Chanel’s $4 million counterfeiting judgment against luxury reseller What Goes Around Comes Around (“WGACA”) is facing scrutiny at the U.S. Court of Appeals for the Second Circuit. During oral arguments in September, a three-judge panel questioned counsel for both parties about the definition of counterfeit goods under federal trademark law, the adequacy of the jury instructions, and the damages awarded in connection with 14 handbags.
The appeal stems from Chanel’s longstanding trademark lawsuit against WGACA, which resulted in a jury verdict in Chanel’s favor in February 2024. WGACA has since sought a new trial on the counterfeiting claim, arguing that errors in the jury instructions and the exclusion of certain evidence affected the verdict.
The Counterfeiting Question
At the center of the September 21 oral arguments before the Second Circuit was whether the jury was properly instructed on the statutory definition of a counterfeit mark. WGACA argued that the district court omitted language from 15 U.S.C. § 1116(d)(1)(B) excluding certain goods manufactured by an authorized manufacturer from that definition.
WGACA maintains that the 14 handbags underlying the counterfeiting verdict may have been manufactured at the Corti factory, a third-party manufacturer authorized to produce Chanel handbags, even if Chanel never authorized their sale. Pointing to serial numbers and authentication stickers associated with that factory, WGACA argued that the jury could have found that the handbags originated there or that the reseller reasonably believed they did. The omitted language, it contended, was particularly relevant to the finding of willfulness.
Chanel defended the instructions, relying on the general definition of a counterfeit under 15 U.S.C. § 1127 and arguing that WGACA had not established that the handbags originated from an authorized factory. WGACA countered that the statutory damages provision incorporates the definition in § 1116(d)(1)(B), including the authorized-manufacturer exclusion. The judges questioned whether that exclusion should have been included in the jury instructions rather than treated as an affirmative defense, and whether the instructions otherwise adequately conveyed the distinction.
The arguments also addressed Chanel’s control over authentication information. WGACA maintained that it did not receive the full relevant list of problematic serial numbers until litigation was underway, while Chanel pointed to a 2015 notice concerning one handbag and subsequent sales of disputed merchandise. During rebuttal, WGACA acknowledged that two or possibly three handbags were sold after it received the broader serial-number information, attributing those sales to staffing difficulties during the pandemic.
Judges Question the $4 Million Award
The panel also pressed Chanel’s counsel about the $4 million statutory damages award, questioning what evidence had been presented concerning WGACA’s profits from the 14 handbags or the harm suffered by Chanel. Max acknowledged that Chanel had not quantified reputational harm but emphasized that statutory damages are not limited to compensation for measurable losses. He argued that the jury could consider deterrence and WGACA’s conduct, including sales made after receiving notice of authentication concerns. He also stated that the jury had asked about the maximum available statutory damages during deliberations.
The judges nevertheless pressed him on whether an award at the statutory maximum was justified, particularly given the lack of evidence quantifying the harm associated with the 14 handbags. WGACA, meanwhile, maintained that the allegedly deficient instructions could have affected both the willfulness finding and the damages award.
Beyond the jury instructions and damages, WGACA is challenging the exclusion of evidence concerning Chanel’s alleged view of the secondhand market as a threat, arguing that it was relevant to assessing witness bias. The parties also addressed a separate dispute over litigation costs.
The Second Circuit reserved decision following the September arguments, leaving the fate of the counterfeiting judgment and $4 million damages award unresolved.
The case is Chanel, Inc. v. What Goes Around Comes Around, LLC, et al., 1:18-cv-02253 (SDNY).
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