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Chanel is taking New York pre-owned luxury retailer What Goes Around Comes Around (WGACA) to court in a trial starting Tuesday that could have big implications for who’s responsible when counterfeit goods end up in secondhand retail, and how resellers can promote the brands they carry.
Chanel is accusing WGACA of selling counterfeit goods and implying affiliation with the French luxury house via advertising and marketing materials. The brand alleges that WGACA has been selling counterfeit bags associated with stolen serial numbers that Chanel had voided; selling counterfeit bags with features not corresponding to authentic ones with legitimate serial numbers; and selling non-genuine Chanel items that were not made for sale by the brand, such as display-only items, Jeff Trexler, associate director of Fordham University’s Fashion Law Institute, explains.
“Chanel is committed to protecting its brand and consumers against counterfeits of its intellectual property that are harmful to the brand,” a Chanel spokesperson said in a statement. “Chanel will continue to litigate its remaining claims and damages.”
WGACA refutes the claims. “We have vigorously defended the accusations that we have sold any counterfeits and have proven to the court and Chanel that this was not a valid attack,” says Seth Weisser, co-founder and CEO of WGACA. “WGACA is a purveyor of all the top luxury brands and has never attempted to convey any type of direct affiliation with the brands we offer. By showcasing items that bear the logos on products we offer, we are merely showing directly the craft of the brands and honouring its original form.”
The use of the Chanel logo in marketing materials is a key point in the case, says Zach Briers, intellectual property partner at Munger, Tolles and Olson, as it could have a ripple effect for the rest of the resale industry. Under the doctrine of “nominative fair use”, a secondhand reseller can use a trademark to describe a genuine product that is being resold, but cannot use one to suggest affiliation with the trademark holder. The outcome of the case will depend on the jury’s interpretation of WGACA’s use of Chanel’s logo in its ads, says Trexler, including how much it was used.
“Chanel contends that WGACA used the Chanel mark extensively in its marketing and social media campaigns, which far exceeded the uses necessary to accurately identify the products, and which inaccurately suggested that Chanel endorsed or authorised WGACA’s activities,” Briers says. “WGACA contends that it only used the Chanel mark to accurately advertise genuine Chanel products that it was reselling at secondhand.”
This grey area should cause pause for luxury resellers, says Gina Bibby, head of the global fashion tech practice at the law firm Withers. “[They] should be careful not to market their products in a manner that suggests affiliation, connection to, or association with the luxury brand mark owner — unless such affiliation, connection or association actually exists.”
If found guilty, WGACA could face up to $23.2 million in damages for violations from 2014 to 2022, says Shermin Lakha, founder and managing attorney of Lvlup Legal. More lawsuits against secondhand retailers could follow, meaning these companies would need to be hyper-vigilant in both vetting the products they sell, as well as how they market them, Bibby says. If it goes the other way, and WGACA is cleared, it will indicate to luxury brands that they may not always be able to control the way their products and trademarks are being used — a key consideration for luxury labels toying with secondhand market participation, Briers flags.
“The concern for luxury brands is brand dilution,” Bibby says. “This is why brands maintain strict quality-control standards and scoff at third-party actors, including luxury resellers, who [may] sacrifice these standards.”
Luxury brands have long held a tense relationship with resellers, as the secondhand industry exploded online with the rise of sites like The RealReal and Vestiaire Collective. Demand for vintage bags is up 300 per cent since 2020, with Gen Z spending 40 per cent more on bags in 2023, according to The RealReal’s 2023 Resale Report. The secondhand luxury market grew 28 per cent in 2022 to reach $45.21 billion, according to Bain & Company and Fondazione Altagamma.
Some brands, such as Chloé, Ulla Johnson, Balenciaga and Mansur Gavriel, have opted to collaborate with resale partners such as Vestiaire Collective and Reflaunt. In-house resale enables brands to benefit from a revenue perspective and the community-building and customer-acquisition point of view, resale tech company Archive co-founder and CEO Emily Gittins told Vogue Business. Others, including Tiffany, Louis Vuitton and Hermès have sought legal recourse against resellers for offering counterfeits — Chanel being the most prominent example.
The case against WGACA dates back to 2018, when Chanel first sued the retailer. In a 28 March 2022 ruling, the US District Court for the Southern District of New York dismissed part of Chanel’s trademark infringement claims yet kept part: Section 1114(a), which encompasses the sale, distribution, or advertising of a counterfeit or other type of infringing mark. The court concluded that Chanel had provided no direct evidence that WGACA had itself produced Chanel marks, but could not discount the sale or advertising of counterfeits. The court found that WGACA had sold 12 counterfeit handbags and hundreds of non-genuine point-of-sale items (meaning products intended only for use in Chanel boutiques, including vanity trays, tissue box holders, jewellery boxes and hand mirrors), says Briers.
In 2018, the French house also filed a trademark lawsuit against The RealReal for its use of the maison’s logo on its website and marketing materials. The case is still ongoing.
The current case differs from the above — and other cases like it, including Tiffany’s 2008 loss against Ebay for selling counterfeit goods — because it’s not just about selling these goods, Lvlup’s Lakha explains. It’s about WGACA selling items that were never intended for sale but display only. In the case of Tiffany, the court ruled that Ebay wasn’t responsible for policing the Ebay site, since Ebay didn’t claim to authenticate. WGACA, on the other hand, ensures authentication. (Ebay has since doubled down on luxury resale and now offers a “Certified by Brand” programme.)
What counts as fair use?
At the centre of the case is the question over whether or not WGACA violated the nominative fair-use doctrine in using the Chanel trademark to promote secondhand goods.
“WGACA is arguing that it is using the mark in a way that is allowed as fair use: in this instance, a nominative use in which the reseller is simply referring to the trademark to identify the manufacturer of a product that it legally sells,” Trexler says. “However, as the judge noted in its summary judgement ruling, Chanel has provided evidence that WGACA might have gone too far, featuring Chanel in ways that suggest a more direct connection to Chanel itself, such as the promotion celebrating Coco Chanel’s birthday.”
Briers agrees, adding that the fact WGACA has already been found selling several non-genuine Chanel products is also likely to work in Chanel’s favour.
Chanel will also present evidence of consumer confusion, such as an account of customers asking Chanel boutiques and customer service centres for discounts appearing in WGACA ads, Trexler notes. Proving such confusion can be difficult: last year, a jury ruled that customers are not likely to confuse Thom Browne goods with Adidas goods when the sports giant sued the fashion brand over its use of stripes.
The implications
It’ll be a landmark decision, Lakha says, particularly given that the court ruled in favour of The RealReal last time around. At the time, the judge found that there was no intention of selling counterfeit goods on the site, and there was no claim of association with Chanel.
The case is unlikely to impact peer-to-peer marketplaces like Poshmark, but resale sites like Vestiaire Collective and The RealReal — which have authentication teams — could be up against (more) lawsuits, Lakha continues. Given these sites do their best to authenticate (which, as in 2018, protects them from liability for selling counterfeits), it’s about how they communicate with consumers: the types of notices they offer and how they portray themselves in public.
At the least, the case underscores the importance of having lawyers review authentication claims and the use of brand names in ads, Trexler says. He offers up a set of considerations: “Is the reseller implying that it is using the same techniques of authentication used by the manufacturer? Are counterfeits slipping through? Does the reseller’s marketing use a brand name, logo and other trademarked elements more [often] than is needed to identify particular products?”
It’s also likely to impact consumer sentiment, Lakha says. Pre-TikTok, many consumers were unaware of the pervasiveness of counterfeit goods on the ‘legitimate’ resale market. Now, people are becoming more aware of and educated about unauthenticated goods, she says. “I think it’s going to cause a little bit more exposure for people to be aware that if they are purchasing from secondhand stores, it may not be authenticated.”
Correction: Updated to clarify that Chanel's case against The RealReal is still ongoing, and has not been dismissed as was previously reported.
Update: this article has been updated to include comment from a Chanel spokesperson.
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