When New Guards Group founder Marcelo Burlon approached Virgil Abloh about an opportunity to take his clothing to a higher level, the Pyrex Vision designer told the Business of Fashion he was hesitant. Working with Burlon would have given Abloh the ability to launch a new project that would steer him away from printing shirts on Champion blanks, and instead, produce luxury commodities manufactured in Italy’s finest factories. The catch, Burlon and his partners would control Abloh’s company and “take 50 percent” of its profits. After seeing Burlon’s showroom in Milan, it was a no brainer. Abloh teamed up with Burlon, Claudio Antonioli, and David Davide De Giglio, who later formed as the New Guards Group, and officially birthed Off-White in December of 2013. 

Abloh does not own Off-White the company, but it was recently revealed that he does own its trademark. But what does that mean? 

According to professor Susan Scafidi, the founder and president of the Fashion Law Institute at Fordham University, it means that Virgil owns the intellectual property that is the Off-White trademark. Meanwhile, New Guards is the company that is renting out its license to use the trademark on everything from fragrances to furniture. Essentially, it means Abloh owns his masters. And he can choose what he wants to do with his trademark once his agreement with New Guards is up.   

“Trademarks are the most valuable asset of any fashion company. Designers live and die, seasons come and go. Products come in and out of style, but the trademark is forever,” says  Scafidi. “The trademark is where the value of a fashion company lies. So licensing a trademark to another company is a big deal.”

Scafidi points to Donna Karan as a case study on what happens when a designer doesn’t own their trademarks. Karan sold all of her trademarks to LVMH for $450 million in 2000. When she stepped down as the chief designer of Donna Karan International in 2015, LVMH suspended the higher-end “Donna Karan” line and then sold it to the apparel group, G-III. After it was sold to G-III, Public School, who were hired by LVMH to reinvigorate Karan’s DKNY line, were canned. Karan currently operates Urban Zen and has zero control over her name as a business entity and brand. The same thing happened with Helmut Lang. 

We spoke to professor Scafidi on the importance of Abloh owning the Off-White trademark and how the brand could be impacted now that it’s been acquired by Farfetch.  

How would you explain what a trademark is exactly? 
A trademark is a form of intellectual property. And like any other property, you can lease or rent it out. If you own the building, you could lease the floors or apartments in the building. If you own a trademark, you can lease the trademark. So, the relationship between Off-White and New Guards is that of the trademark owner and the lessor and the lessee. In other words, you might say that New Guards is essentially renting the Off-White trademark. Now, obviously trademark is different from an apartment. You can only rent an apartment to one person or one group of people together. But a trademark, you could rent out a license to lots of different people at the same time. 

However, what's important about the relationship between Off-White and New Guards is that this is an exclusive relationship. So for a period of years anyway, and we don't know how long because that's their business, Off-White has agreed to license its trademark to New Guards. So New Guards essentially takes the trademark and in partnership with Virgil and Off-White, kind of does the work of developing the brand. Distributing it, manufacturing it, all of those kinds of things. That's a pretty common relationship in the fashion industry in particular.

So basically, New Guards and Off-White share profits? 
Exactly. So, in exchange for this license, this isn't charity, Off-White gets a percentage. We don't know what that percentage is, and it might vary by volume of production, but Off-White gets a percentage. The licensee, New Guards and now Farfetch, do the work, develop the product, and take the risks in the marketplace. They may have a partnership with regard to things like advertising. It's highly likely that Virgil can maintain some kind of approval over what Farfetch or what New Guards produces. But really Farfetch takes the risk of developing the product and Off-White can sit back, approve what's presented, and then collect their checks.

How much influence do you think Farfetch would have on what Off-White produces? Could they push the brand to increase the amount of collections per season, for example? 
Yes. That is always a risk when a brand is sold, or when a license is sold. Which is why chances are, Virgil, a smart guy and presumably well advised, would have had some kind of termination provision. "Hey New Guards, I trust you, but if you are sold to someone else, then I can cancel this deal." So there's probably initial fail-safes built in. Secondary to that, presumably built in to a good license, are some kind of approval rights. 

If Farfetch wanted to dramatically change the Off-White brand and the product put out under the Off-White label, under the Off-White trademark, then Virgil could likely say, “That's not who we are. We operate on a principle of luxury goods and at a certain amount of artificial scarcity. If you want to flood the market with cheap T-shirts, that's going to ruin our brand. We don't approve that.”

So the pros of selling your brand to a large conglomerate or a company would be getting access to more resources. But you run the risk of losing what makes your brand what it is? 
Absolutely. A good license tries to protect against that and protect the DNA of the brand and its identity. But if you don't have good protections in your license, or if you just straight up sell your brand, the trademark and everything else, then you lose control completely. You could be walking around seeing the name that you created on things that you really don't like.

What are the benefits of Virgil owning this trademark then? Let's say if he doesn't like the direction things are going with Farfetch or New Guards. Could he just leave and say "I want to run my brand by myself" just because he owns the trademark?
He could. It depends on the term of the license. If the term of the license is for five years, he might have to wait five years, at which point you can pull the plug. There might be provisions in the license where if he doesn’t like the product they can try again and present something else. If the product quality is objectively poor and the brand is being mismanaged, then he could potentially pull back those licenses and walk away to do his own thing.

It's basically a question of, is the partnership still working? If the partnership is still working, great. If not, because Virgil owns trademark via Off-White, or is the majority owner of Off-White, then he could walk away.

What should younger designers consider when approached by investors or larger companies that want to acquire their brand?
Private equity has discovered fashion and are interested in fashion in a way that 10 years ago they were not at all. There is a team for fashion among investors. That being said, not all investors are created equal. Some can be terrific strategic partners. They know the industry, the business,  understand the brand, and can help it grow. Others are just about the money and they buy in. They are seduced by the glamor of fashion or by potential profits. What they really want is to quickly flip a brand in three to five years and make a very substantial profit. Those kinds of deals don't tend to go well.

So for a young designer, it can be very tempting to take on an investor because there's a lot of pressure in running a brand. Many of these designers will say they started their own labels with the idea of being able to have free creative expressions and end up spending 10% of their time creating and 90% of their time trying to keep a small business afloat. An investor can seem like a life raft, but can also be a very leaky boat indeed. Small designers have to think, "How long can I hold out on my own before I need to really take on an investor?" Because the longer a designer can hold out and continue growing the brand without selling equity, without giving up control, the more valuable the brand will be. You can raise more money, not just a small investment that you'll run through in a year. Second, is this the right strategic partner for me? Third, what are the details of the deal? So, it really does come down to what exactly the offer looks like, who's making the offer, and when in the history of the brand.

What do you think about this $675 million deal that Farfetch did?
It's a big bet on that group, on its expertise, and on streetwear as something that has not yet peaked but will continue to grow and take over the market. Farfetch is buying a group, its licenses, and its relationship. They're placing a bet on what the future of fashion is going to look like and they're acquiring expertise in in-house production; which they didn't have because Farfetch, in its original iteration, was a very different thing.

Farfetch was built on solving a retail problem, not the creation of fashion. Now Farfetch, via this acquisition, is moving into a whole different level of playing within the fashion industry. From that perspective, it's an exciting acquisition for Farfetch and it is a real compliment to what New Guards has been able to build to have that kind of a price tag placed on it.

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