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Image: WGACA

In March 2018, Chanel filed suit against What Goes Around Comes Around (“WGACA”), accusing the luxury reseller of “piggybacking on the reputation of a handful of select luxury brands, including Chanel.” According to Chanel’s complaint, WGACA was attempting – by way of its marketing – “to deceive consumers into falsely believing [that it] has some kind of … affiliation with Chanel or that Chanel has authenticated WGACA’s goods in order to trade off of Chanel’s brand and goodwill,” all while allegedly offering up counterfeit products. Chanel made similar claims in the lawsuit that it filed against The RealReal later that year, doubling down on its assertion that only Chanel can authenticate Chanel items

Two years into the separate-but-similar cases, it appears that the two luxury resellers have essentially adopted analogous strategies in an effort to chip away at the “bad faith” lawsuits that Chanel lodged against them. A key element in their efforts against Chanel: the luxury titan’s relationship with Farfetch, the burgeoning fashion e-commerce marketplace that Portuguese entrepreneur Jose Neves founded in 2007.

Focusing on Farfetch

In a letter that it recently filed with the court, counsel for WGACA asks Judge Louis Stanton of the U.S. District Court for the Southern District of New York to require Chanel to produce certain documents in furtherance of the discovery phase of the case. Specifically, WGACA’s counsel Peter Shapiro of Lewis Brisbois says that the New York-headquartered company is specifically seeking information about Chanel’s “business relationship” with Farfetch. 

According to WGACA’s November 12 letter, “Chanel has steadfastly refused to produce highly relevant information related to Farfetch” because of the “damaging nature of the information,” thereby giving rise to a need for court intervention. In that same vein, WGACA claims that Chanel has been unwilling to make president Bruno Pavlovsky available for a deposition “despite the fact that [he] is publicly identified as the architect of” the deal that Chanel and Farfetch entered into in December 2017, in connection with which Chanel reportedly took “an equity stake in Farfetch.” 

Why is WGACA so interested in gaining information about Chanel’s dealings with Farfetch? The luxury resale company alleges that the parties’ deal evidences an important inconsistency in Chanel’s story. While “Chanel has claimed in this lawsuit that it has been injured or is likely to be injured by WGACA’s actions,” including WGACA’s claims that it “authenticat[es] the genuineness of the Chanel secondhand goods [it sells],” WGACA claims that “Farfetch was engaged in that EXACT same alleged wrongful conduct” in connection with its own sale and marketing of “genuine” pre-owned Chanel products on the Farfetch platform at the very same time that Chanel “entered into what was referred to publicly as an ‘innovation partnership’” with the London-based luxury marketplace.

 

“Chanel has struggled to offer any explanation” as to how it “could choose to sue WGACA (and The RealReal) for the exact same conduct its business partner was engaged in,” WGACA asserts. As such, “The Farfetch situation is devastating evidence plainly establishing Chanel’s pretextual bad faith pursuit of WGACA,” the company’s counsel alleges in the letter, asking, “How can Chanel invest in a company that it publicizes as being its ‘partner,’ while at the same time claim that it is being injured by a competitor (WGACA) that is doing the same thing as Farfetch?” 

The answer, according to WGACA, is that “Chanel knows that [WGACA] is not engaged in wrongful conduct … and instead, has chosen to make a deal with one competitor, and attack other competitors (namely, WGACA and The RealReal) as part of a bad faith pretextual campaign to quash legitimate competition.” WGACA further alleges that Chanel’s “business arrangement [with Farfetch] serves as an admission that Chanel is not being injured and is unlikely to be injured by WGACA’s actions,” thereby rendering Chanel’s case against WGACA “fatally flawed.” 

WGACA does not stop there, though. It claims that after Chanel filed suit against it, the French company “having realized that WGACA would learn about the [Farfetch] relationship, scramble[d] to reconcile its litigation position against WGACA (and The RealReal) with the reality that [Farfetch] is engaged in the same conduct.” Against that background, WGACA says that “Chanel issue[d] what can best be described as a clumsy cease and desist letter as an ill thought out cover story.” 

In that letter, Chanel’s counsel fails to mention that Chanel and Farfetch had already entered into a partnership, per WGACA, and instead, “positions the letter as a garden variety cease and desist letter, while noting prominently that [Farfetch] is violating Chanel’s rights vis-à-vis its references to ‘Vintage Chanel’ [products] and purporting to authenticate Chanel items.” 

“But again,” the November 2018 “letter ignores the elephant in the room, namely, why is Chanel sending its ‘partner’ a cease and desist letter for activity that Chanel was already aware of when it entered into the ‘innovation partnership’ with Farfetch in December of 2017?” 

WGACA claims that it has, in fact, learned about Chanel’s relationship with Farfetch, but “still do[es] not know how Chanel intends to reconcile all these contradictions,” particularly given that “absent from Chanel’s [discovery] production to date … are documents evidencing the discussions about the decisions to partner with Farfetch while suing other secondary market players.” 

“Chanel has refused to produce any documents regarding its business relationship with Farfetch,” as well as “any communications with Farfetch or indeed any internal communications which would shed light on why Chanel would enter into [a partnership] with Farfetch, when … [it] was engaged in the exact same activity that … is the focus of this lawsuit.” 

With the foregoing in mind and given that Chanel’s witnesses thus far “have mostly claimed ignorance regarding the Farfetch deal,” WGACA has asked the court to renew the request that it made in August 2020 for an order compelling Chanel to produce documents “responsive to [its] requests” – i.e., about it deal with Farfetch – and to produce Mr. Pavlovsky for deposition.

“Bad Faith” Lawsuits

WGACA’s letter to the court is not the first of its kind. In fact, it comes a couple of weeks after The RealReal lodged a letter of its own, alerting Judge Gabriel Gorenstein of the U.S. District Court for the Southern District of New York of “new evidence” about Chanel’s “motivation” for bringing various trademark-centric lawsuits against its competitors, including The RealReal and WGACA. Counsel for the publicly-traded reseller asserted that the new evidence – which it discovered in connection with the proceedings in the Chanel v. The RealReal case – reveals that Chanel maintains an ownership stake in Farfetch, and has failed to take uniform legal action against the e-commerce marketplace for its sale and marketing of pre-owned Chanel goods, behavior that mirrors that of The RealReal and WGACA. 

With its new findings in mind, The RealReal asked the court to allow it to “amend its answer to assert antitrust and related anticompetitive counterclaims” against Chanel on the basis that the company is allegedly engaging in an “overarching anticompetitive scheme” in order to limit the supply of its products in the market, “inhibit the growth and development of competitors, and artificially raise and maintain [its] prices.” 

How does The RealReal back up its claims that Chanel has been quietly carrying out an “aggressive campaign” of “exclusionary and anticompetitive conduct” aimed at “monopolizing” the market for luxury handbags? It points to the fact that Farfetch “promotes, advertises, markets, and sells pre-owned Chanel goods,” which it sources from various third parties and thereafter, “guarantees the authenticity of” in the exact same way that The RealReal and WGACA do. 

However, just as WGACA has since argued, The RealReal claims that Chanel has taken issue with The RealReal and WGACA’s assertions about their ability to properly authenticate the Chanel bags they sell because – as it has asserted in both cases – “only Chanel can authenticate Chanel [products],” and ultimately, filing lawsuits against them as a result. But … Farfetch has not landed on the opposite end of litigation with Chanel. The RealReal asserts that such a lack of equivalent legal action by Chanel shows that it “will only tolerate the resale of Chanel handbags … by a company in which [it] holds a significant investment,” so that it “can continue to control supply and prices in the market for [its] handbags.”  

In both cases, the resale company defendants have vigorously rejected Chanel’s claims, arguing that its trademark lawsuits are not actually aimed at protecting consumers from confusion about the nature of the bags at play and/or shielding them from counterfeit goods. Instead, they argue that Chanel’s litigation is “a thinly-veiled effort to stop consumers from reselling their authentic used goods, and to prevent customers from buying those goods at discounted prices,” as The RealReal characterized the November 2018 legal battle that Chanel initiated against it.  

All the while, Chanel has been adamant that The RealReal and WGACA are on the wrong side of the law, and that the cases are part of a necessary effort to protect consumers from the resellers’ pattern of trademark infringement and false advertising.

Beyond the he-said, she-said, the two lawsuits appear to ultimately amount to a quest by Chanel to protect the image of the brand, which, as WGACA notes in its recent letter, Chanel has “readily acknowledged in depositions” is of the utmost importance. Citing a deposition with Robin Gruber one of the heads of Chanel’s intellectual property enforcement, WGACA states in its letter that Chanel has admitted that “protecting its brand image is of the utmost importance to its very survival,” and that “the need to protect the integrity and image of Chanel in terms of its importance to the company’s very value cannot be overstated.”  

UPDATED (November 18, 2020): In a new order, Judge Stanton shot down WGACA’s request that the court compel Chanel to provide information about its dealings with Farfetch and to make its president available for a deposition. According to Judge Stanton, “WGACA’s requests for disclosure of documents and the production of Chanel’s president to testify about itsrelationship with Farfetch are denied. WGACA has shown no reason Chanel’s treatment of, and activities with regard to Farfetch,with whom it has a business relationship, must be the same as those with regard to WGACA, with whom it has none.”

In the same order, the court also stated, among other things, that “WGACA’ s application for leave to move for dismissal of Chanel ‘ s counterfeiting claims is denied as premature.”

* The case is Chanel, Inc. v. What Goes Around Comes Around, LLC, et al., 1:18-cv-02253 (SDNY).