The garment industry in Los Angeles is currently going through a transition period. The tag “made in China” is becoming more prevalent as minimum wage rises and domestic sewing and textile companies struggle to survive dwindling profit margins. In comparison to the rising expenses and costs to manufacture garments in Los Angeles, foreign countries such as China apply more lax legal policies in favor of businesses to produce more garments using fewer financial resources. As a result, many garment manufacturers that focus their business on quantity rather than quality in the wholesale market, are now relying heavily toward foreign-based sewing and textile companies to keep their businesses afloat.

Unfortunately, it is not all rosy for these garment manufacturers importing their textiles from foreign companies. For one, most of the foreign textile companies do not guarantee copyright ownership of textiles and their designs. As a result, a number of garment manufacturers are being sued for copyright infringements and end up defending not just their claims, but also their retail customers’ claims pursuant to their indemnity agreements. In an effort to minimize such risks, several domestic garment manufacturers have included provisions in their contracts and/or purchase orders whereby the purchasing garment manufacturer is released from any and all liability associated with allegations of copyright infringement as to the textiles that are being purchased. Despite such contractual protections, there are many instances where foreign textile companies simply ignore their contractual obligations. Many of these foreign textile companies ignore their contractual obligations because they know that most of the domestic garment manufacturers would not pursue any legal actions against a foreign company. This is because these foreign textile companies understand the financial “pinch” many of the domestic garment manufacturers currently face. Also, most of the domestic garment manufacturers are careful not to harm their existing business relations with foreign textile and sewing companies because: (1) it is extremely difficult to find a reliable, quality foreign textile and sewing company; and (2) costs to purchase textiles from a domestic company are significantly higher.

Another layer to this contractual problem is that many of the garment manufacturers fail to include choice of law or jurisdiction clauses in their contracts. Many garment manufacturers prefer short contracts, falsely believing that most, if not all, of their business counterparts, including foreign textile and sewing companies, would not want to do business with them if their contracts are too complicated or extensive. This fear forces many domestic garment manufacturers to exclude a number of essential contract clauses and/or provisions from their contracts. Like any other business, profit margins are what drives the decision-making process for most garment manufacturers. The recent exacerbation of economic downturn in the garment industry has forced many of these garment manufacturers to forego what they perceive as losing legal efforts and focus only on creating more profit.

In an effort to circumvent any copyright issues, some domestic garment manufacturers have taken questionable measures to protect their business interests. The most common way has been to modify or change certain portions of the original textile design purchased from foreign textile companies to try to make it more “original. In most instances, such revision efforts have not been successful where there have been “substantially similar” textile design that already had been registered with the copyright office. The test for copyright infringement is whether two works are “substantially similar.” L.A. Printex Indus., Inc. v. Aeropostale, Inc. (2012) 676 F.3d. 841; Knitwaves, Inc. v. Lollytogs Ltd. (Inc.) (1995) 71 F.3d 996. The Second Circuit applies the “ordinary observer” test, which considers whether an ordinary observer would conclude that the “total concept and feel” of the works at issue are substantially similar. Knitwaves, Inc. v. Lollytogs Ltd. (Inc.), supra, 71 F.3d at 1002-1004. In making this comparison, courts do not exclude those non-protectable elements. Id. at 1003. For example, in Knitwaves, the court found that the two sweaters were substantially similar because both used the fall symbols of a leaf and a squirrel against a background of fall colors. Id. at 1003-1004. The Ninth Circuit also found the Second Circuit’s “ordinary observer” test as persuasive “in the context of fabric designs …” L.A. Printex Ind., Inc. v. Aeropostale, Inc., supra, 676 F.3d at 850. Based on the foregoing standard, garment manufacturers generally cannot avoid liability by copying part of a potential plaintiff’s work.

It almost seems counter-intuitive to purchase textiles from foreign companies at bargain prices, only to incur significant costs later to defend copyright infringement lawsuits. However, many garment manufacturers today risk potentially being sued for copyright infringement because they are desperate. There are more garment manufacturers closing and/or filing for bankruptcy these days than there are new garment manufacturers opening. The only garment manufacturers surviving this current economic downturn are established companies that have been in the industry for 10 or 20 years. Even for these established garment manufacturers, purchasing textiles and having garments sewn at a bargain price from foreign companies are worth the risk because the profit margin, however small it may be, allows immediate cash flow. Additionally, the labor costs in foreign companies do not come with high risks of potential wage and hour lawsuits, which is alarmingly prevalent today.

Many local garment manufacturers in Los Angeles and surrounding areas are struggling to survive. Some have chosen to leave California, while others are trying to fight through what they hope is a temporary setback. The continuous increase in wages and costs of production, however, is driving many of our local garment manufacturers against the wall. For these manufacturers, despite the risks involved, using foreign textile and sewing companies is the springboard to help them jump over this wall that is blocking their path to survival.