Upcycling x First Sale Doctrine
Renowned fashion designer Stefano Gabbana recently remarked “[t]he lockdown reminded us that we could creatively reuse what we had by transforming it and that everything can last forever[.]”[1]Right before the COVID-19 pandemic, fashion industry tides seemed to point strongly in favor of sustainability.[2] Both consumers and manufacturers realized fashion’s adverse environmental impact required change.[3] According to UNEP, the UN’s environment programme, the fashion industry generates more carbon emissions than all international flights and maritime shipping combined.[4] The need for sustainable practices led to the entry of the newest sustainability trend: Upcycling.[5] Upcycling existed before COVID-19, mainly among smaller, ethics-focused brands.[6] Larger brands in fashion mainstream had written off upcycling as impossible to scale, or just uninteresting.[7]
The unprecedented supply chain issues during the COVID-19 pandemic brought upcycling renewed attention across the apparel, footwear, and textile industries.[8] With restrictions imposed because of the worldwide lockdowns, designers turned to materials they already had in their studios instead of shipping new materials.[9] And we also saw many of us, the consumers, upcycling by repurposing existing fashion items while stuck at home during lockdown periods. Many consumers started upcycling not just for personal use but also turned it into full-fledged businesses. We might be at the end of the pandemic, but we are nowhere near phasing out upcycling. Upcycling is here to stay.
What is Upcycling?
Upcycling is taking something which is already made, then improving upon it or making a new item(s) out of it in way that increases the original’s value.[10] Upcycling promotes circular fashion, as existing material remains in circulation instead of ending up in landfills.[11] Upcycling has two components: the original piece you use (traditionally leftover “deadstock” of product, fabric, or whole second-hand pieces), and how you transform it to increase its value.[12] Some designers, such as Eileen Fisher in her resewn collection, deconstruct existing pieces and remake them into something new.[13] Others add onto the original piece to increase its value, such as pieces from Urban Outfitters renewal line.[14]
Many times, the terms upcycling and recycling are used interchangeably, but indeed both terms have different meanings. Recycling is turning waste into raw materials that can be used to create new products.[15] In comparison, upcycling does not turn existing products into raw materials, but rather are reconstructed differently or with additions.[16]
At first, it may seem there are no legal problems with upcycling. However, upcycling’s use of trademark-protected original pieces by other than the trademark owner creates legal issues when the trademark product is resold as part of an upcycled product by this third party. and such upcycled products are sold bearing trademarks. Let us first analyze a potential solution, the first sale doctrine of trademark law.
The “First Sale” Doctrine of Trademark Law
Under U.S. common law, even unregistered trademark owners receive some exclusive rights as to the mark from the time he/she starts using his/her mark in commerce.[17] One common law right is to exclude others from using the mark in the owner’s geographic area only.[18] However, a registered trademark has priority to preclude throughout the U.S. over the common law mark.[19] A trademark’s certificate of registration is considered prima facie evidence of valid ownership and registration of the mark.[20] And in the event the trademark owner enforces its rights in court, these presumptions can save owners significant litigation expenses while shifting the burden of proof onto the infringer to prove the contrary.[21] All mark owners, registered or unregistered, may file a lawsuit for trademark infringement, the unauthorized use of a trademark or service mark in connection with any goods or services which is likely to cause confusion, deception, or mistake as to the actual source of the goods or services.[22] In order to prevail in trademark infringement case, the owner has to show that its owns a valid trademark, the infringing party uses the same or similar trademark in commerce without owner’s consent,, and the infringing party’s use of trademark caused a likelihood of confusion.[23] However, certain uses of trademarked materials are permitted by law without owner’s consent, including an affirmative defense of first sale.[24]
The first sale doctrine allows the resale of products that bear someone else’s intellectual property without owner’s permission as long as person originally lawfully owned the product.[25] The primary rationale behind the doctrine is to ensure that intellectual property holder earns only one fee for the sale of each object.[26] The doctrine restricts the extent to which the owner of IP can exercise their exclusive right of reproducing and/or distributing the protected goods. The doctrine originated in copyright law as a defense.[27] Since 1924, federal courts have applied the first sale doctrine as a defense to a trademark infringement claim through case law.[28]
In trademark, the first sale doctrine’s application means once a genuine, branded good is within the stream of commerce, trademark protection is exhausted [29] Once exhausted, a subsequent sale of genuine goods without the trademark owner’s consent does not violate trademark protection, except for sales that misrepresent themselves as authorized agents of the original trademark owner.[30] Genuine goods are those goods that are manufactured and first sold with the authorization of the trademark holder, and without any modification.[31] The doctrine places an obligation on resellers of trademarked goods to not sell the products in a way that would suggest to consumers that they are connected to the trademark holder.[32] Thus, subsequent sales misrepresenting an affiliation or connection to the trademark holder acts as a bar to applying the first sale doctrine. In that way, a first sale claim turns on the same question underlying trademark infringement: whether consumers are likely to be confused.[33] If there is no confusion and first sale arguably applies, the question becomes whether there any exceptions to the the doctrine. One exceptions is the material difference exception, where. the defendant sells the trademark owner’s goods that are materially different from the goods of the plaintiff.[34] Unauthorized repackaging, reconstruction, and other modifications of the goods by the resellers of trademarked goods amount to material differences.[35] Another exception to doctrine is unauthorized first sale.[36] Some common examples of unauthorized first sale include where the defendant is the trademark owner’s manufacturer or a third party who purchased goods directly from the trademark owner’s manufacturer.[37]
We can synthesize the first sale doctrine in the trademark context as follows:
Rule: After the first authorized sale of the trademarked goods, the trademark owner has no control over its subsequent sales and the subsequent sales will not amount to trademark infringement.
Exception: The first sale doctrine will not apply when products being resold are not genuine since they are (1) materially different from goods sold under the mark, or (2) the first sale was unauthorized.
Upcycling x First Sale Doctrine
Suppose the original, trademarked good for upcycling was genuine. Based on the doctrine of first sale, the upcycled good would likely not be liable for trademark infringement. However, an upcycled product is, by its nature, materially different than original trademarked goods, which is one of the exceptions to the doctrine’s rule.[38] This has led to a flurry of lawsuits against upcyclers, especially in the fashion industry. In the past, many fashion companies have filed suits against upcyclers of their trademarked products.
In 2017, Harley Davidson filed a trademark infringement case against Urban Outfitters for selling genuine Harley shirts that had been reconstructed, without permission.[39] The suit alleged that Urban Outfitters sold a number of bodysuits bearing the Harley marks that were apparently fake, despite having Harley-branded tags & labels, and that Urban Outfitters sold upcycled Harley Davidson t-shirt as bodysuits.[40] The case ultimately ended with the parties agreeing to settle by which Urban Outfitters was never to sell again products bearing Harley’s marks.[41] This case touched upon the material difference exception to first sale doctrine.
Second, Ralph Lauren filed a lawsuit for trademark infringement and counterfeiting case against a California-based company, VDNS, in early 2020.[42] Some of the allegedly infringing products included a hat upcycled from authentic Ralph Lauren swim shorts.[43] Since the resold good was materially different from the original product, they fell outside the scope of first sale protection and amounted to infringement.[44] The case ended with the court issuing a default judgment in Ralph Lauren’s favor.[45]
Third, a 2018 case touched on the likelihood of confusion exception in Chanel v. What Goes Around Comes Around. In 2018, luxury fashion house Chanel filed suit against What Goes Around Comes Around (“WGACA”) for various claims, including counterfeiting and trademark infringement.[46] Chanel specifically claimed WGACA mislead consumers into believing it has an official relationship with Chanel.[47] The Southern District of New York denied-in-part WGACA’s motion to dismiss as it did more than mere reselling of authentic goods by alleging it was selling on Chanel’s behalf.[48]
A fourth case involving fashion and first sale is Chanel Inc. v. Shiver & Duke.
Chanel Inc. v. Shiver & Duke
Shiver & Duke, an accessories company is in the business of manufacturing, promoting and selling costumer jewelry products.[49] Some of the costume jewelry, including necklaces, earrings and bracelets, featuring the iconic “CC” monogram, a Chanel source identifier.[50] The jewlwey in question was made from Chanel buttons that were not obtained from Chanel, not provided to Shiver & Duke by or with consent or knowledge of Chanel, and were not verified as genuine by Chanel.[51] Also, the buttons bearing CC monogram used by the defendant were not intended for use other than Chanel’s authorized clothing.[52] In promoting and marketing the alleged jewelry on their website, defendants in some instances used the CHANEL mark to identify their CC monogram button jewelry.[53] Furthermore, Shiver & Duke’s button jewelry appears to be no different from the CC monogram appearing on authorized Chanel costumer jewelry and to consumers, there is no distinguishable difference between the two.[54] However, Shiver & Duke refused to cease the infringing use, which led Chanel to file suit in February 2021.[55] Chanel asserted claims for trademark infringement, unfair competition, trademark dilution, unfair competition, and sought monetary damages as well as injunctive relief to bar the defendants from using the “CHANEL” marks.[56] And the case is still pending in court.
This case is another in the long line of legal actions initiated by luxury brands that have sought to exert control over the distribution of goods post-first sale, including by preventing the sale of modified, but otherwise authentic, goods bearing their trademarks. At the heart of the case is the whether first sale applies. While the first sale doctrine would not apply if the resold goods are materially different from the original goods, the question remains if first-sale doctrine protection applies when a part of a trademark-bearing product is resold.
Conclusion
Upcycling is not new to the fashion industry – infamous tailor Dapper Dan has been upcycled luxury brands for over 30 years, facing his share of infringement claims before ultimately gaining luxury brand partnerships.[57]
As the drive for sustainable fashion continues, the legal issues of first sale may be a roadblock to fully immersing the industry in upcycling. The key takeaway is that there is a thin line of difference between upcycling and what constitutes infringement and the outcome varies from case to case. So, the question remains is where do you the draw the line?
Footnotes
