In February, after a nearly one-month trial, Chanel won its high-profile case against luxury online reseller What Goes Around Comes Around (WGACA). The jury voted in favour of Chanel unanimously on all four counts of trademark infringement, false association and unfair competition claims, as well as a false advertising claim. The company was awarded $4m in statutory damages with additional equitable relief still to be assessed.

According to many experts, the ruling establishes boundaries within the luxury resale market while also safeguarding consumers against deceptive advertising and counterfeit products. Chanel has always taken extensive measures to protect its brand online, being resistant to online third-party sales of its goods.

Despite the result, WGACA maintains its stance of no wrongdoing. “We are incredibly disappointed with today’s verdict; however, the case is not over. The court has yet to hear post-verdict motions,” CEO and co-founder Seth Weisser said following the verdict, promising further comment after the case is final.

Case background

In 2018, Chanel brought a claim against WGACA in the District Court for the Southern District of New York under the grounds of trademark infringement, unfair competition, false advertising and the sale of counterfeit goods.

WGACA had been selling Chanel products on its platform using a discount code COCO10, as well as official photographs from Chanel’s advertising campaigns and marketing statements which Chanel claimed suggested to the consumer that Chanel and WGACA were affiliated or that Chanel had authorised the use of its trademarks and the sale of the products.

Additionally, Chanel claimed that WGACA was selling counterfeit Chanel handbags featuring serial numbers that were stolen from an Italian Chanel supplier factory in 2012. Although the bags appeared genuine, they were in fact counterfeit/unauthorised. WGACA argued that they would have no way of knowing this since they had also been selling Chanel-branded products which were never intended for sale, such as products which had been gifted at fashion shows.

In addition to the jury finding for Chanel on all four grounds, the court said that WGACA had acted with reckless regard or with willful blindness through their actions.

The key points

The resale of pre-owned or pre-loved goods is permitted in the US providing the goods are genuine (i.e. are not counterfeit) and are marketed in a way that makes it clear that the product is a resale item – that is, resellers should not use a brand owner’s marks in such a way that it suggests an affiliation with the brand owner or in any other way that would not be considered fair use.

When listing products, the brand name should only be used in a descriptive sense to tell the consumer information about the product – for example, that it is a pre-loved Chanel handbag. Marketing practices that seek to create a false affiliation with the brand, or which trade off the value of the brand in an unfair manner, are not permitted and would constitute trademark infringement or false advertising.

The rise of luxury resale

For context, resale platforms have risen in popularity as the fashion industry faces scrutiny over its harmful environmental practices. The demand for a ‘circular fashion’ model and the rising cost of goods are all contributing factors to their popularity as consumers look to pre-loved items as a means of shopping in a more environmentally conscious way.

However, as with all e-commerce platforms, they attract risk. It is known that e-commerce platforms (as well as social media platforms) are used to sell counterfeit goods, dupes and facilitate fraud. Not surprisingly for luxury brands this creates significant challenges for online enforcement of their brands as the perpetrators are savvy and are always one step ahead, learning to evade detection via online brand monitoring.

Although WGACA is a legitimate resale platform, it faces the same risks and has a responsibility (as with all e-commerce platforms) to keep consumers safe by preventing the sale of counterfeit products via their sites and to advertise products in a way that isn’t misleading.

This case serves as a stark reminder to resale platforms that the onus is on them to ensure the goods they are selling are genuine. This is a high bar with inherent legal and practical challenges. The reality is that authentication processes are not always straightforward and will not always be easy to do without access to specific data.

Additionally, the case raises the fact that popular phrases such as ‘vintage’ do not have a legal definition and therefore, it is not always clear when a product could be considered ‘vintage’.

Takeaways

• Resale platforms will need to have tight controls in place over their authentication processes to ensure that the products listed on their sites are genuine and that they can provide evidence of authenticity.
• The way the goods are marketed on the platform and via social media must not be misleading and cannot suggest an affiliation with the brand or suggest that the brand is collaborating with the platform.
• Brands need to ensure they have effective online monitoring and enforcement programmes in place to identify potentially counterfeit products being sold or indicating unauthorised use of its trademarks, designs and copyrighted material (such as photographs or marketing campaigns).
• Luxury brands could consider having their own pre-loved resale channels or an approved list of resellers to encourage customers to list their products via an authorised party. This would also allow brands to control how the products are sold, marketed and presented, and would make it easier to authenticate the products pre-sale.
• Collaboration between the brands and the resale platforms is also key in combatting the sale of counterfeit products. This will largely be through data-sharing which brands will often be reticent to do. Having legally enforceable contracts in place between the parties is essential.
• Brands must work closely with law enforcement agencies within their jurisdictions to build relationships and to combat counterfeiting and other illegal practices.
• There is an ongoing challenge to educate consumers about the dangers of counterfeit products and the negative side of dupe culture.

Harriet Berridge is director for intangible assets at Stobbs, where she heads the fashion law practice. She joined the firm in 2012 and qualified as a chartered trademark attorney in 2015. Her practice includes advising a wide range of clients across different sectors on the creation and clearance of new brands, putting together international filing strategies, domain name strategies, IP management and enforcement, dealing with contentious issues and advising on designs and copyright. She also advises brands on their online enforcement strategies. She can be reached at [email protected].