The RealReal and Chanel have each scored a few wins in the highly-watched trademark-centric lawsuit that the famous French brand waged against the resale giant for allegedly selling counterfeit goods, and using the Chanel name to “deceive consumers into falsely believing that [it] has some kind of approval from or an association or affiliation with Chanel [when it doesn’t] or that all CHANEL-branded goods sold by The RealReal (“TRR”) are authentic.” In response to the motion to dismiss that the San Francisco-based resale site filed last year, a New York federal court has agreed to toss out a number of Chanel’s claims, while enabling three to remain intact.
On Monday, Judge Vernon Broderick of the U.S. District Court for the Southern District of New York granted TRR’s motion to dismiss in part, agreeing to toss out Chanel’s claims of trademark infringement, and false endorsement and unfair competition, as well as the Paris-based brand’s claims under New York State General Business Law on that basis that TRR’s “use of Chanel’s genuine trademarks is not likely to cause customer confusion, and because Chanel has not adequately alleged injury to the public at large.”
At the same time, the judge refused to dismiss Chanel’s trademark counterfeiting/infringement and false advertising claims, and similarly kept its common law unfair competition claim in play, as well because Chanel “adequately alleges that TRR marketed and sold counterfeit Chanel products, and because [TRR’s] advertising regarding the authenticity of the products it sells is literally false.”
In the recently-released opinion and order, Judge Broderick looks first to Chanel’s claims of trademark infringement, false endorsement and unfair competition, which he says Chanel “does not plausibly allege … based on [TTR’s] use of genuine Chanel trademarks” in connection with its sale of authentic Chanel products, as the Lanham Act – the federal statute that governs trademarks and unfair competition – “does not prevent one who trades a branded product from accurately describing it by its brand name, so long as the trader does not create confusion by implying an affiliation with the owner of the product.”
Here, Judge Broderick asserts that Chanel fails to successfully make its claims because it is “highly unlikely that a customer buying a secondhand Chanel product from [TRR]—which unambiguously holds itself out as consignment retailer in a luxury market— would confuse the nature of [TRR’s] business, the source of its products, or its affiliation—or lack thereof—with Chanel.”
To be exact, the judge points to the following factors as examples of why consumers are not likely to be confused about the source of the goods in question or be misled into believing there is an affiliation between TRR and Chanel given TRR’s use of Chanel’s trademarks: 1) “Chanel’s trademarks are incredibly well-known, recognizable, and prevalent in the luxury fashion market;” 2) “As Chanel makes clear in [its complaint], [it] does not sell secondhand or vintage Chanel goods, and in that sense, [TRR] does not directly compete with Chanel;” 3) “Chanel has identified no evidence of actual customer confusion, or that [TRR] has adopted the genuine Chanel trademarks in bad faith;” and 4) “the luxury fashion market is a relatively sophisticated market that … commands top-dollar prices.”
The judge similarly states that “Chanel has not plausibly alleged facts suggesting that [TRR] ‘stepped over the line into a likelihood of confusion by using [Chanel’s] mark[s] too prominently or too often, in terms of size, emphasis, or repetition,” and thereby, diminishing the merits of a nominative fair use defense. “Chanel has identified no facts suggesting that The RealReal displays Chanel-branded goods ‘more prominently than other luxury-brand goods,’” Broderick asserts, and “has offered no non-conclusory allegations to suggest that [TRR] inaccurately depicts its relationship with Chanel or Chanel’s products and services.”
This is particularly true, according to the court, given the disclosure on TRR’s website that “[b]rands identified on [its website] are not involved in the authentication of the products being sold, and none of the brands sold assumes any responsibility for any products purchased from or through the website,” and that “[b]rands sold on the [website] are not partnered or affiliated with [TRR] in any manner.”
With those claims out of the way, Judge Broderick states that Chanel does, in fact, “plead sufficient facts to plausibly allege a cause of action for trademark infringement based on [TRR’s] advertisement and sale of counterfeit Chanel products.” And while the resale site is “involved neither in the manufacture nor the affixing of [Chanel’s] trademark to [any counterfeits], its sale of the [counterfeits] [is] sufficient ‘use’ for it to be liable for the results of such infringement,” Broderick declares, due to the nature of its model.
As distinct from the Second Circuit’s finding in Tiffany Inc. v. eBay Inc., in which eBay was let off the hook for the counterfeits sold on its site, Judge Broderick says that TRR may be liable for infringement in connection with the sale of allegedly counterfeit goods because it “retains the power to reject for sale, set prices, and create marketing for goods, and unlike eBay is more than a platform for the sale of goods by vendors.”
“By adopting a business model in which [TRR] itself controls a secondary market for trademarked luxury goods, and by curating the products offered through that market and defining the terms on which customers can purchase those products, [TRR] reaps substantial benefit,” according to Judge Broderick. “As a result of this business model, [TRR] must bear the corresponding burden of the potential liability stemming from its ‘sale, offering for sale, distribution, [and] advertising of’ the goods in the market it has created.”
In terms of the alleged counterfeits sold by TRR, the court states that “Chanel has adequately averred that its own investigation revealed that [TRR] marketed and sold counterfeit Chanel products, and Chanel has also alleged that [TRR’s] own customers have complained about the receipt of counterfeit merchandise,” which is “sufficient to plausibly allege that [TRR] directly infringed Chanel’s trademark.”
Finally, as for Chanel’s false advertising claim, the court sides with the “iconic” fashion brand, determining that TRR’s “advertisements regarding the authenticity of the products it sells, considered in context, are literally false.” For instance, TRR’s statement that it “ensures that every item on [its site] is 100% the real thing” is an “unambiguous representation of fact,” per Broderick, which stands in contrast with “Chanel’s allegations that certain products advertised and sold by [TRR] are counterfeit.” As such, this “suffices to establish a plausible allegation of literal false advertising based on [TRR’s] representation that all the products it offers have been authenticated and are 100% the real thing,” thereby, enabling Chanel’s claim to move ahead along with Chanel’s unfair competition and counterfeiting/trademark infringement claims.
Chanel made headlines when it first filed suit against The RealReal in November 2018, accusing the popular resale site of “selling counterfeit CHANEL handbags,” despite its claims that it “ensure[s] that every item on[its site] is 100% the real thing.” The fashion brand went on to claim that while “there is no nor has there ever been any approval by or association or affiliation between Chanel and The RealReal …. the RealReal understands that the value of its CHANEL-branded inventory and attraction for consumers is enhanced if consumers believe that Chanel has a business relationship or affiliation with The RealReal.”
From the outset, The RealReal has vehemently denied Chanel’s claims, characterizing the brand’s suit as “nothing more than a thinly-veiled effort to stop consumers from reselling their authentic used goods, and to prevent customers from buying those goods at discounted prices.”
*The case is Chanel, Inc., v. The RealReal, Inc., 1:18-cv-10626 (SDNY).