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Companies Wage War on a Brand Scale

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Maybe you've read about the copyright dispute between Black Eyed Peas member and producer Pharrell Williams over the "I am" trademark. Maybe you didn't know that people really make trademarks for themselves but, now that you think about it, "I am" is a neat trademark for a guy with William as his name. Regardless, the dispute is a small slice of the brand competition that has been raging recently in the marketplace.

Recent cases
Just last month, Fifth & Pacific (NYSE: KATE  ) defended itself against infringement accusations regarding its Kate Spade Saturday brand. Another apparel maker, Saturdays Surf NYC, alleged that the Kate Spade spinoff would confuse customers and dilute its brand. The judge overseeing the case decided that the two brands were distinct enough for both to use the word "Saturday."

The ruling is a big deal for Fifth & Pacific, as the company has spent considerable sums of cash to brand and launch the new Saturday line. An adverse ruling would have forced the company to pull back from the branding, at a huge cost.

Kate Spade isn't the only retailer fighting to fit into a crowded marketplace. Earlier this year, Guess? (NYSE: GES  ) finally prevailed in an Italian court in a case brought by handbag designer Gucci. Gucci was fighting Guess?' use of a G logo, which Guess? used on a line of shoes. The fight had been raging for years, and Guess? had actually lost a similar case in New York court in 2012, being fined $4.7 million -- Gucci was seeking $300 million.

The value of good branding
The reason for all the kerfuffle is the sheer value associated with a good brand. The Guess? brand, for instance, was valued at $1.3 billion by a recent Interbrand survey. That's about half of the company's total market cap tied up in its branding. While Guess? has to defend that one brand, some companies are caught fighting for a whole range of brands, due to their value.

Spilling from last year into 2013, Macy's (NYSE: M  ) and J.C. Penney (NYSE: JCP  ) have been duking it out over whether or not J.C. Penney can sell Martha Stewart products in its stores. Macy's has an exclusivity agreement with Stewart, but it excludes certain lines and selling conditions. J.C. Penney has argued that the lines it sells are not covered, and that the Martha Stewart shops within stores count as stand-alone locations. A ruling on the valuable contracts is expected in August.

Where to draw the line
The problems these companies are facing can quickly turn into a litigation nightmare. Guess? and Gucci were locked in court for four years before their rulings came through. The long, drawn-out process not only ties up cash and resources, but it puts doubt in investors' minds -- Fifth & Pacific's stock jumped 4% the day that it announced its success.

While the cases are often messy, and can bring about confusing rulings, investors need to brace themselves for more of the same. As the market gets increasingly competitive, companies are going to butt heads more often over intellectual property. In the long run, we're just going to have to get used to constant bickering, even if the only people it makes rich are the lawyers.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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Related Tickers

5/27/2016 4:02 PM
GES $15.85 Up +0.22 +1.41%
Guess? CAPS Rating: ***
JCP $7.86 Up +0.20 +2.61%
J.C. Penney Compan… CAPS Rating: *
KATE $22.19 Up +0.17 +0.77%
Kate Spade & Compa… CAPS Rating: **
M $32.72 Up +1.15 +3.64%
Macy's, Inc. CAPS Rating: **