Resale Site Says Chanel Lacks Basis in Case Over Use of the Chanel Name, Logo in Connection with Chanel Goods

Image: Unsplash


Resale Site Says Chanel Lacks Basis in Case Over Use of the Chanel Name, Logo in Connection with Chanel Goods

Chanel has made headlines in recent years in connection with its quest to crackdown on sales of its coveted products by way of the secondary market. In the midst of pending trademark infringement and counterfeiting, false advertising, and unfair competition cases in the U.S., ...

April 14, 2021 - By TFL

Resale Site Says Chanel Lacks Basis in Case Over Use of the Chanel Name, Logo in Connection with Chanel Goods

Image : Unsplash

Case Documentation

Resale Site Says Chanel Lacks Basis in Case Over Use of the Chanel Name, Logo in Connection with Chanel Goods

Chanel has made headlines in recent years in connection with its quest to crackdown on sales of its coveted products by way of the secondary market. In the midst of pending trademark infringement and counterfeiting, false advertising, and unfair competition cases in the U.S., which it initiated against resale titan The RealReal and fellow luxury consignment-seller What Goes Around Comes Around, Chanel is also currently embroiled in a separate resale-centric fight in the United Kingdom, accusing a British online retailer of running afoul of the law – but not by selling counterfeit or otherwise infringing Chanel goods, but by selling authentic double “C” branded wares in conditions that the French fashion house alleges are damaging its wildly valuable brand image.

The case got its start in late January when Chanel filed a trademark lawsuit in the High Court of Justice Business and Property Courts of England and Wales against Kensulate Corporation Limited, a digitally-native reseller doing business as Crepslocker. According to its complaint, Chanel claims that Crepslocker – which offers up both “new” and pre-owned luxury goods, such as Chanel and Hermès bags, Supreme sweatshirts,, and Yeezy sneakers on its e-commerce site – “has carried out acts which constitute infringement of [Chanel’s word mark and double “C” logo trademark]” by using those marks in connection with its sale of authentic Chanel products without Chanel’s consent.

Part-consignment, part direct-sourcing, Crepslocker provides a platform for the resale of designer goods consigned to it by consumers, and also sources luxury items directly from brands and offers them for sale on its site in connection with which Chanel claims that the 7-year-old company makes unauthorized use of its trademark-protected name and double “C” logo in a number of ways. On Crepslocker e-commerce site, for instance, Chanel alleges that customers “are able to search/browse … by brand, including by selecting ‘CHANEL,’” and are then directed to a “Chanel” specific page that “offers a series of various goods bearing the [Chanel] trademarks” and features “caption content added by [Crepslocker] … to describe each item, [which] repeatedly comprises use of the word ‘Chanel.’” 

Such allegedly infringing use of Chanel’s marks further extends Crepslocker’s list of a “complete set of available brands” on its website, which “is visible under the heading ‘Brands,’ and includes sportswear and other brands, which do not have similar associations of luxury, prestige, exclusivity and longevity to those enjoyed by [Chanel].” Beyond that, Chanel takes issue with Crepslocker’s advertisements on social media, as well as the company’s corresponding eBay store, in connection with which Chanel claims that Crepslocker “has made multiple uses of the name or sign ‘Chanel,’” and features “images of goods bearing the [Chanel] trademarks.” 

After discovering such uses of its name and logo by Crepslocker in furtherance of its sale of Chanel-branded products, Chanel asserts in its complaint that in September 2019, it made a test purchase by way of an investigator of a £195 “Chanel CC Silk Dot Scarf Black Red.” From the outset, Chanel alleges that the shopping experience diverged from its standards: in addition to the scarf “arriv[ing] not in CHANEL packaging, but in an apparently-recycled plastic bag for another product with a label saying ‘waist bag black,’” it also “did not arrive neatly presented, but crumpled and scrunched in the recycled bag.” (Other differentiating factors included Crepslocker’s requirement that consumers pay via PayPal (and not credit card), its no-return policy for items that had been specifically sourced for individual customers, its price premiums for items specifically sourced by Crepslocker, and the alleged unavailability of authentication cards for certain Chanel bags).

“No Control”

With the foregoing in mind, Chanel claims that Crepslocker’s sale of its products and use of Chanel trademarks in the process diverges from the conditions traditionally associated with the sale of Chanel products, and thereby, infringes Chanel’s famous trademarks. The luxury stalwart appears to primarily take issue with Crepslocker’s offerings of its goods online, arguing that it “has never made nor permitted any online sales” of its “fashion products,” and instead, “such products can only be purchased in person, in a very small number of carefully chosen and controlled luxury retail environments.” For “non-fashion products,” such as “fragrance and beauty [products], watches and eyewear,” which are available for purchase online, Chanel asserts that it “very carefully controls the location, environment and circumstances in which its non-fashion products, bearing the [Chanel] trademarks are sold.” 

In cases where its products are sold by third-parties, Chanel states that it maintains stringent requirements governing “the location, interior arrangement, and signage of the store from which the goods will be sold,” staff training, “point of sale guidelines,” and “quality standards in relation to marketing, including appropriate brand adjacencies,” among other things, none of which are at play here. In contrast to the established mandates that govern the sale of goods bearing Chanel’s trademarks, Chanel claims that products are being sold by Crepslocker “in a manner over which [Chanel] has no control,” and as a result, it is being deprived of the ability to maintain the “luxury, exclusivity and prestige associated with Chanel’s products, [which] form an integral part of the CHANEL brand, and of its promise and attraction to consumers and potential consumers.”

Specifically, Chanel alleges that by offering up Chanel goods, Crepslocker is preventing it from controlling the “mode of sale” of the products; the “brand adjacencies” (i.e., “the types, qualities, reputation, etc. of the other brands of products which are sold and/or offered for sale by [Crepslocker] alongside goods bearing (and/or offered under) the marks);” pre-sale and post-sale services, such as “the qualifications, experience, training or knowledge of the persons offering any help or advice to consumers or prospective consumers of [Chanel] goods,” and the “nature or duration of any after-sales service – including any after-care/repair/complaints/return/refund procedures;” and customer communications, with Chanel taking issue with Crepslocker’s website and social media, which “use prominent discount adverts such as ‘BLACK FRIDAY, UP TO 60% OFF SELECTED ITEMS,’ and free giveaways such as ‘Win a PS5 Full Bundle.’” 

Ultimately, Chanel states that Crepslocker has offered “a service that is materially worse” than what Chanel offers in its own boutiques and branded concessions, so as to be liable to be injurious to the reputation and/or luxury image of [Chanel] and/or of its goods.”  

Taken together, Chanel claims that Crepslocker’s unauthorized use of its trademarks in this manner has resulted in “loss and damage” to its brand, and “unless restrained by the Court, threatens and intends to continue such acts, whereby [Chanel] will suffer further loss and damage.” In addition to a declaration from the court finding that Crepslocker’s use of the Chanel marks amounts to trademark infringement (as opposed to say … fair use), Chanel is seeking monetary damages, injunctive relief to bar Crepslocker from using the Chanel trademarks, and custody of “all articles or materials the use or dealing in of which would contravene the foregoing injunction and that are within [Crepslocker’s] possession, power, custody or control.”

No “Proper Basis”

In an amended response dated April 7, as first reported by Law360, counsel for Crepslocker pushes back against Chanel’s suit, asserting that while its “acts are outside the control of [Chanel],” the famed fashion house lacks “any proper basis” for its objections to Crepslocker’s sale of Chanel goods and use of the Chanel trademarks. Per Crepslocker, this is largely because Chanel’s “rights in the goods have been exhausted by the consented sale from its authorized outlets in the UK or the EU,” and also since “no legitimate reasons exist for [Chanel] to oppose any further dealings in those goods by [Crepslocker] to its customers for those goods.” (In accordance with the doctrine of trademark exhaustion, or the First Sale Doctrine, as it is known in the U.S., a trademark holder generally loses its ability to control the sale of a trademark-bearing product once it has released that product into the market, thereby, giving the buyer the right to resell the product without facing trademark liability, assuming the product is not in a “materially different” condition).

Denying the majority of Chanel’s claims, Crepslocker focuses on Chanel’s anti-internet arguments, asserting that the parties’ “modes of sale” are not so strikingly different as to give rise to issues. In reality, Crepslocker claims that Chanel “offers some of its goods online, and it is submitted that there is no material difference between those goods that it offers online, and those that it does not.” Taking issue with Chanel’s argument on this front, Crepslocker asserts that Chanel’s division of goods offered for sale online versus those that are sold exclusively in stores “amounts simply to an artificial division of the marketplace, and that “any attempt [by Chanel] to maintain that division by the invocation of trademark rights is an abuse of that system.” 

Beyond that, Crepslocker argues that “the mere fact that [Chanel] goods are being sold alongside other goods” – such as sportswear items – “creates no legitimate reason for [Chanel] to object to the further dealings of [its] goods by [Crepslocker].” Crepslocker claims that Chanel fails to mention that it actually “collaborates with sportswear brands, for example it collaborated with Pharrell Williams and adidas to produce the NMD ‘Human Race’ trainers, a pair of which are available on [Crepslocker’s] website priced at £450.”

As for Crepslocker charging a premium on the unused products that it sources directly from brands and/or suppliers and then offers up for sale on its site and/or directly to consumers, that price hike “does not damage the marks,” as Chanel claims. Instead, Crepslocker asserts that, “on the contrary, it enhances the marks, as [Crepslocker’s] activities show that the goods to which [the trademarks] are affixed can command a premium.” Still yet, Crepslocker contends that while it has used trademarks that are “identical” to Chanel’s in connection with the marketing and sale of “identical goods” without receiving Chanel’s consent, and despite Chanel’s claims to the contrary, “No such consent is needed because [Chanel’s] rights in its marks have been exhausted and there exists no legitimate reason to object to further dealings in those goods.”

Even beyond that, Crepslocker asserts that consumers are not confused about whether it has an affiliation with the brands that it sells. Crepslocker – which claims that Chanel is not taking issue with the classic consignment element of its business model, and instead, focuses on its practice of “sourc[ing] and purchas[ing] genuine luxury goods … directly or indirectly from Chanel stores in either the UK or the EU,” and then offering up those goods for sale to consumers at a premium “without altering the condition of the goods” – asserts that its “website states that it not linked commercially to the brands that it offers for sale, and the same disclaimer is repeated in its Terms and Conditions.” Against that background, Crepslocker argues that the “average consumer is aware that there is no association, be it commercial or otherwise, between the [it] and [Chanel].”

And finally, Crepslocker denies that Chanel “has suffered any loss or damage, or would suffer any loss or damage if [Crepslocker] were to continue the acts of which complaint is made,” or that its use of the Chanel marks “damage the reputation of [Chanel or its] marks in any way,” and thus, it denies that Chanel “is entitled to the relief sought, or any relief.”

Christian Dior, Coty, and Co.

As for the viability of Chanel’s arguments, they are certainly not unheard of. Courts in the EU, for instance, have sided with trademark holders in instances like this, with the Court of Justice of the European Union (“CJEU”) holding in the 1997 Dior v. Evora case that a “trademark owner can prevent the use of its mark for advertising re-sales of genuine luxury products where the shoddy nature of that advertising causes ‘serious’ damage to the mark’s reputation,” Olswag attorneys Sarah Wright and Kaisa Mattila previously noted. A similar decision was reached in 2009 in Dior v. COPAD, with Dior successfully arguing that one of its licensees sold its luxury lingerie to a discount store in breach of the terms of its licensing agreement, which prohibited licensees from selling Dior goods to “wholesalers, buyers’ collectives, discount stores, mail order companies, door-to-door sales companies or companies selling within private houses without prior written authorization.”

Other cases, such as Coty Germany v. Parfümerie Akzente, have followed, “illustrating how a ‘luxury image’ argument may justify the restrictive effect resulting from an online sales ban,” per Brussels-based competition lawyer Alexane Vialle, with the CJEU acknowledging in 2017 that certain unauthorized online sales “might impair the quality of luxury goods resulting not only from material characteristics, but also from the ‘allure and prestigious image which bestows on them an aura of luxury.'”

No longer part of the EU, the Chanel v. Kensulate case will, of course, rest on UK law, which, according to Wright and Mattila, “has focused on preventing confusion and deception in the marketplace” when it comes to claims of trademark infringement. They note that the UK has adopted Article 5(3) of the EU Trademark Directive – which it has fully implemented into national UK trademark law post-Brexit – in order to protect well-known marks in the absence of any confusion. However, “That provision has attracted widespread criticism for conferring unreasonably wide protection on brand owners without any clear justification,” raising “serious concerns … about the notion that trademark owners should be able to take action to prevent any form of detriment or damage to their brands, even if it arises from legitimate competition in the marketplace.”

The case is Chanel Limited v. Kensulate Corporation Limited (t/a Crepslocker), IL-2021-000001.

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