Chanel Wins Significant Case: Jury Ruling May Transform Secondhand Market Practices

Chanel Wins Significant Case: Jury Ruling May Transform Secondhand Market Practices

After six years of litigation, Chanel has prevailed in their lawsuit against What Goes Around Comes Around (WGACA) for trademark infringement, false advertising, false association and endorsement, unfair competition, and deceptive trade practices.^[1] Chanel is a well-known luxury brand, owning trademark rights to several Chanel, Coco Chanel, and CC monogram logos.^[2] Chanel sells hundreds of millions of dollars worth of its consumer luxury goods annually online, in stores, and through authorized retail stores.^[3] WGACA describes itself as “the leading global purveyor of authentic luxury vintage accessories and apparel,” and focuses many of its sales and advertising on Chanel goods.^[4] WGACA is not an authorized seller of Chanel products, and Chanel asserts that WGACA’s use of trademarked material, including social media hashtags like #WGACACHANEL, in-store promotional advertisements, and authentication guarantees, is violating the Lanham Act for confusing consumers that WGACA is affiliated with Chanel.^[5]

The luxury market is often seen as more than just high-end fashion. Many consumers consider purchases from luxury brands like Chanel, Hermes, Yves Saint Laurent, and more as a form of investment in the market. High demand paired with increasing manufacturing costs has led to Chanel increasing its prices of handbags by a four to eight percent margin from 2023 to 2024.^[6] In 1955, a consumer could purchase a Chanel purse for $220, now that same bag may retail for over $10,000 with projected future increases raising the cost to over $20,000 by 2029.^[7] The continuous increase in prices means that the value of goods appreciated year over year, benefitting a consumer who looks to sell products on the resale market years later.

The high demand for all luxury goods has created a boom in the resale market. With the constant evaluation and increase in prices, the luxury resale market provides consumers with an opportunity to sell their pre-owned goods, increasing disposable income and limiting their total cost of ownership.^[8] In a survey completed by Bos. Consulting Grp., seventy-one percent of buyers stated that they purchase secondhand items because they cannot afford the item at full price.^[9] This trend underscores the reliance consumers place on the resale market when seeking access to luxury goods and products.

Chanel’s claims against WGACA rests on the assertion that the resale company is violating the Lanham Act.^[10] In 1946, Congress enacted the Lanham Act to provide a national system of trademark registration.^[11] This registration system protects owners of federally registered trademarks against the use of similar marks if such use is likely to result in consumer confusion.^[12] Here, the jury found that Chanel proved its claim that WGACA’s use of Chanel’s trademarks violated the Lanham Act.^[13] Further, the jury found WGACA acted willfully, with reckless disregard, or with willful blindness in its false advertising.^[14]

The resale of luxury goods is not inherently wrong. In fact, the “first sale” doctrine allows the resale of products constituting some else’s intellectual property without the owner’s permission, as long as the person lawfully owns the product.[mnf]First Sale Doctrine in Trademarks and Copyrights, BonaLaw, (Apr. 16, 2021), https://www.bonalaw.com/insights/legal-resources/first-sale-doctrine-in-trademark-and-copyright-law [https://perma.cc/G52C-S5BW].[/mfn] However, just because the first sale doctrine permits a reseller to sell trademarked items does not mean that a reseller is protected from advertising those goods in a way that confuses consumers. Under the “nominative fair use” doctrine, a reseller is not allowed to use a trademark to indicate the brand is endorsing or affiliated with the reseller.^[15]

Courts apply the nominative fair use doctrine when they are addressing the risk that nominative use of a mark will lead consumers to confuse that “the speaker is sponsored or endorsed by the trademark holder.”^[16] Nominative fair use applies three factors:

(1) whether the use of the plaintiff’s mark is one not readily identifiable without use of the trademark; (2) only so much of the mark may be used as is reasonably necessary to identify the product or service; (3) the user must not do anything that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.^[17]

If the nominative use does not satisfy all of these requirements, a court may order defendants to modify their use of the marks.^[18]

WGACA infringed on Chanel’s trademarks and engaged in unfair competition by creating and using various Chanel related hashtags and other marketing material to advertise their connection with the brand.^[19] WGACA heavily relied on Chanel trademarks in its advertising and promotions.^[20] In its retail stores, WGACA prominently features the Chanel brand, including a copy of a Chanel No. 5 perfume bottle, displaying only Chanel branded items in window displays, and printing the Chanel logo larger than other brand logos.^[21] Further, the WGACA website homepage used to feature a sales banner for Chanel products and listed Chanel first under the “Shop by Brand” dropdown.^[22] Finally, WGACA’s social media heavily featured Chanel, included quotes from Coco Chanel, photographs of models and public figures wearing Chanel, photographs taken from previous Chanel advertisements, and tagging photos with the hashtag #WGACACHANEL.^[23] The Court found that this type of advertising is likely to lead to consumer confusion of Chanel’s sponsorship or affiliation. ^[24] WGACA did more than just sell Chanel goods, it presented and marketed the brand in a way that is consistent with the presumption that WGACA is selling on Chanel’s behalf.^[25]

Looking forward, the outcome of this case has the potential to substantially change advertising in the resale market. While resale companies may identify items using a trademark, such as highlighting that a purse is Chanel in a specific listing, the companies may face issues using luxury brands in a general sense to promote their website.^[26] Resellers must now be increasingly wary of how they market designer items, refraining from using certain hashtags or promoting brands in a generalized way on their website and social media accounts. Instead, their marketing may have to turn and promote specific items that are on sale. The biggest impact will be on social media, where luxury resellers will have to reconfigure how they advertise their own company on social media.

Although luxury resellers will have to rethink their advertising strategies, there will likely be little downstream impact into their sales market. While companies like WGACA may incur some added costs in their compliance sector, ensuring they are not creating a false affiliation with luxury brands, there is still high demand for purchasing goods on the resale market. Not only do many consumers turn to the resale market to purchase more affordable options of used luxury goods, consumers also turn to the resale market for sustainability reasons.^[27] If resellers want to avoid future litigation, they will have to reexamine their advertising methods and distance themselves from general association with luxury brands.