For the shoe industry, 2019 had no shortage of controversies and hot headlines — from Alberto Salazar’s four-year ban to Skechers’ legal battles.
As the year comes to a close, FN rounds up the events that rocked the shoe industry in the past 12 months.
Former Iconix CEO’s Arrest
Founder and ex-CEO of Iconix Brand Group Inc. Neil Cole was arrested and charged by federal prosecutors with inflating the company’s revenue and earnings as well as obstruction of justice, according to an indictment made public on Dec. 5.
Cole led the brand management firm for a decade before stepping down in August 2015 amid a challenging time for the firm. He and Seth Horowitz, Iconix’s former COO, were named in separate charging documents in Manhattan federal court. Horowitz had resigned from Iconix in April 2015, just two weeks after CFO Jeff Lupinacci exited on March 24.
Cole is alleged to have “entered into illegal secret agreements with joint venture partners to artificially inflate the value of [Iconix]” and to have “lied to outside auditors and to the SEC, and [he] took steps to destroy evidence,” said U.S. Attorney General Geoffrey Berman, adding that the former exec is “facing serious criminal charges for his alleged conduct.”
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In a statement to FN, Cole’s legal counsel, Lorin Reisner and Richard Tarlowe, referred to the charges as “completely baseless.”
Under Armour’s Accounting Probe
In early November, Under Armour confirmed that it was the subject of a two-and-a-half-year federal investigation surrounding its accounting procedures. The Department of Justice as well as the Securities and Exchange Commission have been looking into whether the company manipulated sales numbers by shifting them from quarter to quarter to appear healthier.
The news sent Under Armour’s shares plunging nearly 20% and was followed by an explosive Wall Street Journal report detailing allegations that Under Armour “pushed early shipments” and “dumped goods at off-price chains” in an effort to boost revenue growth.
In a statement, the company wrote, “For many years, quarterly shifts in wholesale revenue related to timing of shipments based on financial goals, customer requests, year-to-year seasonal variance, different fiscal calendar alignments, product availability [and] logistics, and numerous other dynamics have been, and continue to be, part of the normal course of business practices in the apparel, footwear and retail sector. In this respect, our process for recognizing revenue and recording returns and other allowances has not changed and has always been in compliance with generally accepted accounting principles.”
That report also prompted Under Armour founder and CEO Kevin Plank, who announced in October his plans to step down as CEO but remain as executive chairman of the company, to speak out in defense of the brand. President and COO Patrik Frisk is set to become UA’s new CEO at the start of 2020.
“Given recent events that have entered the realm of public opinion without full context, it is disappointing to have our integrity and reputation called into question,” Plank wrote in the letter that FN obtained on Nov. 15. “We’ve certainly never claimed to be perfect, but our team has earned and deserves more respect than this reporting currently affords us.”
Nike Versus Avenatti
In March, famed attorney Michael Avenatti was arrested 15 minutes after he tweeted that he planned to reveal a basketball bribery scandal. Federal prosecutors charged him with four counts related to accusations that he plotted to siphon more than $20 million from Nike by threatening to disclose evidence of misconduct by Swoosh executives, ahead of the company’s third-quarter report. He had alleged that Nike made illicit payments to elite student athletes, among them No. 1 overall NBA Draft pick Zion Williamson.
According to a new indictment filed mid-November in Manhattan federal court, the embattled attorney no longer faces charges for conspiracy to extort millions of dollars from the sportswear giant. However, court documents unveiled a superseding indictment that included an honest services wire fraud charge, accusing Avenatti of lying to one of his clients as part of an alleged attempt to extort Nike. He has pleaded not guilty, and a trial is expected to begin in New York on Jan. 21.
Alberto Salazar’s Four-Year Ban
On Oct. 1, the U.S. Anti-Doping Agency announced its decision to sideline former Nike Oregon Project coach Alberto Salazar for four years after a six-year review. The review determined that the coach had trafficked testosterone and a banned substance, had tampered or attempted to tamper with the doping-control process and had administered a prohibited IV infusion. Dr. Jeffrey Brown, a Houston-based endocrinologist, who worked alongside Salazar as a paid consultant, was also hit with a four-year ban.
Less than two weeks later, the Swoosh announced that it would “wind down” the Nike Oregon Project but reiterated its support of Salazar, who is currently appealing his suspension. In a statement, Nike CEO Mark Parker stated that the ban “for someone who acted in good faith” is “wrong.” Last month, Salazar apologized for any “callous or insensitive” commentary but denied the allegations of abuse and gender discrimination put forth by several female athletes, including runner Mary Cain, as well as Olympians Amy Yoder Begley and Kara Goucher.
Skechers and Nike Spar in Court
For years, Skechers and Nike have been sparring behind the scenes in U.S. courts over claims of infringement by Skechers. Most recently, the sportswear giant alleged in late October that Skechers infringed on patents for its Air and other footwear-cushioning technologies through the Skech-Air Jumpin’ Dots and Mega shoes.
In the suit, Nike called out features on the Skech-Air Jumpin’ Dots and Mega shoes, such as sole structures with a “fluid-filled bladder” and a “plurality of foam beads” filling the cavity of the shoes, which the Swoosh said are similar to the technology features in its footwear. Nike claimed that Skechers’ alleged infringement had been “willful, intentional and deliberate” and sought damages as well as a permanent injunction from the court for the allegedly offending designs.
In the past five years alone, Nike has filed four IP suits against Skechers, including claims of trademark, trade dress and design patent infringement. Although allegations of copying are routine in the fashion industry, experts have suggested that Nike’s stance is more notable due to its use of utility patents, which cover the functional elements of a shoe and tend to be more technical than design patents that protect the aesthetic features of a product. By pursuing such cases, Nike is saying that it’s just as much a technology company as a footwear producer.
Ugg Goes Up Against Retail Giants
Deckers Outdoor Corp. took aim at major retail players this year for allegedly copying its popular Ugg boot design. In late May, the sheepskin shoemaker’s parent filed one lawsuit against Walmart Inc. and Kmart Corporation, and another lawsuit against Aéropostale, Inc. Each complaint accused the defendants of patent infringement, trade dress infringement and unfair competition. It further alleged that the retailers used the California-founded brand’s sheepskin shoe design without permission and claimed that the retailers willfully infringed on Ugg’s designs “in an effort to exploit Deckers’ reputation in the market.”
Then in mid-July, the sheepskin shoemaker’s parent sued Target Corp. and Iconix Brand Group for trade dress infringement and unfair competition as well as patent infringement related to its Ugg Bailey Button boots. It brought similar claims against the companies over alleged use of Sanuk’s Yoga Sling design. Deckers sought injunctive relief and punitive damages as well as the removal of the allegedly copied products from Target’s and Iconix’s brand inventories.
Operation Varsity Blues
Actress Lori Loughlin, husband and longtime fashion designer Mossimo Giannulli and daughter Olivia Jade were at the center of a college bribery scandal that was revealed in March. The investigation involved adults and parents of college-bound teenagers who were charged in several states for allegedly paying others to take exams for their children or falsely stating their students were members of athletic teams.
According to court documents, the FBI accused Loughlin and Giannulli of agreeing to pay half a million dollars to have Olivia Jade and her sister recruited to the USC crew team. The U.S. Attorney’s Office in the District of Massachusetts said that a total of 16 parents — including Loughlin and Giannulli — were indicted on one count of conspiracy to commit mail and wire fraud, as well as another count of conspiracy to commit money laundering. William Singer, the college admissions counselor at the center of the scandal, had pleaded guilty to racketeering and other crimes.
Among the A-listers to come out in defense of Loughlin was Steve Madden, who called the situation “misguided” and “foolish” in an April interview with TMZ. “I feel bad for everybody,” he added. “She tried to help her kid out.”
Antonio Brown Accused of Sexual Assault
Nike dropped NFL athlete Antonio Brown in mid-September — nine days after Britney Taylor, a former personal trainer of the then-New England Patriots star, filed a civil complaint with the U.S. District Court for the Southern District of Florida. Taylor, who was also a classmate of Brown’s at Central Michigan University, alleged that the Brown had sexually assaulted her twice in June 2017 and raped her in May 2018.
At the time, the wide receiver had what he described as a “huge Nike deal.” (The Swoosh released its $100 Tech Trainers in a black and gold “Antonio Brown” colorway in February.) Beyond Nike, Brown had a significant presence in the footwear space, making headlines for the eye-catching custom cleats he used to wear on the field as well as appearing in campaigns for Champs Sports and collaborating with iSlide on sandals inspired by his galaxy-painted Rolls Royce Wraith car. The football player had also parlayed his fame into a number of lucrative contracts with brands like Pepsi, Rite Aid, Campbell’s Soup and Pizza Hut.
Gucci’s Tax Evasion Probe
Gucci’s tax payments returned to the spotlight in September when Italian authorities launched an investigation into more than a dozen current and former executives of the luxury label.
The fashion house’s headquarters in Florence and Milan were audited in 2017 amid allegations that the brand fed revenue through Switzerland to avoid paying Italy’s higher tax rates. The probe appeared to reach a conclusion in May when Gucci parent Kering handed over 1.25 billion euros ($1.4 billion) in unpaid taxes.
However, the Italian government ended up widening its probe and began looking into individual managers’ pay from 2011 to 2017. According to reports, the executives could owe tens of millions of dollars in back taxes.