‘It is hard to imagine our passion for diamonds will ever fade,’ Alan Davies, chief executive, diamonds and minerals, at global mining giant Rio Tinto, told the summit. And the same thing is surely true for all the beautiful products offered by the wider luxury brand market. In a year characterised by ‘increased violence and insecurity, the emergence of more extreme political forces and a mild, but distinct global economic slow down’, Jonathan Russell, co-founder of debt management business Spire Partners, notes that the luxury market had ‘remained broadly insulated,’ which he puts down to its strength and resilience. But, he adds ‘luxury is not immune’ and there are issues that ‘threaten the future’. Among the challenges are the sector’s response to emerging channels to market – online and retail stores - new methods of advertising and marketing and the ‘ugly spectre of counterfeiting, which refuses to go away’.

Alibaba and the forty thieves

Gerry McGovern, design director for Land Rover, quoted Oscar Wilde’s famous line: ‘Imitation is the sincerest form of flattery that mediocrity can pay to greatness.’ But luxury brands do not find it flattering when the market is flooded with cheap imitations of the merchandise they create. The Chinese are widely regarded as the biggest flatterers and the hot topic of the day was the court hearing next week when Kering, the holding company that includes Alexander McQueen, Balenciaga, and Gucci, goes to court in New York in the latest stage of its battle to hold Chinese-based Alibaba to account for allegedly knowingly allowing fake goods to be sold through its web platforms.

Gucci leather bags 

Howard Hogan, partner in the Washington DC office of Gibson, Dunn & Crutcher, which is acting for Kering, says they have picked 31 merchant defendants whom the company claimed were selling obviously counterfeit goods, giving an example of a factory that openly states it sells fake Gucci leather bags. ‘It couldn’t be more obvious,’ Mr Hogan alleges. The primary claims, he explains, are trademark infringement and trademark counterfeiting and contributory trademark infringement under the Lanham Act, and trafficking in counterfeits, mail fraud, wire fraud and money laundering under the Racketeer Influenced and Corrupt Organisations Act.‘We think we have a winnable law suit,’ he told delegates.  

'Wasteful litigation'

Alibaba, unsurprisingly, does not agree. ‘Unfortunately, Kering Group has chosen the path of wasteful litigation instead of the path of constructive cooperation,’ an Alibaba spokesperson said on CNN last year. ‘We believe this complaint has no basis and we will fight it vigorously.’ It is the second time Paris-based Kering has taken action against Alibaba, having filed a similar lawsuit in the US a year previously, only to withdraw it within weeks after ‘constructive dialogue’ with Alibaba, according to a joint statement.

Ongoing battle

The case is just part of the ongoing battle faced by luxury companies to deal with counterfeiting. However, efforts made to engage with Alibaba, says Steve Lamar, executive vice president at American Apparel and Footwear Association, have not been fruitful. The organisation claims the Chinese behemoth does nothing to prevent companies from brazenly selling counterfeit goods on its site, which in turn impacts on luxury brands. But it is also an ‘important global brand’ and a platform that luxury goods companies can take advantage off, says Lee Sporn, general counsel for Michael Kors. ‘I don't loathe them, they are a useful tool, but they need to work on vicarious liability.’

While he accepts that tackling mass counterfeiting is a ‘whack-a-mole’ problem, with another factory popping up as soon as one is closed down, he insists that Alibaba needs to act to solve the problem.He compares the situation to the challenges encountered when eBay first emerged, noting that it took a ‘concerted effort’ from brand owners to bring about change and get eBay to take steps to prevent sales of fake merchandise. ‘We need to put pressure on Alibaba in the same way,’ says Mr Sporn, adding ‘that pressure seems to require litigation’.

The fox in the chicken coup

Fuel was added to the fire over the decision of the US-based International Anti-Counterfeiting Coalition (IACC) to invite Jack Ma, the founder of Alibaba, to speak at its spring conference in Orlando this week and to make Alibaba a member. ‘Rather like inviting the fox into the chicken coop’ observed Barbara Kolsun, co-director of Cardozo’s FAME programme. The IACC’s decision prompted high-profile brands including Michael Kors, Gucci and Tiffany & Co to quit in protest. ‘The IACC is supposed to be part of the pressure, [on Alibaba] not giving it sloppy hugs and kisses,’ chastens Mr Sporn. He also criticised the IACC for initially reserving its ‘MarketSafe’ initiative – a resolution process to tackle the Alibaba issue – to those members who paid to sign up to it. ‘The IACC was charging members for something that it ought to have been doing for free,’ he said.

Escalation of the storm was averted after the IACC dropped the fee for using MarketSafe, and, following the Luxury Law Summit, withdrew Alibaba’s membership. Also after the Summit, Mr Ma withdrew from the IACC conference. Calm waters for a while.

The Land Rover way 

While observing that ‘the Chinese are copying everyone’, on a further positive note, Land Rover’s Mr McGovern, notes that brands ‘go through a period of imitation before they find their DNA’. Land Rover is in a fight with a Chinese car manufacturer for allegedly copying one of its models, but says Mr McGovern, he hears on the Chinese grapevine that people there are ‘starting to realise that they need to come up with their own designs’ and believes that this is a sign of a more mature marketplace.

Online – the next frontier

Looking at the performance of the luxury brand market, Luca Solca, analyst at Exane BNP Paribas, says that while there was a healthy-looking annual growth of 4 per cent from 2013-15, it was fuelled by a few select brands.For a long time he says growth has been fuelled by increasing numbers of Chinese consumers coming to the market. That, he says, has now peaked, and with other challenges, means luxury brands must go back to basics and work on boosting brand desirability as well as looking to exploit growth from other areas. One of the most important areas, he suggests, is digital. Luxury brands, observes Mr Solca, have done a complete U-turn on the issue from ‘not wanting to touch it with a barge pole to digital being their number one priority’.

New language and service standard

In 2015, he says, the digital market accounted for 7 per cent of the luxury goods market. On a ‘prudent estimate’, he predicts that figure will double by 2020.Those consumers who shop online as well as in stores, he notes, spend 50-60 per cent more than those who only shop in-store – the reason being that they shop more often. In order to ‘play online,’ he suggests, luxury brands need to ‘develop a new language and service standard’ in order to translate the luxury experience onto mobile phones and tablets. The Holy Grail, he says, is to ‘integrate the physical and the digital experience’. While he comforts luxury brands with the thought that ‘digital won't be disruptive in the sense that new players will come in and “steal your lunch”, he insists it is an avenue that they need to exploit.

Don’t be socially awkward

Tied in with the new online frontier is the vexed issue of social media and the positives and pitfalls it presents.Social media, says Sarah Aziz, senior legal counsel at L'Oréal, can offer valuable ways to promote your brand, especially coupled with celebrity endorsement – though both can backfire on you if you are not careful. Although the latter does not come cheap, there is, says Ms Aziz, a sliding scale of backing that celebs might be willing to get on board with, starting with Twitter. A cheaper alternative to celebrity endorsement, she suggests, is using bloggers and vloggers to promote your products online. These ‘influencers’, she says, can have millions more followers than even top A-listers and therefore have greater reach at lower cost.

Though she warns luxury brands to ensure that any bloggers and vloggers whose support they enlist disclose in their posts and tweets that they have been paid to make them – a conventional way is use attach the hashtags #ad, #advertorial or #spon. Any failure on their part to do so, she warns, could bring them to the attention of the regulator, which may bring awkward and unwanted adverse attention to your brand.

General Counsel – being the adult

The lot of general counsel who work within luxury firms can be tough, as Michael Ellis, the first general counsel at luxury travel company Abercrombie and Kent, explains. ‘Our founder is a 73-year old with a 28-year old Brazilian swimwear model girlfriend. He has so much energy and thinks he is running the company from the back of his Land Rover in Kenya – this creates enormous challenges.’

Grappling with issues

Furla’s general counsel, Giorgia Armanni, is grappling with introducing a more formal structure to a family run company to prepare it for going public next year. While Ms Kolsun remarks that those in the creative and luxury industry see themselves as being governed by different rules, so the ‘challenge is often how to be the adult and say no.’ Christina Ngan, general counsel at Charlotte Olympia, notes how ‘creative sometimes trumps legal’. To deliver your legal message effectively, she says, you first have to get to know the people and learn their language. ‘I am the only lawyer in the company and no one wants to speak my language’.But she accepts that legal can sometimes still be the scapegoat – a fact that ‘you have to learn to wear’. Ms Kolsun’s advice is that in-house lawyers are ‘service providers’. Think of yourselves as ‘flight attendants, she says – ‘bring them food and make sure they don’t choke and die on it’.

Small teams

The fact that many luxury brands have small in-house legal teams is good news for private practice. As a ‘one-man band’, Ms Ngan finds external legal advisers are ‘crucial’. But, says Lorenzo Mario Di Vecchio, general counsel for Fendi, external advisers have to be able to give direct answers to direct questions and not introduce shades of grey.

On the same theme, the biggest criticism of external counsel, complains Ms Armanni, is that they do not provide solutions. They can, she says, send lengthy email responses, at the end of which she is left asking ‘so what?’‘If I bring a problem to you, I need a solution, not another problem ’-- and she does not want that solution in legalese. ‘Just tell me what you would do if you were in my shoes.’

Outside counsel

Mr Ellis  says he has ‘quite a large legal department – me and my large ego’. But his ego is not so large that he does not call on outside counsel, particularly for jurisdiction-specific issues. He has learnt that hiring big name firms is not always the best approach. Rather, hiring local firms is often more beneficial. They know people and can get things done more quickly, he suggests, swiftly adding that they do not do so by paying bribes. And on the perennial question of fees, Mr Ellis does not believe in paying hourly rates; he is only interested in fixed fees. ‘If you’re an expert and you are as good as you say you are, you should know how much something will cost and how long it will take’.

Understanding the value of something – whether it be legal advice or a pair of Manolo Blahniks – is perhaps a golden strand common to the lawyers and the brands in the luxury market.