How Chanel’s Trademark Infringement and False Advertising Win May Help Brands Protect Their Rights in the Resale Market – Trademark

Chanel recently emerged victorious in its trademark infringement
and false advertising lawsuit against luxury reseller What Goes
Around Comes Around (WGACA). A jury in the U.S. District Court for
the Southern District of New York awarded Chanel a unanimous
verdict on all counts of liability, plus $4 Million in statutory
damages for willful trademark infringement in connection with the
sale of counterfeit bags that were never authorized for sale by
Chanel. The case will now proceed for Judge Louis Stanton to decide
what equitable relief Chanel may be entitled to, including a
potential injunction and disgorgement of WGACA’s profits.

In the world of luxury fashion, where the allure of exclusivity
meets the burgeoning appeal of “vintage” products, this
legal battle casts a spotlight on the dynamics between intellectual
property rights and the thriving market for pre-owned goods.

Whether the media attention surrounding this decision will cause
consumers to think twice about purchasing products from luxury
resellers such as WGACA, The Real Real¹ , and others,
remains to be seen. Regardless, it should cause resellers
to re-examine their marketing and sourcing decisions, and
provide luxury brands with confidence that they have some recourse
to protect their intellectual property in the resale market.

This article provides a brief summary of the lawsuit and tips
for brand owners to protect their rights in the resale market.

THE ESSENCE OF THE DISPUTE AND THE JURY VERDICT

Chanel is a brand synonymous with haute couture and an
unyielding dedication to protecting its intellectual property. In
March 2018, it sued the luxury retail company WGACA in connection
with its unauthorized resale of CHANEL branded products. Its
complaint was based in large part upon the allegation that
WGACA’s conduct implied a non-existent endorsement or
affiliation with Chanel that was likely to mislead consumers and
dilute the brand’s esteemed reputation. These allegations were
bolstered by the fact that some of the products sold by WGACA as
“authentic” CHANEL branded products were proven to be
counterfeit.

WGACA countered Chanel’s claims by championing the
authenticity of its offerings and asserting that the law’s
first sale doctrine entitled it to resell genuine Chanel items.

The parties participated in a nearly month-long jury trial in
January 2024, after which the jury rendered a unanimous verdict
finding WGACA liable on all counts, and decisively finding that
Chanel had proven:

• Its claim for trademark infringement, false association, and
  unfair competition based on WGACA’s use of Chanel’s
  trademarks or other indicia of Chanel;




• That WGACA acted “willfully, or with reckless disregard,
  or with willful blindness in its use of Chanel’s trademarks or
  other indicia of Chanel” and its use of hashtags that included
  the Chanel mark;




• That WGACA infringed Chanel’s trademarks and engaged in
  unfair competition by creating and using various hashtags
  containing “Chanel” or “Coco Chanel” to
  advertise and market WGACA products on social media;




• That certain Chanel branded products sold or offered for sale
  by WGACA were not authorized for sale, differed materially from the
  product authorized for sale, or did not pass through Chanel’s
  quality control procedures;




• That certain Chanel branded handbags sold or offered for sale
  by WGACA were counterfeit; and




• That WGACA engaged in false advertising and acted willfully,
  with reckless disregard, or with willful blindness in its false
  advertising.

IS RESALE ALLOWED UNDER THE LAW?

The result in the Chanel case does not change the law,
and the application of the law will depend upon the facts of each
case. However, this verdict provides guidance to both resale
companies and brand owners with respect to the delicate balance
between permitted resale of genuine products, and protection of a
brand’s valuable intellectual property rights.

The legal doctrine of “first sale” provides that once
a genuine product has been sold, the purchaser may resell the
product without recourse from the intellectual property
owner.² However, there are some exceptions. Resale is
not lawful if the goods are not “genuine”, or are
“materially different” from the goods that were
originally authorized for sale by the brand owner.³

Examples of goods that are “materially different”
under the law include products that have been materially altered
via new materials or designs that were not subject to a brand’s
quality control measures (such as the unauthorized alteration of
the bezel of a Rolex branded watch), or that include packaging,
labeling, ingredients, or materials that are not authorized for
sale in the U.S. market.⁴ Products that are not
“genuine” under the law include products that have not
been cleared for sale by the brand owner because they did not meet
the brand’s quality control measures, such as defective
products or products created or distributed by factories without
the brand owner’s permission.⁵

The right to resell a genuine product also does not give the
re-seller the right to use the brand owner’s trademarks and
other intellectual property in a way that is likely to lead
consumers to believe that the brand owner has endorsed, or is
somehow associated with the reseller. In particular, while the
doctrine of “nominative fair use” permits a party to use
a trademark or brand name as necessary to describe another
party’s product, it may only use a mark so much as necessary to
identify the product.⁶ A reseller is not allowed to use
a trademark or other brand indicia in a way that would likely
mislead consumers into believing the brand is endorsing,
sponsoring, or is somehow affiliated with the reseller or its
resale business.⁷

Therefore, a reseller may state that it is reselling a Chanel
bag, if in fact the bag is a genuine, unaltered, Chanel bag.
However, making excessive use of trademarks or other indicia
associated with the brand to promote a resale business is more than
the law allows because it is likely to cause consumers to falsely
believe that the brand is endorsing the resale.

In the Chanel case, WGACG prominently and persistently
used Chanel’s marks and other indicia associated with the
famous fashion house to promote its resale business, including the
hashtag “#WGACACHANEL”, references to the brand’s
founder, images from Chanel advertising campaigns, and the
prominent display and sale of promotional products such as
notepads and tissue boxes that were gifted at fashion shows but
were never authorized for sale by Chanel. Some examples of this
conduct from the Chanel court filings are included below.

WGACA’s claims that the Chanel branded products it sold were
“guaranteed authentic” (such as the claim shown below),
and letters purporting to authenticate such products, also likely
lead to the jury’s decision that WGACA’s conduct would
falsely lead consumers to believe that Chanel endorsed the products
sold by WGACA and/or its resale business.

POLICING RESELLER ACTIVITY AFTER THE CHANEL
VERDICT

The Chanel decision confirms that while brands cannot
stop the resale of genuine products, they may exert some control
over the manner in which their intellectual property is used
– and how their products are advertised and sold – in
the secondary market. The jury verdict in the Chanel case
may cause luxury resellers to re-examine their advertising
practices and authentication claims. It may also cause the
resellers to be more receptive to requests from luxury brands to
refrain from conduct that is likely to confuse consumers and
violate the brand’s intellectual property rights.

If a brand is unsuccessful in convincing an unauthorized
reseller to correct false or misleading practices, litigation may
be a necessary step. While the outcome of any legal dispute
would depend upon the particular facts at issue, recent cases
including Chanel v. WGACA, ⁸
demonstrate the courts’ willingness to protect brands’
intellectual property rights and to hold resellers accountable for
unauthorized activities and false advertising.

STEPS FOR BRANDS TO CONSIDER TAKING

Brands should consider the following actions to monitor and
protect their intellectual property in the resale market.

Footnotes

1. Chanel also sued luxury reseller The Real Real in 2018
in a case captioned, No. 1:18-cv-10626, Chanel, Inc. v. The
RealReal, Inc. (S.D.N.Y.). According to the court docket, this case
is currently suspended pending mediation.

2. E.g., Coty Inc. v. Cosmopolitan Cosms. Inc., 432 F.
Supp. 3d 345, 349 (S.D.N.Y. 2020) (citing Polymer Tech. Corp.
v. Mimran, 975 F.2d 58, 61 (2d Cir. 1992) (quoting NEC Electronics
v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir. 1987))); Liz
Claiborne, Inc. v. Mademoiselle Knitwear, Inc., 979 F. Supp. 224,
230 (S.D.N.Y. 1997).

3. E.g., Zino v. Davidoff SA v. CVS Corp., 571 F.3d 238,
243 (2d Cir. 2009) (citing Polymer Tech. Corp. v. Mimran, 37 F.3d
74, 78 (2d Cir. 1994); Original Appalachian Artworks, Inc. v.
Granada Elecs., Inc., 816 F.2d 68, 73 (2d Cir. 1987)).

4. See, e.g., Rolex Watch USA, Inc. v. BeckerTime,
L.L.C., No. 22-10866, 2024 WL 301768, at *3 (5th Cir. Jan. 26,
2024); Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc.,
982 F.2d 633, 638 (1st Cir. 1992).

5. See e.g., El Greco Leather Prods. Co. v. Shoe World,
Inc., 806 F.2d 392, 395 (2d Cir. 1986).

6. Laatz v. Zazzle, Inc., No. 22-cv-04844-BLF, 2023 WL
4600432, at *14 (N.D. Cal. July 17, 2023).

7. Id. (citing Applied Underwriters, Inc. v.
Lichtenegger, 913 F.3d 884, 894 (9th Cir. 2019).

8. See also Rolex Watch USA, Inc. v. BeckerTime, L.L.C.,
No. 22-10866, 2024 WL 301768, at *3 (5th Cir. Jan. 26, 2024)
(Affirming the district court’s holding that BeckerTime sold
watches that were “materially different than those sold by
Rolex” and finding that modifying watches with “added
diamonds,” “aftermarket bezels,” and aftermarket
bracelets or straps constituted an infringement of Rolex’s
intellectual property rights).

9. Unauthorized use of copyrighted materials, including
images from ad campaigns and brand websites may give rise to claims
for copyright infringement.

Originally Published by The Intellectual Property &
technology Law Journal

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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