Costa Mesa-based law firm Rutan & Tucker LLP is looking to build on its work for clothing companies by forming an apparel practice.
The group includes 11 lawyers and is expected to grow with new business, according to Rutan & Tucker partner Vicki Dallas, who chairs the group.
The group plans to work with startups, private and public companies, manufacturers, distributors and retailers.
Rutan’s clients include Costa Mesa-based Volcom Inc.; Irvine-based Ocean Pacific Apparel Corp., part of New York-based Iconix Brand Group Inc.; Costa Mesa-based Kingsley Clothing; and Grand Terrace-based Tapout LLC’s Hitman Fight Gear.
“We don’t necessarily do all of their legal work, but we handle various issues when they arise,” Dallas said.
Rutan, with roots going back to 1906, is the oldest law firm based in the county. With 140 lawyers, Rutan is the second-largest based here after Irvine-based Knobbe Martens Olson & Bear LLP.
The idea for an apparel practice came out of Rutan’s work with the International Association of Skateboard Companies, a Rancho Santa Margarita-based trade group that includes Cypress-based Vans Inc., Huntington Beach-based Quiksilver Inc.’s DC Shoes and San Diego-based Sector 9 Inc., among others.
New Law
Rutan is providing free legal work for the association as members deal with lead regulations that went into effect last year with the Consumer Product Safety Improvement Act.
The law, spurred by concerns over lead-tainted toys from China, imposes testing and documentation requirements.
“I was astounded at how sweeping the law was and how it really impacted the action sports companies,” Dallas said. “While talking with several members of the association, I could see the growing concern.”
Rutan has drafted an exception letter for the association’s members in a bid to get them exempted from testing and documentation.
“It’s a very sweeping law and very well founded, but the way the law is drafted (is) very comprehensive and includes items unlikely for children to put in their mouths,” Dallas said.
Rutan’s apparel group seems to be the first locally as most law firms have lawyers specializing in the industry but no devoted group.
Other firms have looked into dedicating apparel groups. Most haven’t seen it as viable.
“We don’t see enough work in that space to devote attorneys to that practice,” said Mark Skaist, partner at Newport Beach-based Strad-ling, Yocca, Carlson & Rauth, the No. 3 firm based in the county. “It makes more sense to have our corporate attorneys who represent companies in all different types of industries.”
At other firms, lawyers work on litigation issues involving fake merchandise and counterfeiting, intellectual property cases involving trademark issues, corporate financing and transactions, and basic contracts.
Part of the problem firms face with apparel companies is that most are too small to be sizable clients.
“The problem is that (apparel companies’) legal needs are not as great in the early years,” Skaist said. “They are fine once they break through the $10 million to $50 million ceiling, but there aren’t that many companies (like that) around.”
Rutan plans to target startups as well as larger companies. It’s taking an approach many law firms take with startup technology companies.
“We are looking to do what a lot of these early stage technology companies have done for years by partnering with a law firm to provide a wide scope of legal services,” Dallas said. “The idea is we would grow as they grow.”
Startup clothing designer companies have similar issues to technology companies, namely a need for financing, according to Strad-ling’s Skaist.
“Financing is difficult for apparel companies as it’s not something that falls within what the venture capitalists are looking for,” he said. “It’s a different type of investor apparel companies appeal to, which usually is a high-net single investor, usually someone who has come from the apparel industry or an athlete.”
Many lawyers have started to see a tipping point for mergers and acquisitions of smaller and midsize apparel companies by larger companies.
“I have seen a little more consolidation and M&A opportunities for these smaller companies whether they are being rolled up or being purchased by a bigger company,” Skaist said. “I’ve seen it especially in the last 12 and 18 months.”
Counterfeiting continues to be the largest issue facing apparel companies, according to lawyers.
“The U.S. Trade Office in connection with trade partners like Australia, Canada and the European Union are working to come up with an agreement to combat counterfeiting and piracy,” Dallas said. “You can trademark as much as you want and use the service of IP lawyers to protect you, but enforcement is another matter.”
Another area of law apparel companies are struggling to understand is online sales, said Michael Yoder, partner at the Newport Beach office of Los Angeles-based O’Melv-eny & Myers LLP.
“Companies are struggling to maintain their distribution channels where anybody can sell brands online, but it might not be consistent with your brand image,” Yoder said. “It used to be if somebody was selling an unauthorized product, they could do less damage because it was more isolated.”
