It may be intuitive for a fashion designer to use his or her own name as the name for their clothing label - the designs are their personal works of art and doing so is common industry practice.  However, doing so may pose a huge legal problem when and if a designer decides to sell his or her label to another entity. 

One example of how using one's name can backfire is a situation involving fashion designer Joseph Abboud.  In 2000 Joseph Abboud entered into a purchase and sale agreement with JA Apparel in which for $65.5 million Mr. Abboud was to "sell, covey, transfer, assign and deliver . . . all of [his] right, title and interest in and to" the intellectual property of his name. Despite this agreement, however, Mr. Abboud insisted on using his name in connection with a new clothing line he was personally developing without the help of JA Apparel.[1]  Not surprisingly Mr. Abboud was sued by JA Apparel for breach of contract and the Southern District of New York permanently enjoined him from "using his personal name to sell, market, or otherwise promote goods, products and services to the consuming public."[2]

             It is perhaps understandable that a designer would sell his or her name and later have second thoughts about doing so. Many creative types may simply be unable to abide by agreements to sell their name because they have such a strong instinct to express and promote themselves. Therefore, designers' lawyers must inform their clients about the risks of using his or her own name as the name for their clothing label and tactically devise ways to protect the designer from sellers' remorse. Donna Karan's licensing agreement is perhaps the gold-standard in terms of a designer-friendly deal.

Background

            Donna Karan, née Donna Fask, was born on February 10, 1948 in Queens New York.[3] Her mother was a model and her father was a tailor; thus her future career in the fashion industry was almost inevitable.[4]  Beginning in 1968 Ms. Karan attended the prestigious Parsons The New School for Design, and while still at Parsons Ms. Karan begin as an intern at Anne Klein. Donna Karan experienced great success while at Anne Klein and worked there after she graduated.  Ms. Karan was quickly promoted from intern to Associate Designer and by age 26 she was head designer.[5]

In 1985 Donna Karan left Anne Klein to start her own fashion line called Donna Karan;[6] her signature style was characterized as simple, contemporary pieces designed for real women as opposed to fashion models. Ms. Karan’s very first line won critical acclaim and the Council of Fashion named her designer of the year.[7] Ms. Karan's "Seven Easy Pieces" as a system of dressing quickly gained in popularity, and her clothing has remained a staple for working women.[8]

            As a result of her great success, Donna Karan soon decided to expand her offerings.[9]  In 1989 Ms. Karan started a more modern, youth-focused bridge label called DKNY so she could dress her daughter, Gabby.[10]  DKNY became so popular, Donna Karan ventured into new brands including DKNY Jeans, DKNY Active, DKNY Underwear, DKNY JEANS Juniors and DKNY Kids.[11]  In 1992 Donna Karan began selling womens' and mens' fragrances and started a mens clothing line, and in 2001 Donna Karan introduced a DKNY home collection.[12]

            In 1996 Donna Karan went public on the New York Stock Exchange. The day of the initial public offering, Donna Karan stock prices increased as much as 25%.[13]  Donna Karan enjoyed continued success and by 2000 Donna Karan had $660 million in sales.[14]

 The Sale

            In 2001, despite vowing never to do so, Ms. Karan decided to sell her company, Donna Karan International (DKI) for $643 million to Louis Vuitton Moet Hennessy (LVMH),[15] a French holding company with approximately sixty luxury goods subcompanies.[16]  The group began in as a merger between Moet et Chandon and Hennessy and later merged in 1987 with Louis Vuitton to form the current company, LVMH.[17]   LVMH brands include Christian Lacroix, Fendi, and Marc Jacobs.[18]  LVMH's success inspired the formation of other luxury conglomerates such as PPR whose brands include Gucci, Prada, and Richemont.[19]

Although DKI was a public company, Donna Karan had not previously given up control of its operation.[20]  Prior to DKI's initial public offering in 1996, Donna Karan and her husband granted trademark rights for many of DKI's products to a wholly owned corporation, Gabrielle Studio, so they could retain control of DKI's trademark rights in "Donna Karan," "Donna Karan New York," "DKNY," "DK," among other trademarks.[21]  DKI was, in turn, granted a license by Gabrielle Studio to use the intellectual property associated with the brands by an agreement with a change of control provision, defined as the purchase of thirty percent of the stock by a third party, that would terminate the contract.[22]  Thus, a hostile takeover would render the DKI essentially worthless because it would be unable to use the associated trademarks owned by Gabrielle Studio.  Notably, Donna Karan's employment contract contained a similar change in control termination provision which would divorce her from the company should a hostile takeover occur.[23]  The combined net effect of the licensing and employment agreement essentially granted to Donna Karan the power to determine when and to whom DKI is sold "because most of the firm's goodwill would evaporate upon any change of control done absent Ms. Karan's explicit consent."[24]

In 2001 LVMH bought both DKI and Gabrielle Studio, a deal totaling up to $645 million after stock prices had softened since DKI’s initial public offering.[25]  Ms. Karan was to continue in her position of chief designer with creative leadership once the buyout had taken place and exchange her stock in DKI (in which she owned 23% of all outstanding shares) as well as buy additional shares in the newly combined entity.[26]

Conclusion

            Because Donna Karan was able retain control over DKI despite its going public, her licensing and employment agreements are an important consideration for designers.  Additionally, Ms. Karan’s continued creative presence by contract in DKI despite its sale to LVMH is another option for designers who would like to sell their company.  It is therefore of utmost importance that a designer consult competent counsel to discuss all contractual arrangements so they do not regret relinquishing all control over a growing company in which they are so personally invested.