Snapshot: Notice Requirement vs. Brand Protection, the Latest in Chanel v. WGACA

In a case that underscores the challenges luxury brands face in policing the booming resale market, Chanel and What Comes Around Goes Around are at an “impasse” over which party bears the responsibility for identifying counterfeit or otherwise infringing goods in order to ensure that they are not offered up to unknowing consumers in the resale market. That is the question currently before Judge Louis Stanton of the U.S. District Court for the Southern District of New York, as the parties face off in the latest round of a long-running trademark-centric lawsuit.

Some Background: The lawsuit between Chanel and WGACA got its start in March 2018, with Chanel accusing the reseller of infringing its trademarks, selling counterfeit goods, and misleading consumers into believing there is an affiliation between the two companies. In February 2024, a jury sided with Chanel, awarding the company $4 million and finding WGACA liable for willful trademark infringement, false association, unfair competition, and false advertising.

As part of the second phase of the proceedings, Chanel is seeking a sweeping injunction to permanently bar WGACA from using its trademarks in connection with its unauthorized advertising and sale of CHANEL-branded, among other things.

The court gave a sneak peek at what the injunction will look like in a proposed injunction that it provided to the parties late last year. As first reported by TFL, the court proposed an array of restrictions and/or requirements, including barring WGACA from “using any of the CHANEL trademarks … to advertise or promote WGACA’s general business” and from “making any advertising claims, representations, or statements [about] the genuineness of any CHANEL-branded items” unless it has records to support such authentication claims.

The Crux of the Conflict: Superfakes & Chanel’s Database

As of now, the most contentious element of the proposed injunction: The last 13 words of a provision that prohibits WGACA from “advertising, offering for sale, or selling any CHANEL-branded items that have not been authorized for sale by Chanel, including, but not limited to, point-of-sale items and retail props, after notification by Chanel that such items have not been authorized for sale.”

> Chanel’s Jan. 31 letter: In a letter to the court early this year, Chanel argued that this language would “impose a burden on [it] to continually monitor what WGACA is selling and then give WGACA notice for all CHANEL-branded items that were not authorized for sale, including non-genuine or counterfeit items,” thereby, defeating the purpose of the injunction. Because such a notice requirement is not required by law and renders the proposed injunction “both unfeasible for Chanel and ineffective at enjoining WGACA,” it should be deleted, Chanel has argued.

> WGACA’s Feb. 21 letter: In a letter to the court on February 21, counsel for WGACA claims that the notice requirement is necessary, as Chanel “does not share with the public or second-hand sellers the serial numbers that it has voided in its [internal] ORLI database. As such, there is no way for WGACA … to know that a Chanel handbag that has been authenticated by WGACA, (i.e. has all the hallmarks of a genuine Chanel handbag) is considered non-genuine by Chanel because of Chanel’s voiding of that serial number in its database.”

Against that background, WGACA proposes a notice requirement that obliges Chanel to inform WGACA of suspected counterfeit items, providing a 15-day window to remedy the issue. This, WGACA claims, would allow it to avoid unknowingly selling counterfeit Chanel products.

> Chanel’s Feb. 25 letter: In a subsequent letter to the court dated February 25, counsel for Chanel responded to WGACA’s proposal, stating that the reseller has not only kept the “overly burdensome” language intact, but it “further burdens Chanel by imposing an additional mandatory notice and cure requirement for all CHANEL-branded items, including obvious counterfeits.” In essence, Chanel argues that WGACA’s proposal “improperly shifts the burden of compliance with the injunction to Chanel, and forces Chanel to become [its] ACA’s de facto authenticator.”

Chanel asserts that WGACA’s proposal lacks legal precedent and is contrary to the Lanham Act and Federal Rule of Civil Procedure 65, which do not require a trademark owner to provide notice or an opportunity to cure to a willful infringer. Moreover, Chanel argues that the proposal would allow WGACA to continue infringing without consequence, undermining the “safe distance” rule, which requires proven infringers to avoid future infringement.

> What the court has said: Since he issued the proposed injunction, Judge Stanton responded to the parties’ responses in an email last month, addressing the notice requirement. As quoted in WGACA’s Feb. 21 letter, Judge Stanton stated, in part, “I believe it is fair to ask Chanel, which is better informed, to put WGACA on notice of potential infringements, given the difficulty of identifying close copies (i.e., super fakes or Frankenstein bags) without access to the ORLI system. However, I also understand Chanel’s critique that the current draft injunction is overly burdensome for them.”

THE BOTTOM LINE: The biggest enduring issue for the parties in stage 2 of the case (equitable remedies) centers on whether Chanel should be required to provide advance notice of alleged counterfeits before moving for contempt of court. WGACA asserts that this requirement would be fair and reasonable, given Chanel’s exclusive access to the ORLI system and the near-impossible task of identifying superfakes without it. On the other hand, Chanel argues that the notice requirement would undermine its enforcement rights and complicate the already burdensome process of protecting its brand.

The parties will appear before the court for a status conference on February 26.