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April 2024 Newsletter

A message from Jen Kitson, Managing Director and General Counsel (Private Sector)

Jen Kitson
A bit of a soggy start to Spring for us in the UK, but I hope you all managed a good Easter break with your families regardless!

Welcome to the next KC newsletter. In this edition, we cover the latest IP developments affecting influencer marketing, practical tips to ensure the legal review process doesn’t unnecessarily slow down your sales teams, how to ensure compliance with anti-bribery legislation, details on new corporate transparency measures and corporate offences for failure to prevent fraud and finally tips on dispute avoidance.

We hope you enjoy! As always, please contact us should you wish to find out more on any of the featured topics.

Jen

Influencer Marketing – don’t get caught out!

Influencer Marketing
For the last ten years, German multinational Puma have worked closely (and very successfully) with global megastar and businesswoman, Robyn Rihanna Fenty (professionally known as Rihanna), to promote the Puma brand, primarily through a range of trainers marketed under the “Fenty x Puma” banner. However, Puma’s attempts to capitalise on the pseudo-authentic, organic nature of influencer marketing has recently backfired in a design rights case heard on appeal by the EU General Court, following an earlier decision at the EU Intellectual Property Office.

Background

Puma were arguably one of the first sportswear brands to tap into the crossover with pop culture fashion. Back in 1997, US rap-metal pioneers Korn, who had already taken to wearing Adidas clothing as their attire of choice, released a song titled A.D.I.D.A.S. Failing to appreciate the potential offered by a collaboration with a multi-platinum stadium rock band, Puma’s long-time arch-nemesis Adidas refused to engage with Korn on any formal basis (allegedly informing the band “Adidas is a sports company. We do sports, not music”). This provided Puma with the opportunity to swoop in and offer Korn an endorsement deal reportedly worth half a million dollars, in return for which the band would ditch their Adidas stripes in favour of the pouncing Puma.
Nowadays, the use of celebrity endorsement by way of “influencer marketing” is invariably a core element of any brand strategy. Not only is it an efficient way to reach a huge audience through limited channels, but recent studies have also suggested that 69% of the general population trust product recommendations from influencers. With social media providing users with unprecedented access to the lives of celebrities, the implied authenticity of a pop icon showing themselves enjoying a casual coffee with friends while sporting the latest high fashion handbag is worlds away from a heavily stylised, glossy image replete with branding, plastered on a billboard.
Puma continue to embrace the access to the broader market demographic afforded by working with high profile musicians and artists. Rihanna, widely regarded as one of the most prominent recording artists of the 21st century, with a global business empire and a reputation as a fashion trailblazer, boasting over 150million followers on Instagram alone, is the perfect ambassador.

Puma v EUIPO and another (Case T-647/22)

In 2016, Puma submitted an application to register one of the Fenty x Puma shoes as a Community design. A prerequisite for registration of a Community design is that the design must not have been made public prior to submission of the application for registration. HOWEVER, there is a one year grace period which allows for public disclosures made by the designer (or their “successor in title”), to be disregarded as long as an application is filed within 12 months from the date of the first public disclosure. The rationale for this grace period is to allow designers to “test” a design on the market before investing in the costs of registering the designs.
A Dutch children’s shoe wholesaler, Handelsmaatschappij J. Van Hilst, made an application to invalidate Puma’s registration on the basis that the design was first made public in December 2014 (so more than one year prior to submission of the registration application) when Rihanna posted a photo to her official Instagram account of her wearing the shoe design, on the day she was appointed Puma’s Creative Director. This image was reproduced by several online news outlets reporting on the collaboration.
The EUIPO found that the images posted made it possible to identify all essential features of the design. Despite the very essence of Puma’s collaboration with Rihanna being mass exposure of their products through her platform, Puma attempted to argue that nobody took an interest in Rihanna’s shoes at that time and therefore no one perceived the prior design in December 2014. Unsurprisingly, the EUIPO rejected this rather disingenuous position and the invalidity application was upheld.
A key takeaway from this case for all rightsholders is to ensure that, when devising a product marketing strategy, specialist brand protection advice is sought from the legal experts.

Bribery Act compliance: identifying the red flags

Bribery Act Compliance
In today's global business environment, adherence to the Bribery Act is a cornerstone of ethical operations for both UK and international enterprises. This significance is magnified by the introduction of The Economic Crime and Corporate Transparency Act 2023, which enhances the legal framework against bribery by adding the offence of failing to prevent fraud (more on this in the article below!)

Global Reach and Compliance

The Bribery Act's provisions extend worldwide, impacting UK businesses across the globe. Its design ensures that wherever they operate, businesses maintain rigorous anti-bribery measures. This global applicability highlights the importance of a comprehensive compliance strategy to handle the complexities of international trade and investment effectively.

High-Risk Locations and Industries

Operating in regions known for corruption—such as Sub-Saharan Africa, Central and South America, Eastern Europe, Central Asia, the Middle East, and North Africa—significantly increases the risk of breaching the Bribery Act. The vulnerability in these areas often stems from fragile legal systems, political instability, and opaque government dealings. Tools like the Global Corruption Perception Index provide insights into the integrity of business environments, urging heightened vigilance. Additionally, certain industries prone to bribery and corruption (such as construction, infrastructure, energy and mining) require businesses to exercise even greater caution.

Identifying Red Flags

Key indicators of bribery risk include:
1. Unusual Payment Patterns: Payments not aligned with standard agreements, especially if in cash or through unofficial channels.

2. Transaction Transparency: Difficulty in obtaining clear transaction details or third-party documentation refusal.

3. Contract Terms: Unusually favourable contract terms without clear justification or awarded without proper bidding.

4. Corruption History: Associations with individuals or entities known for corrupt practices, especially in high-corruption countries.

5. Questionable Relationships: Close ties between employees and government officials that could unduly influence business outcomes.

6. Record-Keeping: Inadequate financial documentation, complicating the tracing of payments.

Comprehensive Compliance Strategies

To combat bribery risks, businesses must integrate essential documents and processes, including:
• A clear anti-bribery policy
• Regular risk assessments
• Stringent due diligence protocols
• Continuous employee training
• Transparent financial controls
• Proactive policy monitoring and review
• Effective whistleblower protections
• Gifts and hospitality policies and registers

These components ensure compliance with anti-bribery standards and legal requirements.

KC's Specialised Support

At KC, we provide expert guidance and services to protect businesses from bribery and corruption risks. Given that UK company directors have faced imprisonment for corrupt practices, the Bribery Act and the Economic Crime and Corporate Transparency Act's provisions for preventing fraud necessitates the need for robust preventative measures. Our tailored solutions, in combination with other ESG policies (which we can also help you with), optimise your legal and procedural safeguards, creating a solid defence against potential investigations and ensuring your operations adhere to the highest ethical standards.

New corporate transparency measures and corporate offences for failure to prevent fraud

New Corporate Transparency
The Economic Crime and Transparency Act (ECCTA) received royal accent late last year (2023) and introduces new measures with the purpose of improving corporate transparency and tackling corporate crime. The ECCTA amends the Companies Act 2006 and other laws, which are being introduced on a piece-meal basis and will come into effect over the next year and a half, to improve the UKs broader response to economic crime.

Corporate Transparency

The ECCTA is intended to support business by empowering Companies House to improve its services and the reliability of the registrar’s data relating to companies and limited partnerships, which should in turn improve business decisions and trade. The ECCTA does this by giving Companies House enhanced powers to verify the identities of company directors, remove fraudulent entities from the register and share information with criminal investigation agencies.

Corporate Offences – Failure to prevent Fraud

More importantly for businesses, the ECCTA also establishes a new offence called the “failure to prevent fraud”, by the introduction of the new laws to combat economic crime, such as fraud, money laundering and financing of terrorist activities, with harsher penalties for companies who benefit from the fraud committed by an “associated person”.
The ECCTA provides that an organisation will be criminally liable where an associated person (being by way of example an employee, agent, subsidiary, consultant, individual, etc. performing services for or on behalf of the organisation) commits fraud with the intention of benefiting the organisation, and the organisation did not have reasonable procedures in place to prevent the fraud offence.
To whom does this apply: This change in law will impact upon large UK and foreign organisations that carry on part or all of their business (including an entity or group of entities) within the UK. Where a large organisation is required to meet two or more of the following thresholds:
1. More than 250 employees;
2. More than £36 million turnover; and
3. Assets / balance sheet of more than £18 million.
What crimes are covered: The specified economic crimes include fraud, false accounting, money laundering, sanctions evasion, bribery, and tax evasion.
Reasonable Procedures Defence: The reasonable procedures defence allows organisations to avoid liability if they can demonstrate they had adequate prevention measures in place. The draft guidelines outline six principles which would support the reasonable procedures defence, including top-level commitment, risk assessment, robust procedures, due diligence, communication and training, and monitoring and review.
A risk-based approach should be taken by assessing the risk of, and the organisations response to, each fraud offence according to the specific profile and activities of their business. For most organisations, this will be achieved by utilising existing policies and procedures, with a focus on the risk areas. At its core, organisations should ensure that there is sufficient oversight and knowledge of the decision-making process in the organisation, including how and by whom such decisions are being made.
Specific training should be given to senior managers on the impact of the new offences, and enhanced preventative procedures should be implemented within organisations to manage additional risk arising from the changes to law. Preventative procedures could include codes of conduct for senior managers, organisation wide compliance procedures, third-party and employee due diligence, whistleblowing policies and procedures, tailored senior management and organisation wide training programs, and monitoring mechanisms.

Corporate Offences – New Senior Manager Definition

Additionally, the ECCTA introduces a broader definition for the term “senior manager”, loosely being an individual who places a significant role in the making of decisions or the management of the business.

This broadened definition of senior manager should lead to an increase in convictions in this area. Previously convictions in this area had been few, and difficult to prove, due to the requirement to prove that the wrongdoer was the “directing mind and will” of the organisation, which may not be as apparent today in a large and complex organisation.

In short, an organisation can be guilty of an offence if a “senior manager” commits an offence whilst acting within the actual or apparent scope of their authority.

Note: These changes are applicable to all organisations, not just large organisations.

Safeguarding your business: dispute avoidance

Safeguarding Your Business
In the dynamic business landscape, disputes are an inevitable part of business life. They can come with significant costs, not just financial but also in terms of management time and stress, impacting the overall wellbeing of your business. At KC, our mission is to safeguard your interests by helping you manage disputes effectively and making the right judgment call: steering you away from the pitfalls of unnecessary and risky litigation, resolving issues early and efficiently and (where necessary) working with appropriate law firms and/or barristers to enforce your rights effectively through the courts.

Key Steps to Dispute Avoidance

1. Strong Binding Agreements: The cornerstone of any business relationship is a comprehensive, legally binding agreement. Our approach ensures that all agreements are meticulously drafted, offering clarity and safeguarding against potential risks. This proactive measure is essential in dispute avoidance, setting clear expectations and responsibilities from the outset.
2. Dispute Resolution Clauses: Incorporating dispute resolution clauses in contracts is more than just a precaution; it's a strategic decision. These clauses specify preferred methods for resolving disagreements and emphasise effective communication early on. Governance provisions, coupled with escalation clauses, can pave the way for structured communication, helping to get projects back on track before disputes escalate.
3. Early Intervention:  Vigilance is key in the early identification of potential issues. Our team specialises in monitoring for signs of trouble, allowing for prompt and effective intervention. This early action can prevent minor disagreements from growing into full-blown disputes, saving time, resources, and the stress of litigation.
4. Firm, Fair, and Reasonable Approach: In all negotiations and dispute resolutions, maintaining a firm, fair, and reasonable stance is vital. This approach underpins our negotiation tactics, often leading to win-win outcomes that prevent disputes from arising and allow for amicable resolution when they do.
5. Due Diligence: Choosing the right business partners is critical in avoiding future disputes. We always recommend due diligence processes that are thorough, aiming to identify and steer clear of companies with a higher risk profile. This foresight is invaluable in maintaining smooth, dispute-free business relationships.

Litigating Where Necessary

At KC, while our ethos is to steer clients away from damaging disputes, we recognise that litigation is sometimes necessary. When the situation demands, making the right judgment call to proceed with litigation is paramount.

We are committed to ensuring that, when this path is chosen, it is done with the benefit of a clear assessment of the strength of your case and with a strategic plan in place to achieve a favourable outcome. As KC is not a law firm, we will work with you to find the best law firm or we can instruct barristers directly by virtue of Kennedy Cater’s approved status with the Bar Council. Our clients can also benefit from discounted rates negotiated with such external lawyers by virtue of our market buying power. We will ensure the support you receive is best value for money and remain on hand to manage the process end-to-end on your behalf.
Stock pictures supplied by Freepik
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