Market spotlight

State of the market

What is the current state of the luxury fashion market in your jurisdiction?

The fashion business is really a big thing in Italy, as it is the homeland of designers who made the history of fashion, worldwide renowned brands, and a venue for hundreds of specialised enterprises, as well as for artisans whose hands are internationally valued. The market comprises big companies, international groups, and small and medium enterprises.

According to a recent report published by Confindustria Moda, the aggregate turnover of the fashion industry in Italy was worth about €22 billion in 2017. Clothing drives the industry, making up 49.6 per cent of the total turnover, followed by footwear at 15.1 per cent. Women’s fashion leads with a turnover of about €13.3 billion in 2018. Not surprisingly, exports (63 per cent of the total turnover in 2018) are constantly increasing.

Manufacture and distribution

Manufacture and supply chain

What legal framework governs the development, manufacture and supply chain for fashion goods? What are the usual contractual arrangements for these relationships?

Italian Civil Code provisions apply to manufacturing arrangements. Their main specificities are:

  • the contractor takes on the risk, organisation and supervision related to the business and contractual performance;
  • the brand, as a principal, is jointly liable for all salaries, insurance, severance indemnities, etc towards the contractor’s employees up to two years post-termination;
  • long-term agreements may be terminated at any time with reasonable notice;
  • warranty coverage lasts for two years provided defects are notified within 60 days from detection; and
  • the brand is entitled to unilaterally terminate the agreement, provided it reimburses all expenses and loss of earnings.

When the contractor manufactures goods for more brands, manufacturing line, equipment and products destined to each brand are kept separate (to ensure brand protection).

Sub-supply agreements are specifically regulated by Law No. 192/1998, which imposes strict and mandatory requirements to ensure that the sub-supplier does not become economically dependent on the brand. These include: payment terms cannot exceed 60 days; IP rights cannot be assigned to the brand for unreasonable consideration; and sub-suppliers cannot assign more than 50 per cent of activities to third parties, unless authorised. Any non-compliance is void and unenforceable with regard to the sub-supplier.

Procurement of raw materials (eg, silk or leather) and components (eg, stones) is subject to the Italian Civil Code rules except for specific provisions on: exclusivity, to ensure that competitors will not take advantage of similar products or technologies; and right of first refusal in favour of the supplier, if the brand wishes to rely on the most economical or quality-competitive providers on the market.

Distribution and agency agreements

What legal framework governs distribution and agency agreements for fashion goods?

For outsourced distribution and resale, brands may recur to selective distribution systems (see question 26) and franchising agreements.

Franchising agreements are preferred to ensure full brand integration and higher control over the distribution line. They are regulated by Law No. 129/2004 and Ministerial Decree No. 204/2005 (see question 4).

No specific laws govern sales agency agreements in the fashion and luxury sector: the Italian Civil Code and a national labour collective agreement apply. It is, however, common to provide additional tasks (eg, availability of a showroom, marketing support, etc) that are not necessarily peculiar to ordinary sales agency contracts. The sales agent relationship with an individual triggers a self-employment relationship where, against the agent’s commitment to promote the affairs of the principal, the latter pays a commission on the affairs concluded thanks to the agent’s activity. The contract can be executed for a definite or indefinite period (in the latter case, each party may resign by granting a minimum notice, unless the termination is grounded on a serious misconduct incurred by the other party).

What are the most commonly used distribution and agency structures for fashion goods, and what contractual terms and provisions usually apply?

Franchising agreements, to be concluded in writing, shall not last less than three years. Agreements with the franchisor (ie, the brand owner) usually include specific provisions on:

  • location of where the business is carried out;
  • management of IP rights and know-how ensuring that franchisees (ie, entities managing the stores under the brand’s name) use IP rights in compliance with the brand’s policy;
  • parties’ contributions to setting up the business;
  • store interior decoration and furnishing; and
  • stock and post-sale assistance services management.

Distribution agreements are usually structured as framework agreements disciplining the overall relationship between the brand and its distributors and by subsequent single purchase orders. Typical provisions include:

  • stock arrangements, also in case of termination of the agreement;
  • minimum sales and performance requirements, including marketing activities;
  • post-sale assistance;
  • extended warranties; and often
  • exclusivity provisions in favour of the brands.

Finally, agency agreements usually contain specific provisions on:

  • where to operate;
  • consideration to be paid to agents (usually a percentage of the value of the agreement procured);
  • powers to represent and bind, if at all the principal (ie, the high-end brand);
  • exclusivity; and
  • indemnity provisions in case of termination.

A post-termination non-compete obligation is not mandatory but advisable. This obligation, to be agreed in writing, can last a maximum of two years following termination and must be adequately compensated.

Import and export

Do any special import and export rules and restrictions apply to fashion goods?

Italian law does not provide for special rules or restrictions for the import and export of fashion goods.

Given that such goods usually incorporate IP rights, attention should be paid to the sales contractual conditions and to goods value for custom duties purposes. Pursuant to the Union Custom Code, the primary basis for the determination of the goods custom value shall be the transaction value (ie, the price actually paid or payable for the goods when sold for export). Therefore, it is necessary to include in the declared custom value the royalties and licence fees due for using the IP. Otherwise, Customs Authorities will have the power to amend this value and increase the taxable base for custom duties purposes.

Finally, the World Trade Organization recently authorised the United States to charge special custom duties on luxury goods coming from Europe. It is thus advisable to carefully evaluate the export requirements for fashion goods from Italy to the United States.

Corporate social responsibility and sustainability

What are the requirements and disclosure obligations in relation to corporate social responsibility and sustainability for fashion and luxury brands in your jurisdiction? What due diligence in this regard is advised or required?

Although no law regulates sustainability with specific reference to fashion and luxury, Legislative Decree No. 254/2016 (implementing EU Directive 2014/95) sets specific obligations for big companies, defined as those counting more than 500 employees and more than €20 million total assets or more than €40 million net revenues from sales. If a fashion brand falls within these limits, it needs to make a sustainability disclosure covering environmental and social aspects, including the respect of human rights, environmental impact and fight against corruption.

Italian legislation does not provide for any due diligence obligation on environmental, social and governance aspects. Nevertheless, given the increasing attention to sustainability and the number of worldwide scandals involving fashion brands, it is quite common in the field to adopt policies and codes of conduct, the respect of which is monitored through audits.

What occupational health and safety laws should fashion companies be aware of across their supply chains?

Companies operating in the fashion and luxury sector must - like any other employer - strictly comply with the obligations on health and safety requirements at work mainly provided by Legislative Decree No. 81/2008 (ie, drafting and periodically updating a risk assessment, training personnel, adopting any measures aimed at excluding or reducing the risks for employees, etc).

Because of the complexity and technicality of the health and safety obligations, it is strongly advisable to appoint an external consultant supporting the employer with this duty.

Online retail

Launch

What legal framework governs the launch of an online fashion marketplace or store?

In Italy, e-commerce is regulated by Legislative Decree No. 70/2003 (implementing EU Directive 2000/31 on e-commerce). The sale of products online is subject to the filing of the SCIA, a notice informing the authorities that online commerce is being started. Failure to comply will lead to administrative sanctions, regulated on a regional basis.

Online fashion marketplaces and stores shall also comply with laws governing business-to-consumer (B2C) transactions, many of which were transposed in Legislative Decree No. 206/2005 (Consumer Code), including EU Directives 2011/83 on consumer rights, 1999/44 on guarantees and 29/2005 on unfair commercial practices. This legislation sets out a number of rules, including disclosure and transparency towards consumers and conclusion of online contracts, etc. Failure to comply may lead to contract unenforceability with regard to consumers or to administrative sanctions up to €5 million.

In addition, more sectoral (national, regional or both) legislation may apply (eg, on online extraordinary sales).

Finally, EU Geoblocking Regulation 2018/302 prohibits discrimination against consumers and, in limited cases, against businesses, based on their nationality, place of residence or establishment when buying goods or services on online platforms, requiring mandatory access to foreign platforms, applicability of similar conditions and acceptance of foreign payment methods.

Sourcing and distribution

How does e-commerce implicate retailers’ sourcing and distribution arrangements (or other contractual arrangements) in your jurisdiction?

Recent years have shown that high-end brands are finally - after decades of in-store predominance - fully embracing the tech world by offering high-ranked e-commerce platforms. Still, experts maintain that Italian fashion is growing (up 4.8 per cent as opposed to 2018) slower than other markets because of limited digitalisation.

Terms and conditions

What special considerations would you take into account when drafting online terms and conditions for customers when launching an e-commerce website in your jurisdiction?

Special considerations apply to both business-to-business (B2B) and B2C platforms, while others apply only to B2C platforms.

In both B2B and B2C relationships, the liability of the trader for wilful misconduct or gross negligence cannot be limited or excluded, also in case of death or personal injury. Moreover, article 1341 of the Italian Civil Code requires that burdensome provision of general terms and conditions listed thereunder (eg, limitation of liability, early termination, forum selection, etc), need a written and separate acceptance by customers for them to be valid and enforceable. In B2C agreements, these provisions would also need to be ‘expressly negotiated’ with customers to be valid. Because, however, B2C general terms and conditions are not usually negotiated, burdensome provisions contained thereunder are unlikely enforceable with regard to consumers, even if accepted by means of a specific ‘click’. In terms of warranty to be offered in case of lack of conformity, the off-line discipline (ie, 12 months for B2B agreements) also applies to online transactions.

In B2C relationships, rules on consumer information require fashion traders to provide Italian consumers with minimum information requirements in clear and comprehensive language, in Italian, prior to or after (depending on the type of information) the conclusion of a distance contract, including:

  • trader identity and contacts;
  • good main characteristics;
  • total price (inclusive of taxes, delivery or postal charges and other costs);
  • existence of a legal guarantee on goods;
  • arrangements for payment, delivery and performance;
  • consumer right of withdrawal within the 14-day cooling-off period and relevant exceptions;
  • return and refund policies;
  • applicable law and jurisdiction (taking into consideration mandatory rules applicable to consumers); and
  • reference to the possibility to solve disputes via the online dispute resolution platform provided by the EU Commission.
Tax

Are online sales taxed differently than sales in retail stores in your jurisdiction?

The sales venue (online or retail stores) does not impact on the tax regime applicable in Italy. Indeed, the relevant income is subject to the income and sales taxes based on the ordinary Italian tax rules.

The key issue is determining whether a company is subject to taxation in Italy. This depends on the tax residence of the seller and on whether the sales present a territorial nexus with Italy. The following are subject to taxation in Italy:

  • Italian tax resident sellers, on their worldwide income, which includes both in-store (in Italy and abroad) and online sales; and
  • sellers that are not tax resident in Italy, on their sales performed through an Italian permanent establishment.

The definition of ‘permanent establishment’ was recently broadened to include the ‘digital permanent establishment’ arising whenever there is a ‘significant and continuous economic presence in Italy structured as to avoid a physical presence in Italy’ (article 162 of Presidential Decree No. 917/1986). In the absence of guidelines on its application, companies willing to carry out a significant and continuous online sale activity in Italy might want to pay special attention to its economic organisation.

Besides, with Law No. 145/2018 Italy introduced the ‘tax on digital services’. Once implemented (most likely from 1 January 2020), this tax will imply, if a number of conditions are met, the application of a 3 per cent tax on some of the services that are usually connected to e-commerce activities, including, by way of example, providing advertising on a digital interface targeted to users of the same interface.

Intellectual property

Design protection

Which IP rights are applicable to fashion designs? What rules and procedures apply to obtaining protection?

In Italy, fashion goods are eligible for protection under design, copyright, trademark and unfair competition law. In some circumstances, these rights may overlap.

Design protects not only the final product but also patterns, packaging, etc, as long as they are new and have individual character. Protection lasts 25 years but it is possible to file the application within 12 months from first disclosure. This means that a brand may present a product at a fashion show, probe its success and then apply for registration.

Under EU Regulation 6/2002, directly applicable in Italy, any unregistered design meeting the above requirements is granted a three-year protection starting from the first disclosure to the public within the EU. This right is very useful for fashion products with a short market life (eg, lasting only a season).

Copyright arises automatically when a work is created and does not require registration. It is sufficient that the result is original. However, for industrial design works, article 2, No. 10 of Italian Copyright Law also requires artistic value. The Court of Milan recognised that the after-ski ‘Moon Boots’ have artistic value, relying on the fact that Louvre Museum has considered them among the 100 most representative industrial design works of the twentieth century.

Finally, the shape of a product may also be protected as a 3D trademark, if it is new and has distinctive character (eg, the Hermes ‘Birkin’ bag) and under article 2598 of the Italian Civil Code, regulating unfair competition.

In general, works made for hire eligible for protection under design and copyright law belong to the principle. It is important that the scope of the contractual agreement with designers specifically mentions the conceiving and design of goods and that this activity is properly compensated.

What difficulties arise in obtaining IP protection for fashion goods?

Functional elements are excluded from design protection. Also, designs or trademarks contrary to public policy and to accepted principles of morality may not be registered as designs or trademarks.

Moreover, a trademark is excluded from registration that consists exclusively of the shape, or another characteristic, which results from the nature of the goods, is necessary to obtain a technical result, or gives substantial value to the good. This last ground for refusal is the most dangerous for fashion products, as the case laws states that a shape gives substantial value to a fashion good if it plays an important role in consumers’ decision to purchase it. In application of this principle, the Court of Venice declared invalid the shape trademark covering Crocs shoes.

That said, registering a design in Italy is not difficult. The office does not carry out any substantive examination, but simply verifies that formal requirements are met.

Brand protection

How are luxury and fashion brands legally protected in your jurisdiction?

Italian law grants protection to both registered and unregistered trademarks, provided that they are new and distinctive. These may include brand names, product names, patterns, colours and shapes. Domain names, trade names, store signs and any other distinctive signs used by the company can also be protected under the Italian IP Code.

Licensing

What rules, restrictions and best practices apply to IP licensing in the fashion industry?

Licensing may concern all or part of the goods for which the trademark is registered or used. Two main restrictions shall be considered:

  • the licence shall not deceive the public as to those product features that are essential in the public’s perception; or
  • for non-exclusive licences, the licensee shall undertake to use the trademark to distinguish only products identical to those of the licensor or other licensees.

In manufacturing agreements including a trademark licence, it is advisable to provide that trademark owners may carry out audits to check that the trademark is used correctly and to regulate the procedures to adopt following the termination of the agreement (stocks; unfinished products; return of moulds and documents, etc).

As to copyright, while moral rights cannot be waived, licensed or assigned, economic rights may. The rights of economic exploitation of the work include the right to create copies of the work, create derivative works, display the work publicly, or sell or assign the rights to third parties.

While agreeing a licence in writing is not mandatory under Italian law, it is surely advisable and, as far as copyrights are concerned, Italian Copyright Law requires that any transfer of copyright is proved in writing.

Enforcement

What options do rights holders have when enforcing their IP rights? Are there options for protecting IP rights through enforcement at the borders of your jurisdiction?

Interim proceedings are the most efficient means through which a brand may stop the manufacturing, promotion or marketing of counterfeits as well as obtain the disclosure of information on the infringer, its products and activity. To file a preliminary injunction, claimants must provide evidence in support of prima facie entitlement to the claim and urgency of the claim.

Interim proceedings usually last a couple of months (whereas proceedings on the merits may last up to two or three years) and are a good option when the time necessary for obtaining a decision on the merits would make it useless, as typically happens for some fashion products.

Proceedings concerning IP rights fall within the exclusive jurisdiction of specialised courts dealing with infringement, non-infringement and invalidity actions.

Infringements may also be prosecuted as a crime under the Italian Criminal Code and Copyright law.

With respect to trademarks, opposition is available to prevent the registration of a trademark that is identical or similar to a previously registered one.

Finally, an application for action with the Italian Customs Agency under EU Regulation 698/2013 allows right holders to stop the circulation of goods infringing their IP rights.

Data privacy and security

Legislation

What data privacy and security laws are most relevant to fashion and luxury companies?

Fashion and luxury companies are required to comply with EU Regulation 679/2016 (General Data Protection Regulation (GDPR)), which came into force on 25 May 2018. GDPR applies both to companies processing personal data as part of the activities of one of their branches established in the EU, regardless of where the data is processed, and to companies established outside the EU, offering goods or services to individuals in the EU or targeting EU customers by profiling.

Companies processing personal data are also required to comply with the Italian Privacy Code (Legislative Decree No. 196/2003, as amended by Legislative Decree No. 101/2018 to align with GDPR) and with the Italian Data Protection Authority’s guidelines (eg, on marketing and against spam of 2013).

Compliance challenges

What challenges do data privacy and security laws present to luxury and fashion companies and their business models?

The ‘accountability principle’ is the most significant challenge, imposing on companies responsible business management, considering the risks associated with the activity carried out and ensuring full compliance of personal data processing with the applicable legislation.

This includes taking a ‘privacy-by-design and by-default’ approach where brands incorporate data protection into the architecture of their services and products, also by taking appropriate technical and organisational measures ensuring that their organisation complies with GDPR principles of lawfulness, fairness and transparency, purpose limitation, data minimisation, accuracy, storage limitation, integrity and confidentiality. Concretely, these principles shall be considered when developing new IT services or products (including those deploying innovative technologies such as wearable technologies) that involve processing customers’ personal data or new business strategies that may have privacy implications (eg, by assessing whether the data processed are excessive for the intended purpose).

Before GDPR, the Italian Data Protection Authority agreed to extend to seven years the retention period to process customer personal data for profiling and marketing purposes through a customer relationship management system to some fashion brands, because of the lower frequency of luxury goods purchases. This offers a useful indication of what is considered appropriate.

GDPR also includes very concrete measures that may impact fashion brands. For example, when carrying out large-scale customer profiling, companies shall carry out a data protection impact assessment (DPIA) (see answer 19) and appoint a data protection officer, who shall directly report to the highest management and act as point of contact for data subjects for any issue.

Innovative technologies

What data privacy and security concerns must luxury and fashion retailers consider when deploying innovative technologies in association with the marketing of goods and services to consumers?

Before processing personal data for operations that are likely to result in a high risk to the rights and freedoms of natural persons, the GDPR requires carrying out a DPIA.

This shall describe the processing operation, evaluate its necessity and proportionality and manage any risks arising therefrom, by assessing the level of risk and determining appropriate mitigation measures. In this regard, article 29 of the Guidelines on DPIA of the Working Party, establish that applying new technological or organisational solutions - such as certain Internet of Things (IoT) applications that involve new forms of data collection and usage - may represent a high risk to individuals’ rights and freedoms that could have a significant impact on their privacy and daily lives. In such circumstances, a DPIA is required.

Similarly, the Italian Data Protection Authority indicates the DPIA as necessary to carry out data processing by using innovative technologies (eg, IoT; artificial intelligence systems; monitoring carried out by wearable devices).

Content personalisation and targeted advertising

What legal and regulatory challenges must luxury and fashion companies address to support personalisation of online content and targeted advertising based on data-driven inferences regarding consumer behaviour?

GDPR provides that data subjects shall have the right not to be bound by a decision based solely on automated processing producing legal effects on him or her, unless such activity is:

  • necessary for concluding, or performance of, a contract between data subject and data controller;
  • authorised by union or member state law to which the controller is subject; or
  • based on the data subject’s explicit consent.

The Italian Data Protection Authority in the ‘Guidelines on the processing of personal data for online profiling’ specifically provides that any processing of personal data for profiling purposes, other than those necessary for providing the service (eg, virus filters), shall be carried out with the data subject’s informed consent.

Information on data processing must be clear, complete, exhaustive and visible from the first page of the site, to allow data subjects to express their consent. In any case, the right to revoke the choice must always be guaranteed through a clearly visible link.

In addition, activities aimed at analysing or predicting aspects concerning the data subject’s personal preferences or interests, also carried out online or through apps, require the data controller to first carry out a specific DPIA.

Advertising and marketing

Law and regulation

What laws, regulations and industry codes are applicable to advertising and marketing communications by luxury and fashion companies?

Misleading and comparative advertising is regulated by Legislative Decree No. 145/2007, implementing EU Directive 2006/114. Misleading advertising may also amount to an act of unfair competition under article 2598 of the Italian Civil Code.

Furthermore, advertising is subject to the Consumer Code rules and, in particular, to articles 21 and 22 punishing misleading omissions and unfair commercial practices.

Finally, the Advertising Self-Regulatory Body (IAP) adopts a Self-Regulatory Code that specifically regulates commercial communications and advertising. The code is applicable to IAP signatories only, but is regarded as an authoritative source for best practices. Some rules are particularly interesting for fashion brands (eg, the use of body images inspired by aesthetic models clearly associated with eating disorders that are harmful to health is forbidden).

Special rules are adopted for specific sectors, such as cosmetics, the advertising of which is regulated by EU Regulation 1223/2009.

Online marketing and social media

What particular rules and regulations govern online marketing activities and how are such rules enforced?

In 2019, the IAP formally adopted the Digital Chart Regulation, which is part of the Self-regulatory Code, setting online marketing standards.

While the IAP monitors the market to check compliance with the Self-regulatory Code, the Italian Competition Authority (ICA) is entrusted with enforcing European and Italian consumer protection legislation. They are quite active: in the past three years, the ICA twice sent moral suasion letters to hundreds of influencers and brands.

Generally speaking, influencers’ marketing requires higher standards of clarity and transparency that the ICA explained at the end of an investigation involving Alitalia, Aeffe and some Italian influencers. According to the ICA:

  • Companies must adopt specific ‘guidelines’ setting the rules of conduct for influencers, to be included in any cooperation agreement with them; invite influencers to comply with the legislation when sending them free or modest-value supplies; and send to business units involved in influencer marketing a formal communication recommending compliance with the legislation on unfair commercial practices.
  • Influencers must, when promoting a product as part of a business agreement, disclose the promotional nature of the content by including appropriate hashtags (eg, #advertising, #sponsoredby).

From a data protection perspective, the most relevant provisions regulating marketing are established in the GDPR, the e-privacy Directive 2002/58, the Italian Privacy Code and the Data Protection Authority’s guidelines on marketing and against spam. The user’s consent is required to carry out marketing activities by means of automated calling or communication systems without human intervention. The same applies to the processing carried out by means of electronic communications performed by email, MMS or SMS or other means.

Product regulation and consumer protection

Product safety rules and standards

What product safety rules and standards apply to luxury and fashion goods?

The general rules on product safety are set forth by Consumer Code, implementing EU Directive 2001/95 on general product safety.

Different provisions related to the specific materials and products apply to luxury goods. The most relevant regulation for textiles is EU Regulation 1007/2011. All textile products made available on the market must be provided with the fibre composition label, in Italian, easily visible and accessible. Labelling and marking requirements on fibre composition apply to textile products containing at least 80 per cent by weight of textile fibres and some textile components.

As to footwear, labelling requirements are set forth by Ministerial Decree 11 April 1996 (implementing EU Directive 94/11) requiring that labelling provides information on the materials that constitute at least 80 per cent of the surface area of the footwear upper, lining and sock, and at least 80 per cent of the outer sole volume.

Legislative Decree No. 190/2017 provides for sanctions for violation of the textile and footwear labelling rules.

Materials used must also comply with general EU legislation related to restrictions on the marketing and use of dangerous substances and preparations (eg, EU Regulations 1907/2006 (REACH), 2019/1021 on persistent organic pollutants and 528/2012 on biocidal products).

Specific restrictions apply to the use of the Italian words for ‘leather’, ‘fur’ and ‘hide’ (including synonyms and words deriving from them) under Law No. 1112/1966.

Product liability

What regime governs product liability for luxury and fashion goods? Has there been any notable recent product liability litigation or enforcement action in the sector?

Fashion goods would fall into the scope of the Consumer Code, implementing also EU Directive 85/374, governing general product liability.

The producer shall be held liable for any damages caused by its defective product (ie, not ensuring ‘the safety that can be reasonably expected’). The plaintiff is required to prove damage, defect and causation between them. Thus, unlike the Italian general tort regime, product liability is unrelated to the assessment of any producer’s fault. However, Italian courts often apply the general tort regime when deciding product liability cases.

No recent litigation or enforcement action, specifically concerning the sector, has made the news.

M&A and competition issues

M&A and joint ventures

Are there any special considerations for M&A or joint venture transactions that companies should bear in mind when preparing, negotiating or entering into a deal in the luxury fashion industry?

Whenever a business is built around a designer’s name (often also a controlling or significant shareholder) agreements with him or her have to be carefully considered as this business model exposes the investment to a number of risks (eg, termination of the cooperation, major disagreements on brand policies or strategies, etc) that shall be properly addressed in transaction agreements.

IP rights are crucial assets in this industry. A sensible investor should perform an accurate due diligence at least on the manner in which: these rights are protected and enforced; the business is managed to avoid violation of third parties’ rights; IP rights have been disposed (eg, very long or broad in scope licences or joint ventures may be detrimental to the investors’ development plans).

The supply chain is similarly crucial and an accurate due diligence on the target’s organisation is essential. Service quality and brand reputation are indeed key factors in the fashion industry and a supply chain that is not reliable (in terms of quality and timing) or not compliant with social responsibility standards may be risky.

Finally, in a business based on the intangible, talents are essential. Thus, retaining policy, non-compete and non-disclosure agreements with key employees is an area of great attention.

Competition

What competition law provisions are particularly relevant for the luxury and fashion industry?

In Italy, free competition is protected by law No. 287/1990 as applied in parallel with articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) and related EU Regulations and Guidelines (ie, EU Regulation 330/2010 on Vertical Restraints and related guidelines; guidelines on the applicability of article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements) as well as the rules set forth for merger and acquisitions.

Selective distribution agreements are particularly relevant for the industry. Purely qualitative selective distribution is considered to fall outside article101(1) TFEU for lack of anticompetitive effects, provided that it does not contain any of the hardcore restrictions set out in article 4 of EU Regulation 330/2010 (price; territory; restriction of active or passive sales to end users by selective distributors; cross-supplies) and the three conditions laid down in section 175 of the Guidelines on Vertical Restraints are met. In particular:

  • the nature of the product must necessitate this system;
  • resellers must be selected on the basis of objective criteria of qualitative nature uniformly applied; and
  • the criteria must not go beyond what is necessary.

Even if those conditions are not satisfied, the agreement could still be eligible for the exemption if it does not contain any hardcore restrictions and the market share of both supplier and buyer does not exceed 30 per cent.

In 2019, the Court of Milan - in line with the Coty decision, C-230/2016 - ordered an online platform to refrain from marketing and promoting in Italy the products of the well-known brand Sisley, claiming that these sales were in violation of its selective distribution system. The court found that the commercial conditions submitted to retailers were in line with the applicable rules in view of the ‘objective, qualitative and non-discriminatory nature of the criteria on which they are based and their appropriateness and proportionality in relation to the protection objectives of the brand commercial image and luxury aura’, thus recognising the selective distribution system validity.

Furthermore, the ICA initiated investigations for anticompetitive agreements that culminated in the imposition of fines on eight major modelling agencies, representing 80 per cent of Italy’s market share.

Employment and labour

Managing employment relationships

What employment law provisions should fashion companies be particularly aware of when managing relationships with employees? What are the usual contractual arrangements for these relationships?

Collaborations with freelancers are quite common in the sector. However, such contractual arrangements (legally, self-employment relationships) often actually trigger a typical employment relationship, with consequent risk of reclassification of the relationship as employment. This impacts salary, social security coverage and the general management of the relationship.

Accordingly, in building up or increasing the staff, it is crucial to have a preliminary assessment of whether new members are actually autonomous as to timing and modalities of their performances or, differently, are subject to a strict agenda unilaterally managed and decided by the employer, notwithstanding whether personally or through a digital platform. In the latter case, it would be advisable to hire them as employees from the beginning.

Contractual arrangements usually include confidentiality, protection of trade secrets, non-compete and management of suppliers’ provisions.

Trade unions

Are there any special legal or regulatory considerations for fashion companies when dealing with trade unions or works councils?

No. Each employee is free to join a trade union and cannot be discriminated because of his or her registration with (or the lack of registration to) a union. If there are more than 15 employees in a business unit, each union (there are several unions in each sector, with five main ones) may appoint a union representative from among the employees.

Immigration

Are there any special immigration law considerations for fashion companies seeking to move staff across borders or hire and retain talent?

Italian law on immigration is quite restrictive as to non-EU citizens coming to Italy for working reasons. However, there are various exceptions (business purposes, high technical skills, etc) that generally allow companies to send people to Italy with no particular issues.

Update and trends

Trends and developments

What are the current trends and future prospects for the luxury fashion industry in your jurisdiction? Have there been any notable recent market, legal and or regulatory developments in the sector? What changes in law, regulation, or enforcement should luxury and fashion companies be preparing for?

As a worldwide trend, Italian brands will have to think digital-first and be active with sustainability issues as well as careful with all the above-mentioned changes.