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“The latest season of couture offers elaborate creations, including micro-studded jeans that shimmer from waist to toe and a metallic dress that is as fine as jewelry,” the Wall Street Journal stated this weekend, reflecting on the wares of Chanel, Armani Privé, Maison Margiela, Fendi, and co. But look beyond rhinestone-encrusted jeans and cowboy boots from John Galliano’s most recent Maison Margiela Artisanal collection and the “thin, shiny feather-like rhodoïd fringe” material that Alexandre Vauthier used to construct pants for Fall 2022 couture, and you will see that there is another type of “extra flourish” coming from luxury brands: Warranties and repair services.

Bottega Veneta, for one, made headlines recently in connection with its “Certificate of Craft” initiative, which sees it offering a lifetime warranty for Bottega handbags purchased from the brand and its authorized retailers beginning this month. As part of the warranty, the Kering-owned company will proffer complimentary refresh and repair services for a growing list of bag styles. Speaking about the new endeavor, Bottega Veneta CEO Leo Rongone said that it is “born out of a desire to offer our clients a superior service of long-term preservation of their products,” noting that in conjunction with its “focus on responsible growth,” Bottega wants to “maintain products in use for longer, reducing the need for replacement.” 

Rising Repair Initiatives

The Italian luxury brand is not the only one that is readily marketing repair services. As we first reported last year, Chanel has been putting its weight behind similar efforts, as primarily indicated by a budding number of trademark applications filed for its name and other branding – from “Ready to Care” to “Chanel & Moi” – for use on services, such as the “cleaning of clothing, textiles, shoes and leather goods.” Chanel has since introduced its “Warranty” initiative, in furtherance of which it “pledges an exclusive 5-year guarantee for all CHANEL handbags and CHANEL wallets on chain” acquired from its boutiques beginning in April 2021.

Reflecting on the influx of warranties in the upper-echelon of the luxury segment, Jefferies analysts Flavio Cereda and Kathryn Parker recently revealed that behind Bottega (and Brunello Cucinelli, which also provides a lifetime of free repairs for its products), “Chanel offers the second most comprehensive repair service with [its] 5-year warranty,” while Gucci provides a 2-year warranty for its handbags.

Cereda and Parker state that Louis Vuitton’s “bags do not have a warranty.” However, the brand “emphasized efforts to offer repair services for its products” this summer, and more recently, stated that it repairs some 500,000 bags per year, some of which are facilitated by its “e-service” in the U.S. Still yet, the Jefferies analysts point to Hermès, which “does not offer free repairs and refurbishment,” but carries out “Hermès Spa” services for its handbags at “a cost dependent upon the level of restoration needed.” 

The brands that are rolling out warranties and related initiatives join a long list of watchmakers, such as Rolex, Audemars Piguet, Patek Philippe, LVMH-owned Tag Heuer, and Richemont’s Vacheron Constantin, just to name a few, and other luxury brands that have long – but often quietly – tendered warranties, and corresponding maintenance and repair services to buyers. 

Marketing & Price Justification

The growing emphasis on product warranties and lifespan-extending services by luxury brands – which have traditionally been viewed as potential impediments to the volume-based model maintained by most brands, including ones in the “luxury” sphere – is being driven by a confluence of critical factors. For one thing, these increasingly-heavily-marketed repair services enable brands to tout sustainability credentials in the face of rising consumer concern about the environment. “Being environmentally virtuous” – including when it comes to fashion consumption – “has transitioned from niche consideration to central parameter of desire,” Luke Leitch wrote for Vogue last year in a nod to the growing adoption of repair services by luxury players. 

At the same time, brands know that the messaging behind these ventures is particularly important when it comes to younger consumers, who are climate-conscious and who will, one day, be their biggest spenders. Repair services “have become far more interesting to young customers – even those who can afford something new,” according to McKinsey analyst Anita Balchandani. Hence, the push by buzzy companies like Bottega Veneta, which have found favor among millennials, to promote circularity by way of product longevity programs. 

In addition to bringing about benefits on the marketing front and helping brands to attract new customers, these initiatives enable brands to engender goodwill and strengthen their bonds with existing clients, as well. 

Beyond that, luxury brands’ warranties/repair benefits – which often apply only to new products that are purchased from the brands and/or their authorized retailers – serve as a way for companies to entice consumers to purchase products through authorized channels as opposed to the secondary market. In turn, this is a way for control-happy luxury giants to further hold on to – or in some cases, regain – as much control as possible over the market for their products. This puts the onus on brands to find ways to attract and sell to consumers directly, including by offering up benefits that unauthorized retailers and resellers cannot. 

Still yet, there is the undeniable element of pricing. It is almost certainly not a coincidence that a number of the newly-introduced warranty/maintenance initiatives come as brands across the board have been aggressively raising their prices. By advertising these services, luxury brands like Chanel, for instance, are essentially providing consumers with additional value, potentially with the aim of softening the blow of soaring price tags. 

The Rising Role of Web3

The increasing offering of warranties and repairs by brands will likely bring more of the practical aspects of web3 into the mix (this sphere is not just limited to expensive blockchain-linked MetaBirkins or Bored Ape jpegs, after all), with such efforts potentially pairing neatly with companies’ heightening adoption of blockchain technologies. It is not difficult to imagine brands opting to immutably record ownership and warranty information, as well as product repair histories, via blockchain-hosted tokens or QR codes. 

We are seeing these endeavors come by way of luxury watch brands and auto manufacturers, alike. Breitling, for instance, was an early mover in this space, introducing blockchain-based product passports for its watches, and enabling customers to not only verify authenticity of their watches and transfer ownership of them upon resale, but to register repairs “with a timestamp on the blockchain.” Additionally, the watch company stated back in 2020 that it planned to roll out “upcoming insurance services and resale warranties enhance” with ties to the product passports. Panerai has also exploring this space, revealing early this year that “in time, every Panerai watch will be issued a Digital Passport, as a service to protect its valuable, singular identity, maintain an open line of communication with the brand and unlock benefits and services.”

More recently, Italian automaker Alfa Romeo announced that each of its new Tonale SUVs will come equipped with a blockchain-based certificate that tracks the car’s maintenance record. The Stellantis-owned company said in February that the “blockchain-guaranteed certification of the car’s life record” will provide a “confidential and non-modifiable record of the main stages in the life of [each] individual vehicle [that] can be used as a guarantee of the car’s overall status,” creating “a positive impact on its residual value.”

It will be interesting to see how brands will use blockchain tech hand-in-hand with their budding interest in repairs. Rolex seems like it may be eager to take part, filing a new trademark application with the U.S. Patent and Trademark to register its famous name for use across an array of goods and services, including “watches and chronometric instruments with digital codes, labels, tags and digital chips” (in Class 14). Not long before that, Hermès filed an application in something of the same vein, with an emphasis on services, such as “blockchain technology for representing a collectible item,” among other things.

Chances are, this is part of where luxury is headed, especially in light of the bigger picture, which is the enduring impact of the resale market and consumers’ treatment of certain luxury goods as investable (and tradable) assets. There will, of course, as the WSJ notes, be elaborate couture creations in the mix, as well. 

A new survey reveals that the robust resale market is still growing, with consumers saying that they expect their purchases of pre-owned goods to increase in 2023. According to new findings from Morning Consult, which surveyed 2,210 adults in the U.S. in October in order to gauge the state of the resale market, almost two-thirds of survey participants (62 percent) said that they have engaged in some sort of “purchase-driven resale shopping behavior” – either shopping for or buying pre-owned products – in the past 12 months. At the same time, more than one-third of those consumers (37 percent) said that they expect their purchases of secondhand goods to increase over the next year, adding further fuel to the burgeoning resale market. 

Secondary market consumption is spread across demographics, Morning Consult found, but Gen Z and millennial consumers were, nonetheless, among the primary users of resale platforms at a “much higher rate” than others, which “highlights younger cohorts’ importance to the future of the resale economy.” And while eBay Inc. and Meta’s Facebook Marketplace were “the most-used sites for both buying and selling across demographics” among the survey participants as a whole, Morning Consult states that millennials are “significantly more active” on other sites, such as TheRealReal, thredUP, and Bonanza, than older demographics and Gen Z. At the same time, Morning Consult maintains that “there are some signs that younger-skewing platforms” like Poshmark are “making dents in the established order.” 

In terms of the types of goods that consumers are mostly likely to purchase from the resale-market, 62 percent of survey respondents said clothing, putting apparel behind books/games (74 percent), tools (69 percent), and cars (65 percent), but before furniture/home decor (59 percent) and other categories of goods. 

The Buyer, Seller Balance

The other critical element in the resale equation is, of course, sellers. Compared to active secondary market buyers, the scenario becomes more complicated when it comes to consumers that are looking to offer up pre-owned products for sale. “The future selling behavior of secondhand shoppers (i.e., respondents who indicated that they have shopped for or bought secondhand items within the past year) is more unclear relative to buying,” per Morning Consult, which states that nearly 1 in 5 (19 percent) survey participants reported they “do not know or have no opinion” about whether/how their selling habits will change over the next 12 months. Earlier research from Morning Consult revealed that in the 3 months leading up to April 2022, 44 percent of U.S. adults had purchased a secondhand item while 24 percent had sold one. 

Chart of secondary market seller demographics

Market volatility and inflationary pressures, which have prompted consumers to seek out lower prices, paired with rising sustainability concerns, are drawing an increasing number of consumers into the resale market. In fact, according to the Luxury Resale Report that The RealReal released in August, its consumer base grew by 23 percent in the first half of the year, enabling it to add 5.3 million new shoppers to its base since 2021. And at the same time, customers are bought more: buyers snapped by 44 percent more items from The RealReal year-over-year, as awareness of the resale market, in general, continues to grow. 

Attracting sellers is proving to be more difficult and most cost-intensive for companies, such as The RealReal, for instance, which has reported sizable net losses, due at least in part to consignor-acquisition efforts – from extensive advertising to expanding its brick-and-mortar network with the aim of getting consignors into stores. 

The glaring imbalance between secondary market buyers and sellers is significant, as the resale platform model relies on supply from consumers – and in some cases, companies – to drive revenue and their bottom lines. “Volume growth is essential for second-hand clothing companies to turn in steady profits in an industry notorious for tight margins and inconsistent inventory,” according to analysts, and thus, the more buyers-than-sellers conundrum is likely driving some of the consolidation that is playing out in the secondary space. (You can find a timeline of secondary market M&A here.)

THE BOTTOM LINE: The evolving secondary market is seeing reselling platforms, a growing number of brands, and Amazon (which recently partnered with reseller What Goes Around Comes Around), alike, “clamoring to capture their stake of the industry’s nearly $180 billion projected market value in 2022,” according to Morning Consult. But in addition to fighting to compete from a market dominance perspective, companies in this space are also vying for the much-needed stock from secondary sellers.

A prolific wholesaler in the business of “upcycling” has quietly agreed to settle a lawsuit waged against it by Louis Vuitton last year for allegedly engaging in trademark counterfeiting, infringement, and dilution by “willfully” co-opting Louis Vuitton’s famous trademarks to create new apparel and accessories. In a filing with the U.S. District Court for the Southern District of Texas last month, Sandra Ling Designs, Inc. and its owner Sandra Ling offered to allow a judgment to be entered against them, including a $603,000 sum and a permanent injunction, and also moved to drop the counterclaims they lodged against Louis Vuitton in order to bring the case to a close. 

The case got its start in February 2021, when Louis Vuitton filed suit against Sandra Ling Designs, Inc. and Ms. Ling (collectively, “SLD”), alleging that the two defendants were running afoul of federal trademark law by offering up apparel, handbags, and accessories made from “purportedly authentic pre-owned” Louis Vuitton goods that they altered by “disassembl[ing] and deconstruct[ing]” to craft new products and/or by “adding decorations, such as tassels, stones, or beading.” While the goods continued to “prominently” bear Louis Vuitton trademarks, the luxury goods titan argued that the “fundamental alterations” made by SLD turned the allegedly authentic Louis Vuitton products into ones that “do not meet Louis Vuitton’s strict quality standards,” and thus, are “no longer genuine Louis Vuitton products.” 

Upcycling & the First Sale Doctrine

By focusing on the extensiveness of the alterations, which resulted in products that “no longer attain the aesthetic or quality of authentic Louis Vuitton items,” Louis Vuitton appeared to be looking to proactively chip away at any first sale doctrine arguments that the wholesaler defendants might raise, as first sale protections do not apply when an unauthorized party sells products that are “materially different” from those sold by the brand and/or its authorized retailers. Unsurprisingly, SLD responded to Louis Vuitton’s lawsuit by claiming that its activities fall neatly within the realm of “upcycling,” and thus, it should be shielded from liability by the first sale doctrine. 

In its September 2021 answer, SLD admitted that “without specific authorization” from Louis Vuitton, it “designs, makes, and sells wholesale upcycled goods,” which it constructs from “genuine, authentic, pre-owned (i.e., used/discarded/salvaged) LV items, which SLD typically dissembles and/or deconstructs for recycling or upcycling, and that those materials from those LV items can and often do show marks or portions of marks which LV claims are its trademarks that LV imprinted or imbedded or otherwise permanently formed or placed in the materials.” 

Upcycled accessories bearing Louis Vuitton trademarks

While the defendants made some admissions in this vein in their answer, they denied that consumers would “readily or reasonably think that the upcycled goods are sourced from or sponsored or approved by Louis Vuitton … since they are upcycled (or recycled) goods made from genuine, authentic, used and discarded products.” Also part of the reason why consumers were unlikely to be confused about the nature/source of its wares, per SLD: Its inclusion of language with “each upcycled good,” in which it disclaims any affiliation with or connection to Louis Vuitton and states that “the purchaser of the upcycled product ‘understands and acknowledges that the product is not a Louis Vuitton product.’” 

In addition to answering Louis Vuitton’s complaint, SLD lodged claims of its own, seeking a declaration from the court that its sales of the “upcycled” goods amounts to “fair use of LV’s trademarks, and does not constitute an infringement of LV’s trademarks,” arguing that  Louis Vuitton, “through misrepresentation and improper use of its trademarks, sought to prevent [SLD] from making and selling upcycled goods comprising material salvaged from used and discarded but genuine and authentic LV products.” SLD also set out a claim of tortious interference with existing and prospective business relations under Texas law on the basis that Louis Vuitton “willfully and intentionally interfered with [its] ongoing and potential business relationships.”

Fast forward to last month, and the parties appear to be winding down the suit, with counsel for Louis Vuitton accepting SLD’s offer of judgment, and SLD moving to drop its counterclaims. 

A String of Cases

The Sandra Ling case comes amid a rise in customization and upcycling-centric battles, as luxury goods companies and sportswear giants, alike, look to crack down on what they have characterized as attempts by third parties to piggyback on – and profit from – the appeal of their brands by making unauthorized use of their famous marks. Nike, for example, has pursued such claims against customizers of its famous footwear, including MSCHF, while Rolex has taken on parties like La Californienne over its sale of modified watches bearing Rolex trademarks. Beyond that, Ralph Lauren filed suit against VNDS Los Angeles a couple of years ago over its sale of “retro inspired custom apparel and accessories” made from Ralph Lauren products. 

And still yet, Chanel is currently facing off against Shiver + Duke over the defendant jewelry company’s sale of jewelry crafted from allegedly authentic Chanel buttons, setting out claims of trademark infringement, unfair competition, and trademark dilution against the company early last year. 

These cases raise some interesting questions, as companies appear to be actively testing the bounds of their rights in order to exert control over where, how, and by whom products bearing their names and other trademarks are sold. This includes secondary market offerings, with luxury brands – and even more mass-market entities like Nike and co. – grappling with trademark issues as a result of the rise of the burgeoning resale market. At a high level, these cases also pit circularity/sustainability-related issues – which are commonly cited by upcyclers – against brand enforcement issues, which companies argue are a critical element in their ability to maintain robust trademark rights and keep the goodwill associated with those marks (and corresponding pricing power) intact. 

With the exception of the Hamilton watch case, for instance, which saw the U.S. Court of Appeals for the Second Circuitdetermine that defendant Vortic LLC did not run afoul of trademark law by selling restored and modified watches consisting of original Hamilton parts and bearing Hamilton’s branding (as Vortic’s use of the Hamilton trademark is not likely to confuse consumers), most of the upcycling cases have not provided much guidance by way of substantive decisions from the courts. 

But even without a long list of decisions, these cases provide some insight, as they drive home the point that even with the first sale doctrine at play, upcycling is not always fair game. Whether a company can upcycle goods without landing on the opposite end of lawsuits waged by luxury titans and sportswear behemoths will depend not only on the state of the resold product, itself, but also the terms/conditions in which it is offered up for sale, and in many cases, may call into question potential disclosures or disclaimers made by the upcyclers, and their effectiveness at lessening the potential for confusion.

Moving forward, a rising number of companies – from Patagonia to brands like Stella McCartney to Louis Vuitton – are upcycling their own wares and archival materials in order to reduce their environmental impact. Such in-house efforts will inevitably raise the stakes even further on the upcycling front, meaning more litigation will likely come into play. 

The case is Louis Vuitton Malletier v. Sandra Ling Designs, Inc., et al., 4:21-cv-00352 (S.D.Tex.).

Mario Valentino is taking action against Fashionphile, accusing the resale company of trademark infringement, false advertising, and unfair competition in a newly-filed lawsuit. According to the complaint that it filed with the U.S. District Court for the Southern District of New York on Friday, Mario Valentino – a mid-market accessories brand that is not affiliated with the similarly-named luxury brand Valentino, S.p.A. – claims that it discovered this spring that Fashionphile has been offering up products using Mario Valentino’s federally-registered “VALENTINO” trademark in a manner that is “not authorized to promote goods that were neither manufactured by, purchased from, or authorized by Mario Valentino (or its exclusive licensee) in the U.S.” 

For some background on its trademark rights, Mario Valentino asserts that it is “the first and senior owner of the registrations of the VALENTINO family of trademarks on leather handbags and similar goods in the U.S.,” including its almost 50-year-old registration (no. 0951621) for “VALENTINO” for use on “handbags and luggage.” With that registration in mind, Mario Valentino claims that it put Fashionphile on notice of its allegedly unauthorized use of the VALENTINO trademark in connection with the advertising/sale of Valentino, S.p.A. bags and footwear – and demanded that the Carlsbad, California-based reseller immediately cease such alleged infringement – by way of a cease-and-desist letter at the end of May 2022. 

“Despite follow-up cease and desist letters, and despite Fashionphile continuing to represent that it would comply with Mario Valentino’s demands, it has not done so,” Mario Valentino asserts, arguing that as of the time of filing, “nearly four hundred women’s handbags and clutches are advertised on Fashionphile’s website as ‘VALENTINO’ at prices ranging from $200 to $2,800.” Against this background, Mario Valentino sets out claims of trademark infringement, false association, false advertising, unfair competition, and deceptive acts and practices unlawful in violation of the New York General Business Law against Fashionphile, and is seeking injunctive relief, as well as monetary damages. 

Valentino bags on Fashionphile's website
Search results for “Valentino” on Fashionphile

While this may appear on its face to be something of a straightforward trademark case waged by a brand against a reseller that is allegedly engaging in infringement (à la Chanel v. The RealReal), a closer look reveals that there is much more going on. In fact, more than merely a legal squabble with Fashionphile, Mario Valentino’s suit is better characterized as an escalation of its existing – and higher stakes – fight against Valentino, S.p.A.  (“Valentino”). After all, the bags that Mario Valentino points to in its complaint as being advertised in an infringing or otherwise improper way are not Mario Valentino bags, but those from Valentino.

TFL readers will know that Valentino filed suit against Mario Valentino in a California federal court in July 2019, alleging that the unaffiliated brand and its American licensee are on the hook for false advertising, unfair competition, and design patent infringement for “actively engaging in a campaign to trade off Valentino’s goodwill in the U.S. handbag market.” That still-ongoing legal battle – which also includes a separate but related fight before Italian courts – centers on a co-existence agreement that the two Valentinos entered into more than 40 years ago in an attempt to avoid consumer confusion and corresponding legal complications stemming from their nearly-identical monikers and relatively similar offerings.

In accordance with the 1979 co-existence agreement, Mario Valentino – which got its start in 1952 as a footwear and leather goods company – is “permitted to use the ‘V’ or ‘Valentino’ mark on the outside of its handbags [and marketing], but is not permitted to use the ‘V’ and ‘Valentino’ marks together,” but it “must also use the ‘Mario Valentino’ mark on the inside and packaging of all handbags to avoid consumer confusion.” In other words, Mario Valentino can use the “VALENTINO” name on leather goods, such as handbags, assuming it includes the full “Mario Valentino” name on the inside.

Meanwhile, the agreement limits how Valentino – which was founded by Valentino Garavani in 1960 and was far better known for couture than handbags when the agreement was signed – can use the “VALENTINO” name. In particular, it mandates that for leather handbags, and other similar goods, Valentino “may only use its [V] symbol and/or ‘VALENTINO GARAVANI.’” Put simply, Valentino “must utilize the term ‘GARAVANI’ in addition to ‘VALENTINO’ to minimize consumer confusion between the parties.” 

A Valentino ad and a Mario Valentino ad
A Valentino ad (left) & a Mario Valentino ad (right)

In response to Valentino’s claims, Mario Valentino set out claims of its own in 2020, accusing Valentino of breaching the co-existence agreement by way of its advertising. Since 2017, Valentino has “prominently placed ‘VALENTINO’ in its advertising for handbags, removing and/or significantly reducing the appearance of the required term ‘GARAVANI,’” Mario Valentino argued, claiming that its rival breached the co-existence agreement and engaged in trademark infringement.

And in an argument that foreshadowed the potential for claims against retailers (or resellers) of Valentino goods, Mario Valentino has also argued that Valentino should be held contributorily liable for the alleged infringement of at least one of its authorized retailers. According to Mario Valentino, authorized Valentino retailer FORWARD by Elyse Walker also infringed its trademarks by “advertising Valentino products as ‘VALENTINO BAGS’ but making no reference to the term ‘GARAVANI’ in its advertising.” 

As of the last status update, which came in July, not only was the U.S. case still underway, but the parties’ fight in Italy had also not been resolved.  

THE BIG PICTURE

Given that Valentino and Mario Valentino appeared to peacefully co-exist in the market for four decades, the agreement seemed to function effectively. However, Mario Valentino’s new lawsuit against Fashionphile and its existing battle against Valentino are an indication that this is no longer the case. 

As for what is driving the legal squabble from a big-picture perspective, Valentino argues in its lawsuit that the clash follows from Mario Valentino’s quest to “intentionally … trade off [its] goodwill in the handbag market,” and “lead consumers to believe that Mario Valentino handbags are the same Valentino bags available at luxury retailers.” Such efforts to piggyback on the Valentino brand come by way of Mario Valentino’s alleged copying of the design of Valentino S.p.A.’s bags, and its advertising, the latter of which is “intentionally designed to confuse consumers into believing Mario Valentino handbags are actually Valentino handbags being sold at discount, and/or a diffusion line of Valentino handbags that retails at lower prices,” per Valentino. 

At the same time, it is difficult not to consider the transformation of Mayhoola-owned Valentino – now an accessories powerhouse thanks to its offerings like its Rockstud footwear, and Roman Stud and VLogo bags – since the co-existence agreement was signed in 1970. As of 2021, Valentino’s annual sales rose to 1.23 billion euros, with accessories representing 66 percent of sales, compared to 32 percent from ready-to-wear. As such, the breakdown of the parties’ arrangement is likely driven in no small part by the robust expansion by Valentino into leather goods, etc., which generate substantial revenues and margins for luxury brands, particularly when compared to luxury apparel, and the limits that the co-existence agreement places on it from an accessories – and from a potential M&A – point of view.

Due to the sheer size of – and Valentino’s ambitions for – its accessories business, and in light of Mario Valentino’s “senior trademark registrations for the VALENTINO trademarks, [which] present an obstacle to [Valentino’s] growth in the leather handbag marketplace,” Mario Valentino argues that its allegedly improper use of the “Valentino” mark without “Garavani” is part of a larger scheme “to expand its leather handbag business and reap millions of dollars in profits, so that it could sell its company for a higher price to investors.” 

Valentino has no shortage of trademark rights in and registrations for its name and logos – from Valentino for use on eyewear, and Valentino Garavani on handbags, footwear, and clothing to the V logo for use on nearly any category of goods – that another party would take ownership of if it acquired the Valentino brand. Nonetheless, it is difficult not to acknowledge that an acquiring party may take issue with the fact that one core element is missing from the brand’s portfolio: the ability to offer up leather goods and footwear under the VALENTINO name on its own and the potential for litigation, such as the case at hand, to come about as a result. (With that in mind, its case against Fashionphile very well could be a strategic play by Mario Valentino to try to gain leverage in the Valentino matters.)

Taken together, such issues have set the stage for a protracted, bi-national legal battle that only appears to be gaining in steam if Mario Valentino’s newly-filed suit is any indication.

A rep for Fashionphile was not immediately available for comment. 

The case is Mario Valentino S.p.A v. Fashionphile Group LLC, 1:22-cv-08984 (SDNY).

Two years after Amazon first announced the launch of its Luxury Stores venture, big-name luxury brands’ offerings – i.e., those of Chanel, Louis Vuitton, Hermès, Rolex, and co. – are coming to the heavily-trafficked e-commerce platform. Unsurprisingly, things like Louis Vuitton bags and Rolex watches are not being stocked on the Jeff Bezos-founded platform by way of the brands, themselves. Instead, a partnership between Amazon and reseller What Goes Around Comes Around (“WGACA”), which boasts its own storefront on Amazon as of Thursday, means that consumers can snap up an expanding selection of pre-owned luxury goods, from Chanel, Hermès, Louis Vuitton, Gucci, and Dior bags to Chanel jewelry, Hermès scarves, and a handful of Rolex watches via Amazon’s site.

The debut of WGACA on Amazon’s Luxury Stores – which follows from an already-existing tie-up between the established reseller and Amazon-owned Shopbop that results in a limited number of luxury goods listings on Amazon’s marketplace – is likely to prompt ire from the notoriously controlling luxury brands whose wares are being hawked without their involvement or authorization.

Top of mind is the potential for these brands to take issue with their trademark-bearing goods being marketed and sold alongside the stream of counterfeit and otherwise infringing goods that are readily available on Amazon’s main marketplace site. Chanel, for one, argued in its since-settled lawsuit against Crepslocker that the British reseller’s unauthorized use of Chanel trademarks alongside “other brands, which do not have similar associations of luxury, prestige, exclusivity and longevity to those enjoyed by [Chanel],” was problematic. (And there were not even counterfeit goods at play in that case.)

The offering up of authentic goods without a brand’s authorization after the goods are first released into the market by the trademark-holding brand is protected from infringement liability under the first sale doctrine. (It is well-settled that “the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product,” in the words of the 10th Circuit.) Nonetheless, it is difficult not to wonder whether the brands whose wares are now being displayed on Amazon via WGACA still have some valid arguments to make, especially given existence of counterfeit and/or infringing luxury goods (like fake Gucci bags, fake Prada bags, Chanel knockoffs, and fake Dior bags) on Amazon’s site, which has almost certainly ruled out any possibility of most luxury brands partnering with it. 

The most immediate exception to the first sale doctrine is when the goods at issue are “materially different” from those sold by a brand and/or its authorized sellers. This does not seem to apply on its face, as the products here, including Chanel flap bags, three Hermès Kelly bags, the long list of Dior Lady bags, etc., do not appear to be materially different than they were at the point of initial sale. 

Bags on Amazon Luxury Store

Not the Goods, But the Conditions

However, another exception to the first sale doctrine exists beyond the offering up of materially different goods, and applies in instances in which an unauthorized seller is reselling trademark-bearing products that are outside of the trademark owner’s quality controls – or in other words, the conditions of the sale are different. For this exception to apply, a trademark holder must show that: (1) it has established quality control procedures that are legitimate, substantial, and not pretextual; (2) it abides by its quality control procedures; and (3) the unauthorized seller is not abiding by the procedures and its sales of non-conforming products will harm the value of the trademark and create a likelihood of consumer confusion.

This would not be a tough argument for luxury brands like Louis Vuitton and co. to make. In fact, we saw this in the Crepslocker case, in which Chanel argued 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 were being observed by Crepslocker in connection with its sale of otherwise authentic Chanel-branded products.

Specifically, Chanel took issue with Crepslocker’s packaging, its 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, and the alleged unavailability of authentication cards for certain Chanel bags. Taken together, these factors resulted in Crepslocker offering “a service that is materially worse” than what Chanel and its authorized retailers provide, and thus, damaging the Chanel brand. (That case settled before the court could provide any insight.)

Chanel jewelry and an Hermès Kelly bag

More recently, the U.S. District Court for the District of Colorado shed light on quality control exception to the first sale doctrine in a case over the unauthorized sale of Otter brand cell phone and tablet cases online, including on Amazon’s marketplace. Otter filed suit against Triplenet, arguing that the reseller’s distribution did not meet the quality control standards observed by the company and its authorized resellers, such as conditions that applied to shipping, product inspection, removal and reporting of damaged goods, and product display.

Siding with Otter (on a motion for partial summary judgment) in November 2021, the court held that the company established that it has legitimate quality control measures insofar as it allows its products to be sold to consumers only by it or authorized resellers, which Triplenet did not observe, and that Triplenet’s nonconforming sales diminished the value of Otter’s trademarks because such sales interfered with Otter’s ability to ensure its products adhered to its quality standards. 

Potential Marketing Issues

Still yet, particularly displeased brands might try to go further and take issue with the marketing of the products being offered up by WGACA. In the still-pending lawsuit that it filed against WGACA, Chanel argued that the reseller was making “excessive” use of Chanel trademarks in an attempt to lead consumers to believe that it is in some way authorized or affiliated with Chanel. (Chanel filed suit against WGACA in March 2018, accusing the New York-based resale entity of selling “non-genuine, infringing Chanel products, and improperly us[ing] Chanel marks in its advertising and marketing.”) The strength of such an argument is questionable here, as it does not seem (to me) that WGACA and Amazon are using the brands’ marks in a manner that extends too far beyond listing/describing and displaying the available products.

A Chanel bag on Amazon Luxury Stores

Beyond that, brands might push back against the marketing of the goods here as “vintage,” as Chanel did in its case against WGACA (and still-pending lawsuit that it filed against WGACA, as well), asserting that the reseller runs afoul of the Federal Trade Commission’s advisory on the labeling of “vintage” products, which are items that are “at least 50 years old.” Per Chanel, WGACA represents “some of its Chanel-branded products to consumers as ‘vintage’ even though such items are of recent distribution and sale.” Some of its “rare vintage” Chanel bags are, according to Chanel’s complaint, “are less than twenty years old.”

It is worthing noting that with such resale-specific litigation presumably in mind (and knowing the claims that certain brands have made against resellers in the past), it is not surprising Amazon and WGACA have opted not to lean too heavily into explicit authenticity warranties. The claim that WGACA does make, which is included in the “About” section, states, “WGACA guarantees authenticity of every item through their multi-tiered authentication process. WGACA is not an authorized reseller and is not affiliated with any of the brands they sell; brands are not involved in their authentication process.” 

As for whether WGACA and Amazon are concerned about legal issues, the consensus appears to be no. Amazon Fashion president Muge Erdirik Dogan told WWD that “Luxury Stores at Amazon is in regular touch with all luxury brands on various ways to collaborate with Amazon’s technology, operations, innovations and more.”

Hypothetical legal issues aside, the partnership between Amazon and WGACA is a striking one in light of Amazon’s well-established ambitions in the fashion and luxury space, and the unwillingness of top-tier fashion/luxury brands to take part. Against that background, the scenario seems like a major win for Amazon, which gets access to WGACA’s supply of pre-owned goods; if The RealReal’s costs and physical expansion is any indication, amassing high-quality supply is not an easy or inexpensive endeavor. Amazon also benefits from WGACA doing the authentication work – another cost-intensive and demanding effort. Finally, WGACA will also handle shipping for all of the goods at issue – making for what seems like the best possible scenario for Amazon given the large-scale refusal of luxury’s biggest names to play ball.

UPDATED (Sept. 20, 2022) : This article has been updated to remove a quote from WGACA.