by Merlin Hernandez

A trade secret is original information used to create a pattern or formula that is exclusive to the owner indefinitely as long as they protect the secret. Industrial espionage allows a competitor to gain access to information about a company’s plans, products, clients or trade secrets to effectively reduce their competitive advantage and increase that of the competitor. In the fashion industry and its hyper-competitiveness, industrial spying is a practice that is not uncommon. Many cases of industrial espionage in fashion occur in the context of outsourced manufacturing with spying and IP violations in the host country.

New fashion collections express the creativity and innovation of a designer backed by R&D efforts that are time-consuming and costly, and remain the intellectual property (IP) of the design house. Fashion Designers undertake these expenditures in anticipation that a well-differentiated line will bring rewards in high volume sales and repeat orders before competitors can perhaps piggy-back on their design elements with similar products. But some competitors will engage in various improper and illegal methods to acquire new designs, market research or survey results.

This type of misappropriation of trade secrets (intellectual property) fuels knock offs and grey market activities that can cut deeply into the profit potential of owners of new designs by being able to produce items that are similar and cheaper in advance of a collection launch. Any information about a new collection or the designer’s marketing strategies getting into the hands of the competition before it can be brought to market can also shorten the life cycle of a collection further reducing its value to the designer.

Fashion houses employ various IP protection methods to maintain secrecy about new collections. These may include non-disclosure and non-compete clauses in employment contracts, similar agreements with vendors and licensees as well as non-disclosure agreements with customers who are asked for developmental input and those who attend early previews. Some designers who produce overseas will keep designs and patterns at their US studios, and ship cut fabric to overseas contractors for assembling in order to minimize the incidence of design theft. Large manufacturers may employ specialist security personnel to guard against computer hacking and spyware.

Industrial spying continues to afford high gains to perpetrators because it is usually detected only when a knock off is found on the market and there is extreme difficulty in tracing the origin of the product. I have done a few expeditions to parts of New York City to follow up on a tip that design elements of a new collection are already in the trade just as the collection is about to be launched. It is almost impossible to trace the origins of these products to establish liability – itinerant street vendors selling a facsimile of a $700 handbag for $65 – sales people who claim to speak no English – claims of buying items from an unidentified suitcase trader – items with just enough differentiation to deny allegations of being a knock off.

Manufacturers, who may have the burden of proof, find that the anonymity of the suppliers presents a hurdle to bringing suit so perpetrators operate almost with impunity. Every now and then there is a raid on these locations and retailers are hauled into court. Local law enforcement does not have the teeth to go after suspected perpetrators and these cases are usually left to the state or FTC for prosecution. Industrial spying and IP theft remain criminal activities prosecutable by state or federal authorities under the criminal code or in the US Court of International Trade. But successful prosecution is problematic which exacerbates the problem by making industrial espionage in the fashion industry profitable. The only real recourse left to designers is heightened security protocols.

Related articles on this blog
• Getting into the Fashion Business
• Intellectual Property
• Market Hunger
• Mass Customization; Fashion Industry

Merlin Hernandez is an entrepreneurial development and management consultant with extensive experience in the fashion industry. For more information on this topic, please send enquiries to businesssolutions1168@gmail.com

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