Everything isn’t Gucci: Trademark law and the secondhand luxury goods market
June 18, 2021 - Secondhand luxury
re-sale is on the rise and so are concerns regarding authenticity,
modification, and market control.
While certain philosophical
issues have always surrounded the issue of “real” versus “fake,” “original”
versus “unauthorized reconstruction,” the stakes are now higher than ever:
according to Vogue, “[i]n 2019, resale grew 25 times faster than retail — and
what is now a $28 billion secondhand-apparel market will more than double to an
astonishing $64 billion by 2024.”
These issues have come to a head
in Chanel Inc. v. RealReal Inc. The RealReal, founded by Julie Wainwright, is a
California based company specializing in secondhand luxury consignment. The
RealReal takes possession of goods and guarantees that what it sells is
authentic. However, Chanel has asserted that The RealReal has sold eight
counterfeit “Chanel” items to customers.
According to Chanel, “[t]he only
way for consumers to ensure that they are in fact receiving genuine CHANEL
products is to purchase such goods from Chanel or from an authorized retailer
of Chanel.” Chanel does not sell secondhand goods and has no involvement in
authenticating any secondhand Chanel inventory. Unfortunately for luxury
re-sale companies, entities that take possession of goods are strictly liable
for trademark infringement.
Section 32(1)(a) of the Lanham
Act, 15 U.S.C.A. § 1114(1)(a), imposes civil liability on any person who,
without the consent of the registrant “use[s] in commerce any reproduction,
counterfeit, copy, or colorable imitation of a registered mark in connection with
the sale, offering for sale, distribution, or advertising of any goods or
services on or in connection with which such use is likely to cause confusion,
or to cause mistake, or to deceive.”
In general, a person who places a
counterfeit item within the stream of commerce may be liable for violating
trademark law. Trademark law aims to prevent consumer confusion so that
consumers can reasonably depend upon the item they are purchasing to retain the
brand's characteristics. Otherwise, infringing trademarks or counterfeit items
may induce a consumer to purchase an item when they otherwise would not have.
Individuals are able to sell,
display, or offer goods under its original trademark pursuant to the first sale
doctrine. However, the first sale doctrine does not protect a defendant who
makes or sells a reproduction of a copyrighted work. Similarly, the first sale
doctrine does not apply to an item that is materially different than the one
sold by the trademark holder.
The Fifth Circuit’s decision in
Rolex Watch USA, Inc. v. Meece is the most instructive case regarding the
secondhand luxury goods market and what level of “materially different”
constitutes trademark infringement. Meece holds that replacing a necessary and
integral component of a Rolex watch with a non-Rolex approved part, including
any non-Rolex customizations, renders the entire watch counterfeit.
The court found that the bezel on
a Rolex watch is a necessary and integral part of the watch because it serves a
water-proofing function. The court also described bracelets and dials as
necessary and integral parts because a watch cannot be worn without a bracelet
and a watch cannot tell time without a dial.
As a result, aftermarket
alterations to the Rolexes in question were significant enough to create
completely "different" products, deserving the designation of
counterfeit.
While the Fifth Circuit found it
relatively simple to determine what parts of a Rolex are necessary and integral
(essentially all of them), such a test is much more difficult to apply to other
luxury goods. Take, for example, a pair of Christian Louboutin heels, a coveted
and highly counterfeited status shoe. Is replacing a heel tap at your local
cobbler a replacement of a necessary and integral part?
Following this logic even
further, what is one to do if the interior zipper of their Chanel flap is
damaged? If a person wants to have their cobbler repair it, potentially using a
"non-Chanel" zipper, then should we think of this entire bag as a
literal counterfeit? Most would still regard this altered bag as authentic, but
following the logic of Meece, it would technically be affecting the very
function of the bag itself, necessitating a counterfeit designation.
While it may make sense to some
to continue to be this exacting and critical when it comes to individuals who
make a living "piggybacking" off a brand's trademarks, such criticism
ignores realities of ownership.
Things break, and components need
to be fixed or replaced; does this mean that said alterations, which may be
more necessary than discretionary, need to occur through the very brand itself?
Luxury brands may continue to advance a strict definition of material
alteration in an effort to prevent secondhand goods from cutting into sales of
new luxury items.
Gone are the days of a single
person selling a fake Fendi Baguette out of the trunk of a car; today,
counterfeit goods are knowingly or unknowingly being sold on eBay, Poshmark, or
The RealReal. The court in Tiffany (NJ) Inc. v. eBay Inc. was the first to
apply the concept of contributory trademark infringement to an online
marketplace.
In this case, Tiffany & Co.
("Tiffany"), a seller of branded jewelry, among other items, sued
eBay, an online marketplace that connected various buyers and sellers, for
trademark infringement and other claims in relation to eBay's advertising and
listing practices.
eBay facilitates sales between
independent buyers and sellers on its platform, collecting various fees from
its user base along the way. Because eBay exists to facilitate the sales that
occur on its website, it does not take physical possession of the items that
are sold, nor does it know when items are delivered to buyers.
Despite their relatively hands-off
approach toward the sales themselves, eBay was aware that sellers on eBay were
selling counterfeit Tiffany jewelry under the guise of them being authentic
Tiffany pieces.
The court found that eBay was not
liable for trademark infringement because it did not exercise sufficient
control over the infringing conduct. To successfully establish liability, a
service provider must have more than a general knowledge or reason to know that
its service is used to sell counterfeit items.
Essentially, a trademark holder
would have to show that a service provider knew or had reason to know of
specific instances of actual infringement beyond those that it addressed upon
learning of them.
The court acknowledged that this
ruling was creating a willful blindness problem, referring to the fact a
service provider could turn a blind eye towards the existence of trademark
infringement on its platform in an effort to avoid their own liability.
Tiffany (NJ) Inc. represents the
best possible outcome for companies in the luxury goods market because
platforms are rewarded for not exercising sufficient control over the
infringing conduct, creating massive grey areas in regards to authenticity of
luxury goods.
These grey areas are maximized
when a third party selling platform can maintain that it prevents fakes from
appearing on the platform, but does not take enough action to be regarded as
exercising sufficient control over the items being sold.
Tiffany (NJ) Inc. rewards a
"hands off" platform while simultaneously disincentivizing a platform
from taking an active role in determining an item's authenticity for the
benefit of consumers. As a result, companies that take possession of secondhand
luxury goods, such as The RealReal, have two options: sell authentic goods one
hundred percent of the time or stop taking possession of goods.
Proceedings in Chanel, Inc. v.
RealReal, Inc. are currently on hold while the parties engage in mediation.
However, the legal issues surrounding secondhand luxury re-sale will continue
to exist even if a settlement is successfully negotiated.
Consumers who care about bargains
and sustainability are fueling other re-sale platforms like Poshmark, Vestaire
Collective, and many others. Brands, and consumers, will still need to grapple
with what level of modification makes a luxury secondhand good counterfeit.
Luxury brands would like to push
for an expansive definition of "materially different" in an effort to
protect market share in the face of rising sales of secondhand luxury goods.
However, current interpretation of trademark law opens up endless opportunities
for luxury brands to have courts deem altered yet authentic goods to be
counterfeit, creating further restraints on alienation.
By silently chipping away at ways
an individual can sell their luxury goods, luxury brands are protecting the
market for their new goods while also making it difficult for former customers
to tap into the equity of their luxury investments.
Previous precedent, specifically
regarding control over product, may result in a stop to innovation in the
secondhand luxury goods market.
Companies that take possession of
goods in an effort to provide authentication must be correct regarding its
assessments one hundred percent of the time to escape potential liability. Or,
a company may switch to a business model in which it does not take possession
of goods, even if that theoretically means that more inauthentic items end up
being sold to consumers.
Disincentivizing control over
goods results in platforms adopting a hands-off approach regarding sales. While
companies like The RealReal should not make absolutist guarantees regarding
authenticity, improvement in preventing counterfeit items from entering the
stream of commerce should be encouraged.
Until luxury brands and
secondhand re-sellers agree to co-exist, luxury secondhand goods are stuck
being sold in a manner that rewards a certain lack of oversight.
* This article was originally published here
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