paid by the Court of Appeal to whether the Guild members had IP rights in their dresses--NJW].

He went on—

"The Court’s rejection not only killed an interesting experiment in alternative intellectual property systems, but it also sent a far-reaching signal that when these systems are based on informal property rights, they are void per se.”

In so doing, the Court had signaled the per se invalidity of the possible pro-competitive effects of a system based on “informal property” rights. Better a “rule of reason” approach that treated each case on its competitive, or anti-competitive merits. Perhaps the arrangements put in place by the Guild in the 1930’s would encounter the same judicial objections today. Still, the critique raised by Merges cannot be rejected out of hand. Private collective arrangements may yield positive benefits, at least in an industry such as fashion.

By Neil Wilkof

Photo on lower left by Prayitno and is licensed under the Creative Commons Attribution 2.0 Generic license