Please note: The information contained herein, is provided for informational purposes only and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of the content included in this site without seeking legal or professional advice.

Introduction

Six years ago, Chanel Inc. initiated legal action against What Goes Around Comes Around (WGACA), citing trademark infringement, false association, and false advertising, among other claims. Just recently, a federal jury in NY unanimously ruled in favor of Chanel on all counts, awarding Chanel $4 million in damages - a victory that stands as a win on principle alone - for this $71B luxury brand. The verdict has sparked alarm in the resale world, prompting questions about its implications for resale businesses.

This landmark case does not halt the resale industry in any way; instead, it offers valuable insights for the pre-owned resale sector on how to sell and market second-hand luxury goods without infringing on any brand’s trademarks. Let’s delve into some key takeaways:

I. Trademark Infringement:

A. Background In 2012, 30,000 serial number stickers and authenticity cards with serial numbers ranging from 17686401-17716400 were stolen from Chanel’s Renato Corti factory in Italy. Chanel did not intend to sell any bags with these serial numbers. Chanel accused WGACA of selling a counterfeit Chanel bag from this stolen serial number range. However, WGACA argued that they were allowed to sell these pre-owned Chanel items under the First Sale Doctrine.

The Court concluded that because WGACA sold bags that Chanel never intended to sell, these sales were equivalent to selling counterfeits and not protected under the First Sale Doctrine; even though WGACA assert they did not know the status of these serial numbers.

What is the First Sale Doctrine, you ask? It’s a legal principle on which the secondhand industry relies, stating that once a genuine product is sold, the purchaser is the owner and may resell it without permission from the trademark owner. For example, if you buy a genuine BMW X3 and decide to resell it, you do not need permission from BMW to do so.

B. Takeaways

• Avoid reselling samples, uniforms, gifts with purchase, stationary, display items, and any items of inferior quality to a brand’s main line, as these may not be protected by the First Sale Doctrine. When in doubt about an item’s authenticity, err on the side of caution and refrain from selling it.

• Do not buy or resell any Chanel bag with serial numbers within the range of 17686401-17716400. If you have such a bag, remove it from your inventory immediately to avoid risking your business or reputation.

II. Consumer Confusion - Implying an Association:

A. Background The lawsuit centered on whether WGACA had misled customers into believing they had an official relationship with Chanel. This involved the use of Chanel’s trademarks, such as its name, logo, and imagery, which were deemed excessive. The case covered branding, marketing, and product assortment, offering important insights to protect your business.

*Image: Case 1:18-cv-02253-LLS Document 239-47 Filed 07/27/21 Page 1 of 19 *

The Court established that using a brand’s trademarks, including its name and logo, should be limited to identifying the brand without implying affiliation, known as “nominative fair use.” This protection applies to those who use another’s trademark solely to identify the brand, without suggesting any affiliation.

B. Takeaways

• Include a clear disclaimer stating your business has no official affiliation with Chanel or any brand. Ensure this disclaimer is present in all your communications, including your storefront, website, emails, and social media.

• Consider diversifying your product assortment to avoid potential consumer confusion. For instance, if your business specializes in one pre-owned brand, ensure it’s clear to customers that you are an independent second hand store.

*Image: Case 1:18-cv-02253-LLS Document 1-17 Filed 03/14/18 Page 2 of 2 *

• Avoid using hashtags of brand names, using the brand’s runway photos and ads, or hosting events themed around a brand. WGACA’s infringement included using similar brand colors, a Chanel-themed cake at an event, the hashtag #WGACACHANEL, and a Karl Lagerfeld themed party. Use the brand name only nominally to describe the item.

Image: Case 1:18-cv-02253-LLS Documents 1-4 Filed 03/14/18 Page 7 of 9

III. False Advertising:

A. Background Chanel’s claim of false advertising focused on the terms “authenticity guarantee,” disclosure of repairs, and the use of the word “vintage” if an item is less than 20 years old.

B. Takeaways

• Avoid using the term “authenticity guarantee” alone, as it could imply brand involvement in authentication. Instead, use terms like “pre-authenticated” or “reviewed for authenticity,” along with an explanation of your authentication process.
• Or if you use “authenticity guaranteed,” make sure it is crystal clear that your business or 3rd party authenticator conducted the authentication review/opinion, and legibly write (near the claim) that X brand is not in any way affiliated with the authentication review or authentication guarantee.
• Always disclose any repairs or refurbishments in your product details and communications.
• Use terms like “pre-owned” or “secondhand” if you’re unsure whether “vintage” is appropriate.

What’s next? The presiding Judge Stanton will decide on what are “equitable remedies.” The saga is not over as WGACA has stated in the press that they will be appealing the jury’s verdict so stay tuned…

Chanel, Inc. v. What Goes Around Comes Around, LLC, et al., 1:18-cv-02253 (SDNY)

ACTIONABLE RECOMMENDATIONS

from the Chanel v. WGACA Case (Feb. 2024)

Don’t List:

• Make sure you do not sell Chanel bags with serial numbers ranging between 17686401-17716400. This range is identified as having been stolen. When you buy from LePrix, we keep an eye out for these serial numbers and reject them during our inspection process.
• Do not sell branded promotional items with inferior quality such as cosmetic gifts with purchase, samples, displays, stationary, or uniform items.
• Do not focus too heavily on one brand - a high concentration of one fashion house’s product could be considered implying an association. Mix up your assortment to ensure no one could possibly be confused.
• Do not replace hardware or make alterations that materially alter the style.
• Be careful with hashtags: Avoid using #chanel #hermes #gucci and so on if you can, and under no circumstances mix your business’s name with the brand’s name in a hashtag, i.e. #StoreNameHermes #DiorStoreName
• Do not advertise items as vintage unless they can be verified to be at least 20 years old.
• Avoid use any brand’s runway images or campaign images in marketing or social media UNLESS it is to share that you are selling the specific item in that image (or very similar)

Do List:

• Ask for receipts and how your client acquired the item. Keep a paper trail of their response if you can.
• Make important disclosure to make sure it is clear to your clients that you are not affiliated with the brands that you sell and that your authentication opinions are not based on training by the brand.
• Consider using this disclosure Chanel recommended to the court: “[Your store’s name] is not an authorized reseller of nor affiliated with any of the brands we sell. Any guarantee [Your store’s name] may give with regard to any authenticity of the products it sells is solely conducted by [Your store’s name], and not with the participation or approval of the brands themselves.”
• Update your authentication promise: It is safer to say that all items have been thoroughly checked and guaranteed authentic by [Your Store Name], along with a clear disclaimer you are not affiliated with any brands that you sell. (see above)
• Consider outsourcing your authentication process: We can provide you with certificates from our vetted third-party authenticators for a small fee. This lowers risk because it does not require you to potentially prove your expertise in court, the extent of your training, etc. If you need authentication recommendations, contact Deanna at [email protected]
• Review your repair process: Always remember to disclose what the repair in the product details, communications to your customers, and any marketing materials.
• Train your staff on all the above and make sure you are all aligned!

All in all, there is the silver lining from this Chanel trial. The resale industry now has a clearer understanding of what marketing practices Chanel or any other brands may consider acceptable or unacceptable.

This was a lot to take in. Breathe and stay in touch! If there is anything we can do to assist, or a question we can answer, we are always happy to help. Consider taking these steps to protect your business and keep moving forward. These are all practical tips to keep in mind as you build and grow a healthy pre-owned luxury business.

Reminder! The information contained herein, is provided for informational purposes only and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of the content included in this site without seeking legal or professional advice.