Market spotlight

State of the market

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

France is the biggest luxury player in the world: the French luxury market represents a quarter of the global luxury market, driven by global luxury leaders. In 2019, three French groups were among the top five global luxury goods companies by sales: LVMH Moët Hennessy-Louis Vuitton SE (first), Kering SA (second) and L’Oréal Luxe (fifth).

Due to the growing success of these companies, the luxury fashion market is essential for the French economy, notably with respect to employment and exports. The importance of this sector in the French economy enabled, in 2020, the signature of a strategic sector contract between the Fashion and Luxury Sector Strategic Committee and French Ministers for Economy, Finance, and Culture. The purpose of this contract is to develop know-how, ensure strong corporate social responsibility policies and nurture the international growth of the sector.

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?

Quality and know-how are essential for the production of fashion goods. Many luxury companies have chosen to keep the major part of their production in France.

The term ‘Haute Couture’ is protected by law and defined by the Paris Chamber of Commerce. The Haute Couture Syndicate (Chambre Syndicale de la Haute Couture) is responsible for the determination of which luxury companies are eligible to qualify as ‘Haute Couture’. To earn this denomination, companies have to follow specific rules, including designing made-to-order fashion items for private clients, owning at least two workshops (one of which in Paris), and presenting a collection of at least 50 original designs to the public every fashion season.

Customers are growing attached to the ‘Made in France’ label, which is also a guarantee of quality at the international level. Although not an official label, this mention certifies that the product has been mainly manufactured and assembled in France. Though it does not have to follow a strict set of specifications, it is illegal to indicate a false origin. According to the General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF), a ’Made in France‘ good has to:

  • display a different customs codification from those of its non-French raw materials and components;
  • respect a maximum value threshold for its raw materials and non-French components in relation to its price; and
  • have undergone certain processing operations in France if using non-French raw materials and components.

 

This is also the reason why most companies are strongly attached to being entirely in charge of their product development. Most luxury companies’ purchasing and manufacturing strategy is centred around acquisitions to allow them to have the product manufacture under their control.

Contractual arrangements for relationships relating to the development, manufacture, and supply chain for fashion and luxury goods are regulated by standard French contract law but must comply in specific cases with applicable laws and regulations, notably regarding the use of fur, exotic leather and diamonds.

Distribution and agency agreements

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

The European Regulation (EU) No. 330/2010 of 20 April 2010 on the application of article 101(3) of the Treaty on the Functioning of the European Union (TFEU), which limits the restrictions a supplier could impose to a distributor or an agent, is the central element of the legal framework governing distribution and agency agreements. This regulation provides for an exemption to the general prohibition of vertical agreements (article 101(1) TFEU), for selective distribution, which concerns mainly luxury or high technology goods.

Apart from this regulation, these agreements are governed by the French Commercial Code which applies to all companies without specificity to the luxury and fashion sector.

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

Under French law, it is essential to avoid any confusion between a distribution agreement and an agency agreement.

French law sets out that a distributor is an independent natural person or legal entity, who buys goods and products from the manufacturer or supplier and resells them to third parties, upon the agreed trading conditions, and at a profit margin set by such distributor.

A distributor may be appointed for a particular territory, either on an exclusive, or non-exclusive, basis.

Under French law, there is no statutory compensation for the loss of clientele and business due to the distributor upon expiry or termination of a distribution agreement. However, French case law has recently recognised that some compensation may be due when some major investments had been made by the distributor, on behalf of the manufacturer or supplier, in the designated territory.

Moreover, there is no statutory notice period to terminate a distribution agreement under French law. However, most distribution agreements set out a three-to-six-month termination notice period.

French law sets out a detailed legal framework relating to the role of commercial agent, which is of a ‘public policy’ nature (ie, one cannot opt out from such statutory legal provisions). In particular, commercial agents must be registered as such, on a special list held by the registrar of the competent French commercial court.

Under French law, not only is it very difficult to terminate a commercial agent (except for proven serious misconduct), but also there is a statutory considerable compensation for the loss of clientele and business that is due to the terminated agent by the manufacturer or supplier.

Selective distribution is the most commonly used distribution structure for luxury goods in France.

Such selective distribution systems of luxury products can escape the qualification of anticompetitive agreements, pursuant to article 101(3) of the TFEU (individual and block exemption). However, in 2011, the European Court of Justice (ECJ) held that the selective distribution agreement that has as its object the restriction of passive sales to online end users outside of the dealer’s area excluded the application of the block exemption in its decision in Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi. The ECJ ruled that it was down to the French courts to determine whether an individual exemption may benefit such selective distribution agreement imposed by French company Pierre Fabre Dermo-Cosmétique SAS to its distributors. To conclude, it is clear that the ECJ set out that the prohibition of internet sales, in a distribution agreement, constitutes an anticompetitive restriction.

Import and export

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

No specific French import and export rules apply to fashion goods. Luxury and fashion goods are bound to the same regulations as standard goods. France, as an EU member state, applies the common external tariff to goods imported from non-EU countries. Broadly, import duties (from zero per cent to circa 17 per cent) are calculated on the value of imported textiles, apparel and footwear goods. Specific rates may apply depending on the individual characteristics of the goods.

There is a specific legislation on products such as exotic leather or diamonds which are used in luxury and fashion goods. Luxury materials are essential to luxury goods and even though some luxury brands are deciding to avoid using them, exotic leathers are still an important raw material for the production of luxury handbags or shoes. France is party to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) since 1978. CITES aims at ensuring that international trade of specimens of wild animals and plants does not threaten their survival and works by subjecting international trade of specimens of selected species to certain controls. All import, export, re-export and introduction from the sea of species covered by the convention must be authorised through a licensing system.

With respect to trading and sourcing of diamonds, the European Union is also one of the 54 participants to the Kimberley Process initiative, representing all member states including France. The purpose of the Kimberley Process is to put an end to the ‘blood diamonds’ issue, contributing to the financing of conflicts. The implementation of the Kimberley Process Certification Scheme is provided for at EU level by Regulation (EC) No. 2368/2002 of 20 December 2002.

Additionally, on 2 February 2021, the DGCCRF signed a cooperation protocol with the agency in charge of intelligence processing and action against clandestine financial circuits (TRACFIN) in order to improve the prevention of money laundering and terrorism financing, in several sectors of industry, including luxury. In this respect, exchanges of luxury goods are particularly monitored to ensure they are not linked to financial fraud.

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?

Due diligence framework and disclosure requirements are governed by Law No. 2017-399 of 27 March 2017 on the corporate duty of vigilance for parent and instructing companies. This law is designed to ensure effective protection of fundamental rights, and individuals and environment’s safety with regard to all operations of parent companies, their subsidiaries, and any other companies in the supply chain, regardless of where they operate. Parent companies of groups that employ at least 5,000 employees in France or 10,000 employees worldwide must establish, implement and publish a ‘vigilance plan’. As per article 225-102-4-I of the French Commercial Code, the plan consists in:

 

reasonable vigilance measures of a nature to identify risks and ward against serious violations of human rights and fundamental freedoms, the health and safety of persons as well as of the environment

 

including, inter alia, risk mapping, value chain assessment processes, mitigation and preventive actions, alert mechanisms and monitoring systems on the effective and efficient implementation of measures.

In addition, Law No. 2020-105 of 10 February 2020 relating to the fight against waste and the circular economy provides for a wide variety of measures, including the following:

  • a prohibition on the destruction of non-food unsold products intended for sale, are required to be reused or recycled subject to a fine of €3,000 maximum for an individual and €15,000 maximum for a legal entity;
  • an increased consumer information about the environmental qualities of products that generate waste (eg, use of renewable resources, durability, reparability or availability of spare parts, etc); and
  • a series of new extended producer responsibility schemes including for textile and footwear.

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

As for all employers in France, there is, pursuant to article L 4121-1 of the French Labour Code, a general obligation for employers to ensure the safety and protection of the ’physical and mental health‘ of their employees by taking adequate measures. These include, in particular, (1) implementing prevention, information and training actions, and (2) assessing occupational risks for each position and recording all these risks in a single mandatory document to be issued and updated generally on a yearly basis. It is worth noting that this document is to be made available for employees, staff representatives and the French Labour administration. These obligations are particularly applicable during the covid-19 pandemic where teleworking has had to be put in place for several months and where specific measures had to be taken within companies’ premises.

Online retail

Launch

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

The e-commerce Directive No. 2000/31/EC as implemented by Law No. 2004-575 on confidence in the digital economy mainly regulates e-commerce. It includes provisions regarding the transparency and disclosure requirements as well as liability regime of online service providers.

Fashion marketplace, online retail stores and other online platforms are subject to the Law No. 2016-1321 on the digital republic that includes additional transparency, loyalty and net-neutrality obligations. These requirements should be read in conjunction to those of the EU Regulation No. 2019/1150 on promoting fairness and transparency for business users of online intermediation services (the P2B regulation).

To the extent applicable, online fashion retail stores and marketplaces should follow the relevant sectoral legislation and EU Geo-blocking Regulation No. 2018/302 prohibiting discrimination against consumers based on their place of residence when buying goods or services on online platforms.

Online business-to-consumer stores are subject to the Law No. 2014-344 (Loi Hamon) implementing EU Directive No. 2011/83/EC on consumer rights, which imposes compliance with certain requirements of the French Consumer Code, such as the provision of precontractual information on pricing and payment or on warranties and withdrawal rights.

Sourcing and distribution

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

The role of e-commerce in France is growing in the specific context of the covid-19 pandemic. The evolution in France is not very different from what occurs in other European countries from a legal perspective. Exclusivity terms and different schemes such as selective distribution should be carefully drafted in order to ensure compliance with relevant competition and commercial law provisions.

France went one step further in implementing an end-to-end supply chain accountability and transparency framework by adopting a ‘hard’ law on human rights (Law No. 2017-399 on vigilance duties). It is a broad legislation covering the ‘duty of vigilance of the parent companies and main contractor companies’ requiring larger operators to set up, publish, and implement a ’vigilance plan‘ to address the aftermath of the recent mass accidents. France has adopted a consistent regulatory framework applicable to supply chain regulation in order to prevent to a certain extent material imbalance in supplier–distributor relationships.

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?

France regulates both business-to-consumer (B2C) and business-to-business (B2B) commercial relationships, often materialised through terms and conditions. Most B2C terms and conditions that are used in other EU countries can easily be adapted to France. The precontractual information and provisions of the online terms must be presented and written in a clear and comprehensible manner and provided on a durable medium. The e-commerce operator should make sure that the online terms do not provide for imbalanced or unfair terms for consumers.

B2B terms and conditions are also regulated both by the French Civil and Commercial Codes. Contracts determined in advance by only one party unilaterally (contrat d’adhésion), are further regulated, in particular for clauses that create a significant imbalances between the rights and obligations of the parties which are considered not to have been written. Consequently, some contractual clauses are subject to further scrutiny with regards to significant imbalance.

B2C e-commerce operators should follow closely the implementation of Directive No. 2019/2161 (the New Deal for Consumers), which would modernise existing consumer protection rules and provide an enhanced level of transparency for online retailers.

French Law No. 94-665 on the use of French language (Loi Toubon) imposes using French language for the designation, offer, presentation, and description of a product or service and contracts of adhesion. All electronic contracts should provide for the languages offered for the conclusion of the contract, which would include necessarily a French version for French consumers.

Tax

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

For the purpose of corporate income tax, profits derived from sales online and in retail stores are taxed the same way, without any difference in tax basis or rates.

However, the online nature of a business may play an important role in determining whether sales income is even taxable in France. Broadly, and subject to the provisions of the considered tax treaty, a foreign business may be taxed in France in one of two cases: (1) if it has physical premises and personnel in France, through which the sales activity is carried out, or (2) if it has a dependent agent in France who regularly plays the main role leading to the conclusion of the sales.

A digital business with no physical presence and no retail stores in France may not fall under the above rules, in which case profits derived from the online sale of goods to French customers would not be subject to corporate income tax in France.

Goods sold online and via traditional retail stores are subject to value added tax at the same rates.

However, specific rules shall apply with respect to the territorial scope and compliance obligations of online sales to private consumers that are not VAT registered (B2C).

Intellectual property

Design protection

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

Fashion designs can be protected by various intellectual property rights, namely registered or unregistered designs, trademarks, copyrights, and even trade secrets. A single design can be protected by various intellectual property rights.

Registered design is generally considered as the most adequate right to protect fashion designs. Indeed, protection is easily obtained (if the design is new and has its own character, and third parties cannot oppose such registration at the filing stage) and its duration (up to 25 years) reflects the duration of some fashion goods. Its protection can be limited to the French territory or extended to the whole EU via a community design or an international registration to cover various territories even outside the EU.

Design protection is also granted without registration through the EU non-registered design as provided by EU Regulation 6/2002, which provides three years’ protection starting from the first public disclosure of the creation.

French law also grants copyright protection to any original work without any registration process requirement. To oppose successfully their copyright, an author must demonstrate the date of creation of their work. To that end, sealed envelope or the blockchain can be used. The duration of the copyright protection is 70 years from the death of the author. An author owns both moral and economic rights over its work and can assign or waive their economic right but not their moral right. Since assignment of future copyright work is null, it is recommended that employers enter into regular assignments with creative employees.

Trademark law may also protect fashion designs, be it a word, a logo, a two-dimensional trademark or a three-dimensional one. To be registered as a trademark, a sign needs to be available, distinctive, not descriptive of the goods and services designated by the trademark or a characteristics of the same, not usual or generic to designate the goods and services, not misleading, and not contrary to public order and morality. The threshold is higher when the trademark covers a shape since the sign shall not consist exclusively of the shape or other characteristic imposed by the nature of the product itself, shall not be necessary to obtain a technical result and shall not confer substantial value on the product.

Trademark protection can be limited to the French territory or extended to the whole EU via an EU trademark or an international registration to cover various territories even outside the EU. Trademark protection usually lasts for 10 years but some international registration can extend to 20 years. Trademark protection is renewable indefinitely.

What difficulties arise in obtaining IP protection for fashion goods?

The difficulties in obtaining IP protection for fashion goods are similar to those existing for other goods and in other sectors.

The registration of designs is easily obtained as there is no third-party opposition proceedings before the French Industrial Property Office (INPI) and its threshold to grant design protection is relatively low.

With regard to trademark protection, the same is more cumbersome since the INPI controls the trademark filing on absolute grounds and third parties can oppose a trademark’s registration. In addition, once registered, third parties can act to cancel the trademark on various grounds including for non-use. In France, a trademark must be registered to be protected. However, France being part of the Paris Union Convention, it grants protection to non-registered well-known trademarks as well.

Brand protection

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

Luxury and fashion brands are mostly protected by registered trademarks as there is no unregistered trademark protection in France, with the exception of well-known trademarks under article 6 bis of the Paris Union Convention. Domain names enable to protect the URL linked to the website exploited by the fashion companies. In addition, luxury and fashion brands can also be protected as company name, shop sign and trade name.

Licensing

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

There are no specific rules or restrictions to IP licensing in the fashion industry in France.

However, a detailed written agreement is advisable, in particular if it covers copyright assignment.

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?

IP right owners can enforce their trademark rights before INPI by initiating trademark opposition and cancellation proceedings against third party’s trademarks.

They can also enforce their IP rights before civil courts on the ground of trademark, design or copyright infringement where they can claim damages and notably request permanent or preliminary injunctions against the infringers.

IP right owners can also initiate criminal proceedings but since criminal judges are not IP specialised ones, IP right owners favour civil proceedings.

Finally, IP right owners can record their IP rights with the Customs authorities through French or European customs applications, enabling the French Customs authorities to retain and inform the IP right owners of any suspicious products.

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 the General Data Protection Regulation 2016/679 (GDPR) and Law No. 78-17 as amended. These two sets of main legal bodies should be read in light of the regulatory guidance and recommendations issued by the European Data Protection Board. France implemented specificities for GDPR opening clauses.

The French Data Protection Authority (CNIL) endorsed a strict approach on various subjects and has an active enforcement strategy. Fashion and luxury companies should also comply with direct marketing laws in respect to electronic marketing communications laid out in the French Postal and Electronic Communications Code.

Compliance challenges

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

The challenges luxury and fashion companies face are similar to those faced by other e-commerce operators from various sectors.

Luxury and fashion companies that use different techniques to increase consumer engagement and technologies are required to make sure that they comply with the relevant regulations in respect to the use of cookies and processing of personal data. In accordance with the ‘accountability principle’, such schemes would need to comply with the various principles of the GDPR. Therefore, when carrying out a large-scale consumer profiling, the luxury and fashion companies need to carry out data protection impact assessments (DPIA) and appoint a data protection officer. They should secure their information systems and in particular their customer databases and related information that could be subject to cyberthreats and data breach related obligations.

The specific framework applicable to cookies and other online trackers represents a challenge to operate global websites without implementing changes in the French local version.

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 innovative purposes or on a large scale, or both, activities that are likely to result in a high risk to the rights and freedoms of natural persons, the GDPR requires carrying out a DPIA. The CNIL has published a list of processing operation for which a DPIA is required, as well as a list for which it is not required.

Regarding facial recognition, the CNIL considers that a balanced overview is necessary in order to avoid any confusion and any blanket conclusion on this technology as it can host possible uses. Biometric processing has been identified by the CNIL as a key challenge under high scrutiny and is regulated by several legal frameworks.

The use of tracking devices is likely to trigger privacy and cybersecurity challenges.

In addition, France carries out work to implement a more and more consistent framework on the use of blockchain technologies, including for supply chain traceability.

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?

Website personalisation, interest-based advertising, and targeted content imply that luxury and fashion companies must ensure that they are relying on a valid legal basis under the GDPR and the consumers are duly informed and have the possibility to object such processing activities.

The threshold for gathering is rather high with the prohibition of pre-ticked boxes and high expectation in terms of data subject’s information.

After the entry into force of the GDPR, programmatic advertising has been a hotly debated topic and data protection authorities in the EU have received various complaints from data protection associations.

The CNIL’s activities on the cookies and ad tech sectors raise challenges for the use of analytics cookies and ad tech framework such as IAB’s Transparency Consent Framework.

As the operator of their website, luxury and fashion companies should ensure that they have the appropriate consent management mechanism in order to inform and ask for affirmative consent for targeting and advertising cookies.

Luxury and fashion companies should carefully conduct contract due diligence and make sure that their integration are in line with the GDPR and, where the personal data is transferred outside the EU, appropriate safeguards are put in place and, since the CJEU Schrems II ruling, that additional measures are implemented where required.

Advertising and marketing

Law and regulation

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

In addition to the privacy regulations, advertising and marketing content should be in line with general requirements regarding advertising provided for by articles L 121-1 et seq of the French Consumer Code.

Advertising professionals are grouped together in various bodies, the most important being the Authority of Professional Regulation of Advertising (ARPP). Additionally, according to the Decree No. 92-280 of 27 March 1992 interpreted in light of the ARPP’s guidelines, commercial promotional operations that are advertised for linear television services are prohibited in France. According to the ’Toubon Law‘, the content of the advertising should be in French.

In respect to direct marketing, article L 34-5 of the Posts and Electronic Communications Code (PECC) defines direct marketing as ‘any message intended to promote, directly or indirectly, good, services or the image of a person selling goods or providing services’. Direct marketing communications are subject to the ePrivacy framework and its local implementation.

As a matter of principle, any B2C online direct marketing operation requires end users’ explicit consent to receive direct marketing (opt-in), which must be obtained at the time of the collection of contact details. Two exceptions exist and allow for an opt-out regime where: (1) there is an existing business relationship, the recipient’s contact details have been collected directly from the data subject; and (2) the communication is of a non-commercial nature.

Such communications must provide the individual with free, direct and easily accessible means to opt out of marketing communications.

Online marketing and social media

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

Under Law No. 2004-575, social networks qualify as hosting providers and, for user-generated-content, their liability can only be sought when the social networks do not act expeditiously to remove or disable access to the litigious content, upon obtaining such knowledge or awareness.

However, there is no specific online marketing rules applying to social media influencer marketing, distinct from those applying to retail generally.

The challenge of operating on social networks are linked to the technologies and processing operations used.

The ARPP has published certain industry rules in order to regulate collaboration between brands and influencers on the Digital Advertising and Marketing Communication Code Interpretation Grid whereby notably the existence of a commercial relationship must be disclosed to the consumer.

As for customer reviews, article L 111-7-2 of the French Consumer Code obliges platforms that allow online comments to inform end users of the measures put in place to ensure their loyalty and to provide transparent information about their moderation and sorting.

The recent dramatic events regarding the terrorist attack on Professor Samuel Paty and on the US capitol strengthen the need of reinforcing the French law against hate speech.

Product regulation and consumer protection

Product safety rules and standards

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

There is no specific product safety regime for luxury and fashion goods under French law.

The French Consumer Code presents product safety rules and standards according to which the producer is responsible for product safety.

The General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) is responsible for verifying the respect of the rules and standards.

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?

No specific legislation applies to luxury and fashion goods with respect to product liability.

Product liability for all defective products is governed by articles 1245 et seq of the French Civil Code. The ‘Hamon Law’ has introduced the French equivalent of class actions and on 25 November 2020, Directive No. 2020/1828 gave consumers new means to hold companies responsible regarding defective products.

As most companies wish to protect strongly their brand image, issues are mostly resolved through the companies’ internal consumer services or settled. There has not been any notable recent product liability litigation or enforcement action in the luxury and fashion sector.

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?

As France has no local authorisation or ownership requirements, one of the key considerations for a company considering to acquire another company in the luxury fashion industry is to conduct a thorough due diligence with respect to intellectual property, which is critical.

Another key issue lies in organising the relationship with the brand’s founder ensuring that the company may keep operating in case of departure since her name is usually strongly associated with the brand itself. The issue of using the brand’s name when it is the same as the living founder’s name is key.

Another interesting issue rests in the way the exclusivity undertaking from the founder should be drafted because despite the latter’s importance, an investor may want to enter into a relatively loose undertaking thereby enabling the founder to represent the brand in some well-defined instances allowing him or her to compete to some extent with the brand. By enhancing the founder’s visibility and notoriety, the company will in turn directly benefit from it.

While nowadays online platforms have taken over, the buyer’s due diligence should also focus on advertising compliance, privacy, and cybersecurity as these types of deal will most probably involve acquiring or setting up online platforms.

Competition

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

Article L 420-1 of the French Commercial Code (FCC) as well as article 101(1) of the Treaty on the functioning of the European Union (TFEU) prohibit agreements and concerted practices among undertakings which have as their object or effect the prevention, restriction or distortion of competition. Those provisions are applicable to vertical relationships and distribution agreements. As a matter of principle, resellers shall be free to implement their own commercial and pricing strategy. Yet, selective distribution may fall outside the scope of article 101(1) TFEU if resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly and not applied in a discriminatory way. Moreover, the characteristics of the product in question must require such a network in order to preserve its quality or ensure its proper use. Finally, the criteria laid down cannot go beyond what is necessary (Metro). As such, selective distribution is available to luxury products. It allows for a greater control by the brand owner on the identity of the resellers and the conditions of selling and marketing.

However, even if a selective distribution network falls in the ambit of article 101(1) TFEU, restrictions to competition may be exempted under article 101(3) TFEU. This shall be the case if the agreement fulfils the conditions laid down in the EU Vertical Block Exemption Regulation No. 330/2010 (VBER) and Vertical Guidelines of the European Commission.

In particular, the parties’ market shares must remain below 30 per cent and the agreement may not include any of the hardcore restrictions mentioned in article 4 VBER. This means that brand owners may not combine selective distribution with exclusivity for a given territory or group of customers. They can only restrict the location of the reseller’s premises. Finally, VBER rules exclude restrictions intended to prevent authorised resellers from selling competing products.

As selective distribution entails requirements relating to the way products are being sold, the issue of online sales may prove to be challenging. In that respect, CJEU case law has brought clarifications over the recent years. A brand owner may not impose on resellers a total ban on internet sales (Pierre Fabre) but can prevent its authorised resellers from offering products on third-party marketplaces (Coty).

Failure to comply with these rules may lead to a fine up to 10 per cent of the company’s annual turnover in addition to potential claims for compensation.

Furthermore, article L 442-2 FCC holds liable any business that directly or indirectly takes part in the breach of a selective distribution network.

Finally, the European Commission is currently reviewing the principles enshrined in VBER and Vertical Guidelines. A revised version of these rules shall come into force in 2022.

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?

The nature of the contractual arrangements within the fashion industry will most often depend on the nature of the tasks to be carried out. Often fashion industry employers enter into employment contracts. Some other positions, which require some specialisation and technicities, will usually be carried out by freelancers or through specialised temporary agencies.

Fashion industry employers shall be particularly aware of reclassification risks of freelancer arrangements into employment contracts. There is no legal definition of an employment relationship, but case law usually defines it as providing services against remuneration for the account and under the subordination link of the beneficiary of the services. Specific attention shall be paid to the fact that this definition may also apply in various occasions, as for interns, or without any contractual arrangements. Reclassification into an employment relationship may entitle the employee to significant indemnities and engage both the civil and criminal liabilities of the employer.  

Like in any employment relationship, fashion industry employers shall abide by the provisions of the French Labour Code and specific covenants in relation with the fashion industry may be included (IP, image rights, etc). On top of these statutory provisions, fashion industry employers shall note that the employment relationship will also be governed by the industry-wide collective bargaining agreement (CBA) concluded by employers’ organisations and unions, and within which their principal activity falls. These CBAs usually cover many aspects of the employment relationship. The panel of French industry-wide CBAs in the fashion industry is very diverse and might be tricky to determine. Within the same group, different CBAs might be applicable.

Fashion industry employers shall also be wary of the constraints that some events may trigger, such as the fashion weeks. During these periods, specific attention shall be paid to working time regulations.

Trade unions

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

There are no special legal or regulatory consideration for fashion companies when dealing with trade union or works councils. Trade unions and works councils shall abide by the provisions of the French Labour Code and the applicable CBA. Like in any industry, both can negotiate a company-wide agreement that, depending on the topic of the negotiation, may prevail on the industry-wide CBA.

Negotiations of company-wide agreements are quite common and may cover many aspects of the employment relationship. Unions usually have monopoly in negotiations. In companies with union delegates, a compulsory negotiation must be conducted generally every year on various subjects. Trade union representatives and works council members enjoy a specific protection against dismissal and enjoy freedom of speech.

Employees have the right to adhere to any trade union they wish; this membership cannot ground any discrimination.

Immigration

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

There are no special immigration law considerations for fashion companies seeking to move staff across borders or hire and retain talent. EU citizens may stay and work in France according to secondment regulations. Where using temporary agencies of models, verifications shall be made that they comply, in particular, with imperative French regulations. Non-EU citizens are required to hold permits to stay and work in France.

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 or regulatory developments in the sector? What changes in law, regulation, or enforcement should luxury and fashion companies be preparing for?

The French luxury fashion industry appears to be driven by both digitalisation and sustainability, which lead to new legal issues and challenges. This is in line with the Fashion Pact signed by G7 member states in Biarritz in 2019, which provides for guidelines in relation to the fashion industry, including the support of adoption of circular economy principles such as the sourcing of regenerative raw materials, material efficiency, and recycling or upcycling. At COP26, reaching a more circular economy was also recognised as key to tackling global challenges including climate change and biodiversity loss. In addition, the circular economy plan of the European Union put emphasis on the textile production system, encouraging EU member states to adopt measures addressing textile waste prevention. For instance, in France, textile waste is often mentioned in the context of general targets for municipal solid waste. 

The protection of consumers has also been increasingly reinforced and luxury companies may consider providing their customers with further rights. France is one of the 11 EU member states that signed a joint paper sent to the European Commission, further to the Roundtable on Textiles that took place on 1 June 2021, requesting, inter alia, that a mandatory label be introduced to inform consumers in a direct, simple and comprehensive manner about both the environmental and social impacts of a garment at the moment of purchase.

Luxury and fashion companies must, therefore, adapt to these trends, reaching customers through new online channels including social media, considering environmental issues in manufacture as well as providing more transparency about the methods used, and materials and labour standards throughout the supply or value chain, or both. 

In the coming years, blockchain technology may well be a useful tool in supply chain and inventory management, transforming the shape of the luxury fashion industry.

Coronavirus

Coronavirus

What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

Following its announcement of the state of health emergency, the French government issued various orders allowing the postponement of deadlines expiring during the health crisis.

In 2020, luxury and fashion companies were strongly impacted by the French government's temporary decisions to close all non-essential stores welcoming the public or to ban or to reduce gatherings in public and experienced the effects of the covid-19 pandemic on manufacturing and sales activities. In addition, the Paris Fashion Week had to adopt an online format for the first time.

In light of this, luxury and fashion companies may consider, among other measures, to continue to follow the trend of digitalisation in order to reinvent their industry.

Law stated date

Correct on

Give the date on which the information above is accurate.

31 January 2022.