WEBVTT - Lululemon Sues Costco Over Alleged Dupes or Knockoffs

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<v Speaker 1>This is Bloomberg Law with June Grosseo from Bloomberg Radio.

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<v Speaker 2>We found the best activewear tight set dupe at Costco

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<v Speaker 2>and it is nearly identical to Lululemon or Athleta. It's

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<v Speaker 2>seriously made with the same material and has the same pockets.

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<v Speaker 2>We love the waist and we love all of the

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<v Speaker 2>fun colors.

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<v Speaker 3>If you go to hashtag Lululemon dupes, you'll find social

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<v Speaker 3>media influencers promoting knockoffs or dupes of their apparel, like hoodies, jackets,

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<v Speaker 3>and pants at Costco that look authentic but sell for

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<v Speaker 3>a fraction of the price. Well, Lululemon is making a

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<v Speaker 3>federal case out of it, taking Costco to court for

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<v Speaker 3>copying their designs. My guest is Susan Scaffiti, a professor

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<v Speaker 3>at Fordham Law School and director of the Fashion Law Institute.

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<v Speaker 3>Susan a very basic question to start off with. Are

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<v Speaker 3>dupes what we used to call knockoff?

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<v Speaker 1>We have definitely seen an evolution in nomenclature, right, So

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<v Speaker 1>it used to be counterfeits and knockoffs, and then replicas

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<v Speaker 1>and then reps and now dupes. And I think honestly

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<v Speaker 1>part of the story of the public accepting them more

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<v Speaker 1>is they sound cute and adorable? Now you know you

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<v Speaker 1>could have a pet dupe, you cannot have a pet counterfeit.

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<v Speaker 3>Well, also, social media right is blasting out where to

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<v Speaker 3>find these precisely dupes are being sold all over. Is

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<v Speaker 3>selling a dupe illegal?

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<v Speaker 1>Well, it depends right. Dupe like knockoff before, it is

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<v Speaker 1>a broad ambi us term when they are very exact.

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<v Speaker 1>And in those cases in which the IP is protected,

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<v Speaker 1>yes that is illegal. But if we're getting a little

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<v Speaker 1>further away from the original, or if the original itself

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<v Speaker 1>is not protected under US law, then no it is not.

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<v Speaker 1>So we do indeed have a lot of gray area

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<v Speaker 1>here and not a chic little chuckoal or dove, something

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<v Speaker 1>a lot more sinister from the brand's perspectus.

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<v Speaker 3>Lula Lemon, of course, pioneer your yogaware, tell us what

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<v Speaker 3>it's accusing.

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<v Speaker 1>Costco of salul Lemon is claiming that the things that

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<v Speaker 1>have been copied and are being sold at Costco do

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<v Speaker 1>in fact cross the line into illegal. And what's so

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<v Speaker 1>interesting about this case, June is that they have gone

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<v Speaker 1>through the entire list of potential IP claims and are

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<v Speaker 1>basically throwing everything except copyright. At Costco, they're looking at patents,

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<v Speaker 1>a specifically design patent, because they do have a design

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<v Speaker 1>patent on their scuba design. For hoodies, they are looking

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<v Speaker 1>at trade dress protection, that subset of trademark that focuses on,

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<v Speaker 1>among other things, product design. Right, So when a product

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<v Speaker 1>design itself is so iconic, like the red souls on

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<v Speaker 1>Lobaton's or the ermes burkeens, the design is so iconic

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<v Speaker 1>that it serves as its own source indicator that can

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<v Speaker 1>be protected. So they're claiming that kind of protection in

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<v Speaker 1>the case of their fine jackets. Then they're claiming unregistered

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<v Speaker 1>protection for men's trousers, They're claiming wordmarks in the case

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<v Speaker 1>of scuba, and a wordmark for the colored Tidewater teal

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<v Speaker 1>that they say is proprietary to them, and then they're

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<v Speaker 1>throwing in some state law unfair competition claims. So they

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<v Speaker 1>are really going across the board looking at Costco in

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<v Speaker 1>house brands like Kirkland, but also other brands being sold

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<v Speaker 1>at Costco like dan Skin and Jockey in this case.

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<v Speaker 1>So they are really taking a very broad brush approach

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<v Speaker 1>to the items that Costco is selling that lu Lemon

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<v Speaker 1>believes are protected intellectual property.

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<v Speaker 3>Costco is known for that Kirkland brand, and people often

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<v Speaker 3>say that their products are high quality but sold for

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<v Speaker 3>much less than name brand products. What kind of a

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<v Speaker 3>price differential are we talking about with Lululemon apparel.

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<v Speaker 1>Well, in the case of the men's trousers, they were

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<v Speaker 1>saying eight dollars versus one hundred and eighteen dollars, quite

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<v Speaker 1>a bit less, which has actually been consistent with the

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<v Speaker 1>prices of knockoffs over the years. We always say somewhere

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<v Speaker 1>between five and twenty percent when we're looking at knockoffs

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<v Speaker 1>across the board.

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<v Speaker 3>That is quite a big price difference. Susan, What would

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<v Speaker 3>Lulu Lemon have to prove if this case went to trial?

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<v Speaker 1>In these cases, the first step is going to have

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<v Speaker 1>to be convincing of the jury that the claims that

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<v Speaker 1>Lula Lemon is making are actually valid with regard to

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<v Speaker 1>what Lulu Lemon owns. Now they've done their homework, they

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<v Speaker 1>have warmed up, stretched and prepared for this particular case

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<v Speaker 1>by registering some of those marks, trademarks and design patents.

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<v Speaker 1>So in the case of a registration, there's already an assumption,

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<v Speaker 1>but it's an assumption that can be overturned. So Lululemon

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<v Speaker 1>is going to have to be able to prove that

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<v Speaker 1>these particular marks are indeed sourced indicators, or in the

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<v Speaker 1>case of design patents, that they are indeed new these designs.

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<v Speaker 1>With regard to the things that are not registered, they

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<v Speaker 1>have a somewhat higher far to pass in order to

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<v Speaker 1>convince the jury that they deserve protection. But if they

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<v Speaker 1>can do that, then they actually have to be able

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<v Speaker 1>to show that the Costco items are close enough the

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<v Speaker 1>Lululemon items that they actually infringe. In other words, it's

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<v Speaker 1>a two step process. Is the IP valid and if so,

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<v Speaker 1>are the Costco items infringing? And they do need to

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<v Speaker 1>persuade a jury. This is a jury claim.

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<v Speaker 3>What about the fact that, you know, there's that hashtag

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<v Speaker 3>Lululemon dupes and apparently some dupes are being sold on Amazon, Walmart,

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<v Speaker 3>Target and elsewhere. So why is Lululemon focusing on suing Costco?

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<v Speaker 3>And you know, will Costco be able to say, but look,

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<v Speaker 3>they're selling these elsewhere?

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<v Speaker 1>Well, Costco will be able to do that. But of course,

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<v Speaker 1>when you're engaged in brand protection, you need to make choices.

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<v Speaker 1>No company, not even the very largest, wealthiest ones have

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<v Speaker 1>unlimited legal budgets, much to the sadness of their lawyers,

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<v Speaker 1>do they make choices, And I think choosing Costco is

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<v Speaker 1>smart in some ways. It's one stop shopping. They're suing

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<v Speaker 1>that only Costco or its house brand, but they're suing

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<v Speaker 1>over some of the other brands that Costco carries, and

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<v Speaker 1>they are suing an entity that is highly recognizable and

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<v Speaker 1>trusted by the American public. So it's going to get

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<v Speaker 1>attention when they go after Costco, much the way it

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<v Speaker 1>got attention when Arimez said, yes, we know there are

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<v Speaker 1>lots of counterfeit Burken's out there, but we're going after

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<v Speaker 1>the work in the Walmart Burgen. So if that kind

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<v Speaker 1>of press release aspect to a complaint is relevant here,

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<v Speaker 1>they want the attention on this case. They may not

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<v Speaker 1>win the hearts and minds of consumers. They may not

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<v Speaker 1>change this social tide toward the acceptance of dupes as

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<v Speaker 1>something to be celebrated rather than hidden, but they will

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<v Speaker 1>be able to convince some people that these dupes are

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<v Speaker 1>not a good thing. And they will also be able

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<v Speaker 1>to send a warning to vendors across the board that

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<v Speaker 1>Lululemon is not to be messed with, and of course

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<v Speaker 1>Lula Lemon has a history of bringing other lawsuits in

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<v Speaker 1>the past, so this has been a long term strategy

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<v Speaker 1>for them to try to become a harder target, if

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<v Speaker 1>you will.

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<v Speaker 3>And what happened with the copy of the Birken.

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<v Speaker 1>Bag, Well, they're no longer available for sale at Walmart.

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<v Speaker 1>So let's assume that one has settled, which is I

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<v Speaker 1>think the likelihood here is that we will get a settlement.

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<v Speaker 1>It would be from a legal respective, wonderful to see

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<v Speaker 1>what a jury thinks and then what the pellate court

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<v Speaker 1>thinks about how close is too close in these cases,

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<v Speaker 1>But more than likely we will get a settlement. If

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<v Speaker 1>this in Europe, of course, this would be a very

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<v Speaker 1>short complaint. We would simply have that other category of

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<v Speaker 1>design protection, so we wouldn't be looking separately at trademarks

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<v Speaker 1>and patents and asking whether the law applies in these cases.

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<v Speaker 1>We would go straight to design protection and be done

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<v Speaker 1>with it.

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<v Speaker 3>Just suppose it does get to trial. Is it an

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<v Speaker 3>uphill battle for Lululemon to convince a jury.

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<v Speaker 1>I think it's going to vary amongst the different styles claimed.

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<v Speaker 1>I think for the registered trade dress and registered design patents.

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<v Speaker 1>That's going to be an easier sell for the claims

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<v Speaker 1>of unregistered for ti deetion like for the men's ABC

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<v Speaker 1>trousers and the Tidewater teals color. It's going to be

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<v Speaker 1>a little more difficult, but not impossible.

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<v Speaker 3>And does Lula Lemon have to prove that consumers are

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<v Speaker 3>confused by the dupes.

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<v Speaker 1>With regard to the trademark related claims, so the trade

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<v Speaker 1>dressed claim, they do have to prove likelihood of consumer confusion,

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<v Speaker 1>which is why something like hashtag Lululemon dupe is maybe

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<v Speaker 1>not helpful to Lululemon. It certainly fuels the fire to

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<v Speaker 1>go after these dupes, but it's also saying that consumers

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<v Speaker 1>may not be confused, at least at point of sale.

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<v Speaker 1>Now there's always post steal confusion. There's the concern that

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<v Speaker 1>consumers will see others wearing the dupes and think that

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<v Speaker 1>they're Lululemon. So there's that form of consumer confusion that

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<v Speaker 1>might be easier to prove in the era of hashtag

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<v Speaker 1>Lululemon dupes, but it's problematic if consumers are not actually confused.

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<v Speaker 1>You know, It's interesting in that regard June is that

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<v Speaker 1>Lululemon it actually has is a trademark application pending for

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<v Speaker 1>the phrase Lululemon dupe in the context of retail stores.

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<v Speaker 1>They haven't said exactly how they'll use it, and they

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<v Speaker 1>don't have to do that yet, and the trademark has

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<v Speaker 1>not yet issued. They filed the application back in December,

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<v Speaker 1>but they're obviously thinking about playing in this field in

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<v Speaker 1>another way as well.

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<v Speaker 3>You say, most of these cases are settled, but is

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<v Speaker 3>a lot of money spent just reaching the point of settlement?

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<v Speaker 3>What are legal fees like?

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<v Speaker 2>Oh?

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<v Speaker 1>Of course, just developing this complaint with a dozen different

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<v Speaker 1>claims has taken a lot of time, and surely there

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<v Speaker 1>has been some conversation between the companies in advance of this.

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<v Speaker 1>So it has already been an expensive process. It may

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<v Speaker 1>be worthwhile because again it is a legal process and

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<v Speaker 1>a public relations process. You know, if it's some one

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<v Speaker 1>thing that a company that makes yoga pants is familiar with,

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<v Speaker 1>it's inversions, and I think they would really like to

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<v Speaker 1>be able to invert the public's perception of dupe. That's

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<v Speaker 1>really the goal here from a public perspective, much the

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<v Speaker 1>way that just as you know, a few years ago,

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<v Speaker 1>Lululemon set up a dupe swap in a mall in

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<v Speaker 1>Los Angeles and said, look, bring us your dupes, any brand.

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<v Speaker 1>We will give you genuine, aligned Lululemon trousers. They are

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<v Speaker 1>so great that you'll be able to tell the difference

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<v Speaker 1>immediately and you will become Lululemon fans. So they are

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<v Speaker 1>playing both a legal game and an extra legal game

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<v Speaker 1>as part of their brand protection strategy. And it's something

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<v Speaker 1>that they've done for years. So if they can start

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<v Speaker 1>to again invert the perception of dupes, maybe restore them

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<v Speaker 1>to their former sub rosa underground, splitely shameful status, or

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<v Speaker 1>at the very least convinced people that Lulemon products are

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<v Speaker 1>of higher quality so that they can recapture some of

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<v Speaker 1>the folks who would have instead gone to Costco or elsewhere.

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<v Speaker 1>That's going to be a win without ever getting as

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<v Speaker 1>far as a jury.

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<v Speaker 3>I remember when if you had a knock off, well

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<v Speaker 3>you hid the fact that it was a knockoff. You

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<v Speaker 3>tried to pass it off as the real thing.

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<v Speaker 1>Nowadays they don't care exactly. There has been a huge

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<v Speaker 1>shift in perception over fifteen years. It used to be

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<v Speaker 1>that brands didn't want to talk about counterfeits, or knockoffs.

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<v Speaker 1>Then they finally acknowledged the problem. But consumers I have

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<v Speaker 1>also gone from hiding the fact that their items were

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<v Speaker 1>knockoffs or trying to pass them off as the real thing,

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<v Speaker 1>to bragging about them on social media, and that is

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<v Speaker 1>actually of almost greater concern. The law hasn't changed a lot,

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<v Speaker 1>but consumer perception has changed. So the law still is

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<v Speaker 1>not great in the US with regard to protecting fashion,

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<v Speaker 1>but there are these bits and pieces of law that

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<v Speaker 1>can protect fashion a little bit. But the perception, the

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<v Speaker 1>social norms have changed dramatically. You know, in my classes,

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<v Speaker 1>I tell my students that when we're dealing with law,

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<v Speaker 1>we're dealing with it at several levels. We think about

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<v Speaker 1>black letter law when we go to law school that

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<v Speaker 1>come out of legislatures and courts. But then there's also

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<v Speaker 1>rules things like in the fashion context, office dress codes

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<v Speaker 1>or school dress codes. But at the most basic, simple,

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<v Speaker 1>diffuse level, there are social norms. Sometimes those social norms

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<v Speaker 1>are subsequently written into law what's decent or indecent, for example.

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<v Speaker 1>But social norms are really powerful in terms of controlling

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<v Speaker 1>how we dressed, how we perceive what we dress, how

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<v Speaker 1>we perceive what other people dress, and we've seen a

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<v Speaker 1>shift in social norms here. We haven't seen a shift

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<v Speaker 1>into law. We've seen a shift in the norms so

0:12:33.280 --> 0:12:36.480
<v Speaker 1>that it went from being knockoffs their bad and shameful

0:12:36.640 --> 0:12:39.600
<v Speaker 1>and cheap and to be hidden, to knock offs their

0:12:39.679 --> 0:12:42.480
<v Speaker 1>to be celebrated. And that's part of what Little Lemon

0:12:42.559 --> 0:12:44.040
<v Speaker 1>is addressing in this case.

0:12:44.800 --> 0:12:50.199
<v Speaker 3>In December, Benefit lost a lawsuit to ELF over their

0:12:50.320 --> 0:12:54.040
<v Speaker 3>last and role mascara, which is six dollars compared to

0:12:54.120 --> 0:12:58.480
<v Speaker 3>Benefits twenty nine dollars misscara. Does that have any relevance

0:12:58.480 --> 0:12:59.079
<v Speaker 3>to this case.

0:12:59.400 --> 0:13:03.160
<v Speaker 1>It's another time trade dress lawsuit. Because the actual word

0:13:03.320 --> 0:13:06.640
<v Speaker 1>elf was right on there, there was an undermining of

0:13:06.640 --> 0:13:10.120
<v Speaker 1>the question of likelihood of consumer confusion. So here well

0:13:10.280 --> 0:13:13.120
<v Speaker 1>to back up, when we're dealing with counterfeits, when we're

0:13:13.120 --> 0:13:18.280
<v Speaker 1>dealing with substantially identical copies of trademarks that we can identify.

0:13:18.320 --> 0:13:22.000
<v Speaker 1>So if we were dealing with copies of the wordmark Lululemon,

0:13:22.160 --> 0:13:25.080
<v Speaker 1>or if we were dealing with copies of its little

0:13:25.120 --> 0:13:27.839
<v Speaker 1>symbol that looks a little bit like an omega, right,

0:13:28.160 --> 0:13:31.160
<v Speaker 1>that would be easy. There's no question of whether or

0:13:31.200 --> 0:13:34.360
<v Speaker 1>not consumers are confused. We just assume that if we're

0:13:34.360 --> 0:13:38.360
<v Speaker 1>dealing with those substantially identical copies, when we move into

0:13:38.400 --> 0:13:41.280
<v Speaker 1>the realm of trade dress, and we are talking about

0:13:41.440 --> 0:13:45.520
<v Speaker 1>infringement rather than counterfeitings, so we're dealing with things that

0:13:45.559 --> 0:13:51.040
<v Speaker 1>are not necessarily quite as identical but merely confuse the consumer,

0:13:51.160 --> 0:13:55.400
<v Speaker 1>then yes, that likelihood of consumer confusion does have to

0:13:55.440 --> 0:13:58.280
<v Speaker 1>be proven by Lululemon in this case, in other words,

0:13:58.280 --> 0:14:01.000
<v Speaker 1>by the plaintiff. And that's a little bit tougher. It's

0:14:01.040 --> 0:14:03.680
<v Speaker 1>a little bit of extra work that has to be done.

0:14:03.800 --> 0:14:07.600
<v Speaker 1>It's why this case is interesting. It's why Little Lemon

0:14:07.760 --> 0:14:11.480
<v Speaker 1>is going for full on four waste stretch in this regard.

0:14:11.840 --> 0:14:15.600
<v Speaker 1>They're not going for easy things. They're not going for

0:14:15.920 --> 0:14:19.800
<v Speaker 1>counterfeits that would not probably be sold at costco the

0:14:19.880 --> 0:14:23.400
<v Speaker 1>copies of the signs, the symbols that we all recognize

0:14:23.480 --> 0:14:28.120
<v Speaker 1>easily as trademarks. They're going for product configuration trade dress. Right,

0:14:28.160 --> 0:14:31.200
<v Speaker 1>So there are two kinds of trade dress. There's product packaging,

0:14:31.280 --> 0:14:33.360
<v Speaker 1>so the shape of a coke bottle or the shape

0:14:33.400 --> 0:14:36.560
<v Speaker 1>of some shampoo bottles. And then there's the product design.

0:14:37.080 --> 0:14:39.960
<v Speaker 1>And that's where fashion has to live because we get

0:14:40.040 --> 0:14:43.320
<v Speaker 1>so little protections on the three dimensional aspects of a

0:14:43.360 --> 0:14:47.000
<v Speaker 1>garment generally. So if we are going to claim trademark

0:14:47.320 --> 0:14:51.800
<v Speaker 1>beyond the label, beyond the logo, we're looking at product configuration,

0:14:51.960 --> 0:14:54.840
<v Speaker 1>trade dress. We are going to have to show that,

0:14:55.040 --> 0:14:59.080
<v Speaker 1>first of all, consumers recognize that trade dress as a

0:14:59.120 --> 0:15:02.840
<v Speaker 1>source indicator. It's not just a great looking warm up jacket.

0:15:03.280 --> 0:15:06.840
<v Speaker 1>It's one that looks like Lululemon, one that we recognize

0:15:06.840 --> 0:15:10.600
<v Speaker 1>as Lululemon, just on the basis of curved themes, right,

0:15:10.720 --> 0:15:12.920
<v Speaker 1>So we have to be able to prove that consumers

0:15:13.040 --> 0:15:17.160
<v Speaker 1>see what Lulemon says consumers see, and then we have

0:15:17.240 --> 0:15:19.640
<v Speaker 1>to show that those consumers are confused when they see

0:15:19.640 --> 0:15:23.120
<v Speaker 1>a knockoff. And it's not easy, it's not impossible, but

0:15:23.360 --> 0:15:25.280
<v Speaker 1>it is definitely going to be a.

0:15:25.240 --> 0:15:29.160
<v Speaker 3>Battle, or, as you say, perhaps a settlement. Always great

0:15:29.160 --> 0:15:32.400
<v Speaker 3>to have you on, Susan, thanks so much. That's Professor

0:15:32.440 --> 0:15:36.200
<v Speaker 3>Susan Scaffiti of Fordham Law School, and that's it for

0:15:36.240 --> 0:15:38.840
<v Speaker 3>this edition of the Bloomberg Law Show. Remember you can

0:15:38.880 --> 0:15:42.080
<v Speaker 3>always get the latest legal news on our Bloomberg Law Podcast.

0:15:42.400 --> 0:15:45.440
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0:15:45.600 --> 0:15:50.640
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0:15:50.680 --> 0:15:53.760
<v Speaker 3>remember to tune into The Bloomberg Law Show every weeknight

0:15:53.840 --> 0:15:57.280
<v Speaker 3>at ten pm Wall Street Time. I'm June Grosso and

0:15:57.360 --> 0:15:58.800
<v Speaker 3>you're listening to Bloomberg