Tiffany & Co. and Costco have settled their long-running lawsuit over the warehouse chain’s sale of “Tiffany” rings that were not made or authorized by the famed New York jewelry company. Monday’s settlement, as first reported by Reuters, follows from a win for Costco last summer when the U.S. Court of Appeals for the Second Circuit vacated a lower court’s summary judgment decision – in which it held that Costco was liable to Tiffany & Co. for willful trademark infringement and counterfeiting – and remanded the case back to the district court for a new trial. In contrast with the trial court judge’s finding, the appeals court held that reasonable jurors could have found that “discriminating” Costco customers would not be confused about the source of the rings and that Costco’s use of the “Tiffany” name was not meant to mislead customers. 

The case got its start on February 14, 2013 when Tiffany & Co. filed suit against Costco in a New York federal court, accusing the Issaquah, Washington-headquartered retail chain of trademark infringement, counterfeiting, and unfair business practices, among other causes of action, and seeking tens of millions of dollars in damages. According to Tiffany, Costco had sold engagement rings – some costing upwards of $6,000 – using the “Tiffany” name to thousands of Costco members, who snatched up the sparklers under the false impression that they were authentic Tiffany products. According to Tiffany’s estimates, some 3,349 customers purchased “Tiffany” rings at Costco during the relevant period.

In response the Tiffany’s headline-making complaint, Costco argued that “Tiffany” is not a legally-protected trademark but instead, a generic term short for “Tiffany setting,” which describes a specific ring setting, and sought to have Tiffany’s federal registration for the mark invalidated.

The lower court sided with Tiffany & Co. in a decision in September 2015, with Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York finding that Costco was liable for trademark infringement and counterfeiting for using signage bearing the word “Tiffany” to identify certain rings in its stores, and confusing consumers as a result. “Based on the record evidence, and despite [its] arguments to the contrary,” Judge Swain held that “no rational finder of fact could conclude that Costco acted in good faith in adopting the Tiffany mark.” With that in mind, she left it the a jury to determine the damages that Costco should pay to the now-LVMH-owned Tiffany & Co. The jury awarded Tiffany a sum of $21 million.

At the same time, Judge Swain also dismissed Costco’s trademark invalidation counterclaim and its defenses, including its claim of fair use.

Fast forward to August 2020 and a panel of judges for the Second Circuit sided with Costco, holding that the lower court erred in its treatment of the case. Writing for the Second Circuit, Judge Debra Ann Livingston held that it is reasonable that jurors could conclude that Costco’s use of the “Tiffany” name in connection with the sale of six-pronged diamond rings was not likely to confuse consumers or lead them to believe that Tiffany & Co. endorsed or was in some way connected to the sale of the rings. In vacating the lower court’s decision, the Second Circuit concluded that the evidence presented by Costco “has, when considered in the aggregate, created a genuine question as to the likelihood of customer confusion,” namely due to “the combination of (1) Costco’s evidence that ‘Tiffany’ is a broadly recognized term denoting a particular style of pronged ring setting and (2) its further indications, backed by prior pronouncements of this court, that purchasers of diamond engagement rings educate themselves so as to become discerning consumers.”

In other words, “A jury could reasonably conclude that consumers of diamond engagement rings would know or learn that ‘Tiffany’ describes a style of setting not unique to rings manufactured by Tiffany, and [could] recognize that Costco used the term only in that descriptive sense.” Moreover, the court held that “such consumers may also be distinctly capable of recognizing that Costco’s rings were not manufactured by Tiffany – based, for example, on their price, place of purchase, packaging, or paperwork – and consequently be particularly unlikely to be confused by any aspect of Costco’s point-of-sale signs.” 

The Second Circuit also asserted that a jury could reasonably conclude that Costco did not use the term ‘Tiffany’ as a trademark.” After all, “Tiffany’s own evidence indicates that Costco typically identifies the trademark associated with its branded products as the first word on the product label,” while Costco provided evidence that by way of “over a century’s worth of documents [that] suggest that ‘Tiffany’ – both alone and in conjunction with words like ‘ring,’ ‘setting,’ ‘style,’ or ‘mounting’ – is widely understood to refer to a particular type of pronged diamond setting.”

The appeals court found that a factual dispute did exist in terms of whether Costco’s use of the word “Tiffany” was merely descriptive and used to refer to a type of ring setting, thereby, falling within the bounds of fair use … or whether its use was infringing, and thus, held that the case should not have been decided without a jury trial on the merits. “Key to the Second Circuit’s decision was its holding that, while factual determinations made by the district court should be given ‘considerable deference,’ this deference does not expand the district court’s authority to make factual findings at the summary judgment stage,” McGuire Woods attorneys Andriana Shultz Daly and Stephanie Martinez stated in a client note at the time.” Instead, the Second Circuit “emphasized that district courts should make factual determinations on summary judgment only where ‘the uncontroverted evidence and the reasonable inferences to be drawn in the nonmoving party’s favor’ support only a single conclusion.'”

Ultimately, the matter was remanded to the district court for a new trial.

In the same August 2020 decision, the 3-0 panel of judges for the Second Circuit also vacated the district court’s determination on Tiffany’s counterfeiting claim, holding that it was inappropriate of the lower court to hold Costco liable for trademark infringement at the summary judgment stage, and because counterfeiting is “merely an aggravated form of infringement,” it vacated the court’s judgment as to counterfeiting. The court also determined that liability for counterfeiting is inappropriate where the defendant can show “that it used a term identical to the registered mark otherwise than as a mark.” Costco had argued on appeal that its use of “Tiffany” was descriptive of the diamond setting – a diamond solitaire situated among six prongs – and thus, did not constitute use as a mark. 

Reflecting on the Second Circuit’s decision, Shultz Daly and Martinez asserted that it “may have important implications for brand owners, alleged infringers, and practitioners,” alike, going forward. Primarily, they highlighted “the court’s finding that a given term can both serve as a trademark and lawfully serve a separate descriptive purpose within the same industry,” which they say “may spur further disputes regarding the protectability of descriptive terms.” Beyond that, the appeals court’s decision “highlights a relationship between counterfeiting claims and descriptive fair use defenses, noting that liability for counterfeiting is likely inappropriate where the defendant can show ‘that it used a term identical to the registered mark otherwise than as a mark.'”

And still yet, they contend that “the court’s opinion reinforces that merely emulating unprotected product features does not conclusively establish bad faith,” encouraging “litigants to take care to distinguish protected elements from non-protected elements in their infringement analyses.”

The case is Tiffany & Co. v. Costco Wholesale Corp, 1:13-cv-01041 (SDNY).

Pandora announced in May that it would discontinue its use of mined diamonds and instead, incorporate lab-grown stones into its offerings. “Known for affordable charms beloved by young shoppers from China to the U.S.,” Bloomberg reported that the Danish jewelry company “makes more pieces of jewelry than any other company in the world.” And it is hardly the only company trying its hand in the lab-grown market; Swarovski is betting on lab-grown stones, while De Beers has some lab-grown offerings (by way of its LightBox collection), which, as Wired puts it, are created in “a laboratory where chemical processes are used to simulate the intense heat and pressure required to form the stones in the Earth.” The result is stones that they are “chemically and structurally identical to mined [ones], but without the supposed ethical concerns.” 

As “younger shoppers are driving growth across consumer goods, and are more concerned about factors such as a brand’s purpose and a product’s cost to the planet than previous generations were at their age,” Bloomberg’s Andrea Felsted says it is “no surprise that diamonds are getting a makeover” and that cost – both in terms of a consumer’s wallet and the planet is an important factor. Given the growing rise in popularity of mined diamond alternatives, it is also not surprising that the advertising in this space is coming under the microscope of regulators and watch dogs, such as the National Advertising Division (“NAD”), which recently issued recommendations about how lab-grown sparklers should – and should not be – described to consumers. 

In two recent proceedings, both of which centered on advertising claims about lab-grown diamonds, the NAD – which provides independent self-regulation and dispute resolution services in an effort to “guide the truthfulness of advertising across the U.S.” – took on claims by the Natural Diamond Council (“NDC”) and Diamond Foundry. In the initial matter, the NAD considered claims made by the NDC that compared mined diamonds with man-made ones, including the carbon emissions associated with diamond mining versus diamond manufacturing, the scarcity of mined diamonds, and the resale value of mined diamonds versus man-made stones, as well as claims that described mined diamonds as “real.” 

According to the NAD, the NDC’s pro-mined-diamond claims were challenged by Diamond Foundry, Inc., a manufacturer of lab-grown diamonds that garnered itself a valuation of $1.8 billion after a $200 million funding round in April. Among a number of challenged NDC advertising claims: the company’s assertions that “natural diamonds produce 3 times less carbon emissions per carat than lab-grown diamonds,” as well as that “the cost [of lab-grown diamonds] continues to decline due to mass production,” and that as a result, “they have little to no resale value.”

The NAD asserted in a release in late April that the evidence maintained by the NDC “was not sufficiently reliable to support its comparative carbon emissions claims,” and thus, recommended that the company discontinue “the implied claim that mined diamonds are better for the environment than man-made diamonds.” On the resale front, the NDC’s claim that lab-created diamonds “have no resale value and [their] prices are falling rapidly” also conveys “an unsupported message” and should be removed from its advertising campaigns. 

In a separate proceeding a month later initiated by the NDC, the NAD recommended that Diamond Foundry modify its advertising in order to “clearly and conspicuously disclose” the origin of its laboratory-grown diamonds, and that the company discontinue the use of certain terms that “could create confusion about the origin of” its diamonds. The NDC challenged “certain social media advertising in which Diamond Foundry-brand diamonds were advertised simply as ‘diamonds,’ without any accompanying description or disclosures identifying the diamonds as lab grown,” according to the NAD. On this front, the NAD determined that Diamond Foundry must make “an effective disclosure that its diamonds are man-made” and should “distinguish its lab-grown diamonds from mined diamonds” in order to comply with the Federal Trade Commission Jewelry Guides. 

In terms of other terminology, the NAD determined that Diamond Foundry’s use of “created diamonds,” “diamonds created aboveground,” “sustainably created” or “sustainably grown,” and “world positive,” do not sufficiently communicate that the diamonds are laboratory-grown and unmined. As a result, the NAD held that consumers may be confused and unable to distinguish between the origins of Diamond Foundry’s lab-grown diamonds and competing mined diamonds. For this reason, NAD recommended that the claims be discontinued.

Finally, both matters took into account to use of the word “real” to refer to lab-grown diamonds. In the first proceeding, the NAD recommended that the NDC discontinue the implied claim that man-made diamonds are not “real” diamonds,” as well as express claims, such as ones that state that “there are many laboratory-grown and synthetic diamonds on the market. These are also made of carbon, but without the Earthly origins of real diamonds, they lack the unique qualities infused by nature.” Meanwhile, in the subsequent case, the NAD said that it has “some concern that the plain header on [Diamond Foundry’s] webpage that reads ‘Real’ may lead to confusion as to the diamonds’ origins.” With that in mind, the NAD suggested that in order to avoid conveying the “misleading message that the lab-grown are mined diamonds,” Diamond Foundry should “modify its claims on this page to more prominently disclose the man-made origin of its diamonds.” 

And still yet, the NAD recommended that Diamond Foundry discontinue social media claims that its lab-grown diamonds are “real” diamonds or modify the claims to make clear that its lab-grown diamonds are not mined diamonds. The NAD found that, “without context explaining that the ‘real’ diamonds are created in a laboratory and not mined, consumers may reasonably take away the unsupported message that Diamond Foundry’s diamonds are mined diamonds.” 

The proceedings come as “the cost of producing lab-grown diamonds has declined materially over the past five years, and quality has improved so much that even diamond dealers cannot tell the difference,” according to Fortune, which cites a recent diamond-specific report from Morgan Stanley. As a result of rising quality and corresponding demand, particularly among millennials, “The number of market players is surging,” with Swarovski executive Nadja Swarovski, for one, saying that she “expects the number of participants in the lab-grown diamond market to be ‘totally disruptive’ in the coming years.” 

Not everyone is on board, of course. Tiffany & Co., which is on the midst of a marketing revamp after being bought up by luxury goods conglomerate LVMH last year, remains steadfast in its position that “lab-grown diamonds are not a luxury material.” Andy Hart, an SVP at Tiffany & Co., previously asserted that the 183-year-old jewelry company does not “see a role for [lab-grown diamonds] in a luxury brand.” While he said that non-mined diamonds “have their use, and they have their place, luxury consumers will continue to desire the rarity and amazing story of natural diamonds.” 

Compagnie Financière Richemont generated 13.14 billion euros ($16.06 billion) for its fiscal year ending on March 31, 2021, and with sales down just 5 percent, the Swiss conglomerate beat analyst expectations, helped by significant sales for Cartier and Van Cleef & Arpels, in particular, rebounds from the COVID-19 pandemic in Asia, which welcomed 19 percent growth in sales for the year, as well as the U.S., and continued sales gains as a result of its embrace of e-commerce. The Johann Rupert-run group reported that its profit for the year rose by 38 percent to 1.29 billion euros ($1.58 billion), again surpassing analyst expectations. 

In a release on Friday, Richmont revealed that sales were still turning around during the fourth quarter (ending on March 31, 2021), up 36 percent and 30 percent at constant and actual exchange rates, respectively. The group – which owns Cartier, Chloé, Alaïa, Net-a-Porter, Dunhill, Piaget, Vacheron Constantin, and Van Cleef & Arpels, and a number of other hard luxury brands – pin-pointed the role of the Asian Pacific region, where “year-on-year sales rose by triple digits in the fourth quarter.” And for the year as a whole, it asserted that sales at actual exchange rates “grew by double digits, underpinned by strong sales in mainland China due to a strong local presence of our Maisons.” 

Also specific to the Asian market, Richemont – which maintains the title of the second largest luxury goods group, following only behind LVMH – saw a double-digit sales increase in its Specialist Watchmakers division in Asia, thanks, in part, to “the opening of five flagship stores on Alibaba Tmall Luxury Pavilion and participation in Watches & Wonders fairs in Shanghai and Sanya.” The watches division has benefitted from “constant acceleration” in sales since the third quarter of Richemont’s financial year. 

Jewelry sales grew across the board, per Richemont, surpassing “pre-Covid levels and increasing operating margin to 31.0 percent, supported by strong double-digit sales growth in the second half of the year.” In a conference call on Friday, Cartier’s chief executive Cyrille Vigneron was upbeat about the division, stating that “in jewelry, basically everything sells.” 

Addressing the rise in e-commerce sales, Richemont stated that it saw “triple-digit growth at Group Maisons’ online retail sales” for the year, which it says “underscores the success of our Maisons’ digital transformation,” noting that overall online retail sales grew by 6 percent for the year and account for 21 percent of sales for the group. An “acceleration” of the group’s digital transformation has “enabled more diverse customer journeys, underpinning retail sales, [and] increasing direct engagement with end clients,” per Richemont, which further stated that “higher online retail sales,” including triple-digit growth at our Maisons online retail sales, in all our major markets, “partially offset lower retail and wholesale sales.” 

Also on the e-commerce front, Richemont touched on the “first step in our partnership with Farfetch and a deepening of our relationship with Alibaba,” which saw the parties enter into a $1.1 billion “global strategic partnership” in November 2020 in order “to provide luxury brands with enhanced access to the China market,” as well as a big step towards “accelerat[ing] the digitization of the global luxury industry.” To date, Richmont says that its “partnership with Alibaba has led to 11 flagship stores being operational on Alibaba Tmall Luxury Pavilion: Cartier, Van Cleef & Arpels; IWC Schaffhausen, Jaeger-LeCoultre, Panerai, Piaget and Vacheron Constantin; NET-A-PORTER; Chloé, dunhill and Montblanc.” 

Looking ahead, Richmont claims that it is already seeing a “strong start into the new financial year, with accelerating trends across all business areas.” 

In a note on Friday, Bernstein analyst Luca Solca pointed to “what seems [to be] a solid beat to consensus – on both top line and operating profit – built on the outstanding performance of Jewelry Maisons,” asserting that he “continues to see upside for Richemont, as high jewelry and wholesale and Specialist Watchmakers normalize during FY2022.” Among the potential risk factors facing the group? Growing sales by Cartier rivals, for one thing. “Cartier is seeing increased competition from players like Bulgari – a stronger Tiffany” – now under the ownership of LVMH – “could add to the pressure.” 

And in a final note, Richemont Chairman Johann Rupert, asked about potential M&A involving French conglomerate Kering, said that Richemont has a “good relationship with Kering and the Pinault family, and had been contacted by them in the past to talk about collaboration, but not about an acquisition,” per Reuters, but refused to comment further. 

The trademark landscape may be changing in Taiwan if a number of recent decisions coming from the Taiwan Intellectual Property Office (“TIPO”) are any indication. Traditionally known for shooting down applications that aim to register three-dimension shapes, the TIPO recently handed Cartier a win and agreed to register the 3D design of its Love Bracelet, finding that on the heels of filing an application in December 2017, the Paris-based jewelry company successfully established that the shape of the bracelet has acquired distinctiveness in the minds of consumers, thereby, enabling the bracelet, itself, to act as an indicator of source. 

Key questions that the TIPO examiner asked in weighing the registrability of the 3D mark, according to IAM’s Monica Wang and Sarah Sun: “How is the 3D shape used by the applicant, and do others in the same industry use the same 3D shape? How long has the 3D shape been used in the market and is its sales amount and market share ratio significant in the related market? How is the 3D shape promoted and advertised and did the applicant emphasize the 3D shape when promoting or advertising, such that consumers will be able to recognize the 3D shape itself as identifying the source of the products?”

With the foregoing in mind, the TIPO found that the proof that Cartier provided in connection with its “Screw Device/Love Bracelet 3D shape” mark – which consists of “the overall configuration of a bracelet having a series of simulated screws which encircle the goods and two real screws, which appear at the points on the bracelet where it may be opened” – enabled it to overcome a distinctiveness refusal, as the shape of the bracelet was found to “be an identifier of the applicant’s goods or services in the course of trade” as a result of years of consistent use, advertising, sales in the region, etc. 

While Cartier has prevailed in its quest to register the design of its world-famous bracelet, one that the Richemont-owned jewelry company first began offering up in 1969, Wang and Sun caution other brands seeking similar protections in Taiwan that “judgment as to whether a 3D shape has acquired secondary meaning is made on a case-by-case basis, and thus, applicants seeking to obtain trademark registrations for 3D shapes should prepare proper use evidence before filing an application to register a 3D shape, as it is very likely that TIPO will require applicants to submit such evidence in order to obtain a registration.” 

THE BROAD VIEW: Despite the economic effects that the COVID-19 pandemic has had on the luxury goods market in Taiwan, namely as a result of a lack of high-spending tourists from the Chinese mainland, Hong Kong-based firm CN Logistics states that “the stability of the country’s fashion market has made it captivating for luxury brands,” such as Cartier, whose CEO Cyrille Vigneron said last year that the jewelry company is relying on the Asian market and online sales to help drive growth amid the pandemic. At the same time, in its 2020 Wealth Report, Knight Frank pointed to Taipei as one of the cities with the highest number of ultra-high-net-worth individuals in the world, and expects Taiwan, as a whole, to exhibit a 13 percent increase over the next five years when it comes to growth of ultra-high-net-worth individuals (i.e., individuals with a net worth of over $30 million including their primary residence).

Against this background, CL Logistics expects that luxury brands will “continue investing in the region” – particularly as consumers exhibit an increased willingness to spend more at home (a trend that is expected to endure to some extent even once international travel resumes) – and presumably, continue building out their intellectual property portfolios in the process. 

Taking Chanel buttons from the brand’s garments and refashioning them into jewelry runs afoul of trademark law. That is what Chanel argues in a newly-filed complaint, in which it accuses accessories company Shiver + Duke of “misappropriating” its “world famous and federally registered” interlocking “C” monogram trademark and its “Chanel” word mark in order to “create and market costume jewelry that draws and relies on the selling power and fame of the Chanel marks.” 

According to the complaint that it filed in a New York federal court on February 12, Chanel alleges that Atlanta, Georgia-based Shiver + Duke, which describes itself as a “handcrafted modern sophisticated accessory line,” and its founder, jewelry designer Edith Anne Hunt (the “defendants”) are taking authentic “buttons bearing the CC monogram that are not intended for use other than on Chanel’s authorized clothing” and putting them on chains, earrings, and bracelets, which they then offer up for sale for upwards of $100. In promoting and marketing the jewelry on the shiverandduke.com e-commerce website, alongside jewelry that is made from Louis Vuitton and Gucci hardware, buttons, and canvas, the defendants “refer to the jewelry as ‘designer’ and in some instances, have used the CHANEL mark to identify their CC monogram button jewelry,” Chanel asserts. 

“There is no dispute,” Chanel argues, that the defendants’ “use of the CC monogram is intended to trade on the goodwill that Chanel has created in its mark through decades of use and millions of dollars in investments.” At the same time, the famed luxury brand claims that the defendants’ jewelry “does not alter the CC monogram and the jewelry nowhere states that it was created by [the] defendants without the authorization of Chanel.” Instead, the appearance of the CC monogram on the defendants’ jewelry is “no different from the display of the CC monogram on authorized Chanel costume jewelry, and to a consumer there is no distinguishable difference between the appearance of [the] defendants’ unauthorized product and Chanel’s genuine product.” 

And in case that is not enough, Chanel – which says that it generated “revenue from sales of costume jewelry sold under and/or bearing the CHANEL marks from 2015 to 2019 [that] exceeded $300 million” – claims that third-party retailers that have purchased Shiver + Duke’s jewelry “have advertised and promoted the products as Chanel costume jewelry” due to the defendants’ “prominent use of the CHANEL marks” on such jewelry.

Upon discovering Shiver + Duke’s offerings, Chanel says that its counsel sent the company a cease and desist letter in September 2020, but in lieu of halting their allegedly infringing activity, Chanel claims that  Shiver + Duke has “made minor changes to their products and packaging.” For instance, new product packaging that describes Shiver + Duke’s jewelry as “Reimagined” and “Reworked,” and states that the jewelry is an “original design” of Shiver + Duke that is “made from authentic buttons.” 

In terms of the products, themselves, Chanel asserts that Shiver + Duke “have also added SD SHIVER + DUKE markings on the backs of the CC monogram buttons.” 

Such modifications “do nothing to prevent consumers from mistakenly believing that the defendants’ jewelry originates from or is authorized by Chanel” because the “packaging still does not state that the jewelry is not authorized by or associated with Chanel, and the jewelry in the post-sale context conveys only that it comes from Chanel when it does not.” Chanel further claims that in response to its objections, Shiver + Duke “have added a small tag displaying the marking ‘SD’ to their button jewelry,” but “such use is not consistent across the product line.” And even when “the tag is used, it does not negate the primary visual focus of the defendant’s jewelry, namely Chanel’s CC monogram,” and such a tag “does nothing to inform the public that the product was repackaged and repurposed by the defendants without the authorization of Chanel.” 

“Regardless whether [they] use disclaimers, tags or markings to designate [Shiver + Duke] as the manufacturer of the costume jewelry bearing Chanel’s immediately recognizable CC Monogram, in the post-sale context, the mark most prominently displayed on the defendants’ jewelry belongs to and identifies Chanel as the source of the defendants’ products,” according to Chanel. “Further, the defendants’ use of additional [Shiver + Duke] markings does not change the fact that the main source identifying feature of the costume jewelry is the CC monogram, that the jewelry is similar to Chanel’s actual products bearing the CC monogram, and that the selling power of the defendants’ products is based on the fame of the CC monogram.” 

With the foregoing in mind and given the defendants’ allegedly “deliberate intent to ride on the fame and goodwill of Chanel’s trademarks, to profit from the CHANEL marks, and to create a false impression as to the source or sponsorship of the defendants’ goods or to otherwise compete unfairly with Chanel,” Chanel sets out claims of federal and state law trademark infringement and dilution, and unfair competition against Shiver + Duke and Hunt. In addition to potentially causing confusion among consumers as to the source of the allegedly infringing jewelry and “diluting or likely to dilute Chanel’s famous CHANEL marks by harming the reputation of the marks, thereby damaging the good reputation of Chanel and the CHANEL marks,” Chanel argues that the defendants’ “use of the CHANEL marks unfairly and unlawfully wrests from Chanel control over its trademarks and reputation.” 

Chanel is seeking monetary damages, as well as injunctive relief to immediately and permanently bar the defendants from making, marketing, and selling the jewelry – or more broadly, using the Chanel trademark “or any simulation, reproduction, copy, colorable imitation or confusingly similar variation of the CHANEL marks.” 

The case is the latest in a long line of legal actions initiated by luxury brands that have sought to exert control over distribution of goods post-first sale, including by preventing the sale of modified but otherwise authentic goods bearing their trademarks (the Rolex v. La Californienne case, for example, comes to mind) – or here, trademark-bearing parts derived from authentic goods – on the basis that such unauthorized use is both likely to mislead consumers and to cause damage to the brand. 

These cases raise some interesting questions about the bounds of a trademark holder’s rights when it comes to the burgeoning resale market, as well as the role of the First Sale Doctrine, a trademark tenet that generally holds that once a trademark owner, such as Chanel, releases its goods into the market, it cannot prevent the subsequent re-sale of those goods by their purchasers. Put another way, the First Sale Doctrine enables the purchaser of a trademark-bearing product to resell that product – and/or potentially parts of it? – without facing trademark infringement liability.

A successful First Sale Doctrine argument assumes that the subsequently-resold product is not “materially different” from the original, which is, of course, a particularly relevant consideration in cases like this one. (As Seton Hall Law’s David Barnes previously noted in an article on the doctrine, when a trademark-bearing product “has been modified by its buyer is in some way marketed to third parties, however, there is potential for consumer confusion about the source of the good and the article’s qualities and characteristics,” which seems pertinent in the case at hand. “This creates a conflict between the first sale rule, which encourages competition between new and used or modified products, and trademark law’s goal of preventing consumers from being misled.”)

As for the policy concerns behind brands’ enduring attempts to police the use/sale of their products in a post-sale capacity, Yvette Joy Liebesman and Benjamin Wilson wrote an interesting article several years ago, entitled, “The Mark of a Resold Good,” in which they state that “encouraged by the expansion of trademark protection in the courts, mark owners have become increasingly aggressive in policing their marks, often relying on spurious claims of trademark infringement.” They assert that “policies that advance the mark owner’s ability to control all distribution channels would harm consumers and disincentivize competition; manufacturers would have less motivation to innovate and improve their product when they control all distribution of goods beyond their first sale.”

Ultimately, if the case at hand sounds familiar, it may be because Chanel was embroiled in a similar suit back in 2013, albeit instead of filing suit, the alleged infringer beat Chanel to court. A company called Button Jewelry by Val Colbert, faced with threats of litigation from Chanel over its button jewelry, initiated a declaratory judgment action, asking the U.S. District Court for the Northern District of Georgia to declare that it was not running afoul of trademark law by taking authentic Chanel buttons and turning them into accessories. Although, that case ultimately proven to be less-than-informative, as it quietly settled within a matter of weeks of it being filed, with the parties seemingly coming to a confidential settlement behind the scenes, and Colbert scraping her site of all Chanel-branded goods.

*The case is Chanel, Inc. v. Shiver and Duke, LLC, et al., 1:21-cv-01277 (SDNY).