Chanel does not want others using its name and in a strongly-worded lawsuit filed this spring, the Paris-based luxury brand reminded What Goes Around Comes Around (“WGACA”) of that fact. The Karl Lagerfeld-helmed brand is taking issue with the pre-owned luxury retailer’s use of its federally-protected trademarks and product imagery in furtherance of what Chanel calls an elaborate strategy “designed to suggest that [it has] an affiliation or relationship with Chanel,” and in March asked a New York federal court to force WGACA to stop “piggybacking on [its] reputation” to sell pre-owned garments and accessories.
WGACA responded to Chanel’s suit this summer, filing a motion to have the case dismissed, arguing that “the lawsuit is an impermissible attempt by Chanel to bar the legitimate resale of its products, and that WGACA uses the Chanel trademarks simply to identify its products, and does not claim any affiliation or sponsorship by Chanel.”
Judge Louis L. Stanton of the Southern District of New York has since issued an opinion and decision on WGACA’s motion to dismiss, siding almost entirely with Chanel. Primarily, Judge Stanton upheld Chanel’s claims for federal counterfeiting and trademark infringement, false advertising, and unfair competition and false endorsement and association against WGACA, all of which, he states, center on whether WGACA’s use of Chanel’s trademarks have caused confusion, deception, or mistake about the source of its goods.
The judge stated in his September 14 decision that Chanel has adequately made claims that WGACA is likely running afoul of trademark law by making use of the #WGACACHANEL hashtag, which Chanel asserts that the reseller is using in order “to create the impression that WGACA is affiliated with Chanel or is an authorized Chanel retailer,” which it is not.
Moreover, Judge Stanton sided with Chanel in finding that the brand “adequately alleges that WGACA's extensive unauthorized use of the Chanel brand and trademarks constitutes false advertising or endorsement.” He asserts that “such extensive use of Chanel's trademarks” by WGACA – such as its “use of pictures from Chanel advertising campaigns, the #WGACACHANEL hashtag on social media, and the prominence and large volume of Chanel trademarks that WGACA displays in stores and online” – may “form the basis for a Lanham Act violation.”
He states that the nominative fair use doctrine – “which allows use of a plaintiff's trademark solely to identify the plaintiff's goods as long as there is no likelihood of confusion of the trademark holder’s sponsorship or affiliation – does not change this outcome.” That is because there is, in fact, a chance, he says, that “WGACA's use of the Chanel trademarks here may create a likelihood of confusion about Chanel's sponsorship or affiliation.”
Judge Stanton further asserts that the first sale doctrine – the legal doctrine enables the reselling of copyright and trademark-protected products after the copyright and/or trademark holder puts the products on the market – similarly does “not give WGACA protection.” That doctrine, according to Judge Stanton, “applies only where a ‘purchaser resells a trademarked article under the producer's trademark, and nothing more.’" In the case at hand, WGACA is not the immediate purchaser of the Chanel goods but instead, a re-seller of them.
With this in mind, the court denied WGACA's motion to dismiss Chanel’s three Lanham Act-based claims.
This round was not a total loss for WGACA. Judge Stanton did agree to dismiss Chanel’s common law unfair competition claim, holding that “Chanel failed to make the showing of bad faith necessary to sustain its common law unfair competition claim,” which makes for a small victory for WGACA. He notes that the brand has “adequately pleaded claims” for its two other state law claims, unfair competition and false advertising under New York General Business Law.
One final win for WGACA is the court’s unwilling to “pierce the corporate veil” and hold WGACA founders Gerard Maione and Seth Weisser personally liable in addition to the company. Judge Stanton held that Chanel failed to meet “the demanding standard required” to hold the company’s founders personally liable, namely, showing that “WGACA primarily transacted the individual defendants' business rather than its own, or that the individual defendants used WGACA as a mere device to further their personal rather than the corporate business.”
The case will now proceed with all but one of the charges made by Chanel still on the table. The $10 billion brand has asked the court to immediately and permanently order WGACA to refrain from “misleading customers into believing that WGACA has any affiliation or association with Chanel, or that Chanel has approved of or authenticated the Chanel-branded items being sold by WGACA,” in addition to monetary damages.
Given the rise of the $25 billion luxury resale market, this case – and the implications that it has in regards to the use of luxury brands’ trademarks – is one worth keeping an eye on.
* The case is Chanel, Inc. v. What Goes Around comes Around, LLC, et al., 1:18-cv-02253 (SDNY).