Resale of the century: why luxury brands are watching Chanel vs WGACA
A trademark infringement trial involving Chanel and a major luxury resale company will spotlight the apparel resale market, which has grown steadily in recent years and is now valued at approximately $211 billion.
The case is significant due to its broader implications for luxury brands navigating the secondhand market.
Chanel has accused luxury reseller WGACA of attempting to deceive consumers and selling allegedly infringing products. This legal battle not only underscores the clash between a high-profile luxury brand and a leading player in the secondhand market, but also brings to the forefront crucial questions surrounding brand protection, trademark usage, and the evolving dynamics of the luxury resale landscape.
The trial, marked by Chanel's allegations of trademark infringement, false advertising, and false association against WGACA, serves as a microcosm of the challenges luxury brands face as they navigate the burgeoning secondhand market.
Nominative fair use
The most interesting question presented by this case is the scope of a defence called nominative fair use.
Given that this legal doctrine allows resellers to use trademarks to describe genuine products being resold, this case raises questions about the extent to which such usage can go before implying unauthorised endorsement.
With the rise of the circular economy, the trial’s broader implications extend to the strategic and legal considerations of luxury brands contemplating entry into the secondhand market, Especially where these legal proceedings intersect with broader industry trends concerning credibility, brand image and genuine product resale profitability.
Although someone generally cannot use a registered trademark for a commercial purpose without the authorisation of the trademark owner, there is an exception to that rule for secondhand resellers of genuine goods.
Under the doctrine of “nominative fair use,” the secondhand reseller can use the trademark to describe a genuine product that is being resold. For example, a used car dealer can advertise a used car as a “Toyota,” so long as it is a genuine Toyota automobile.
However, under the doctrine of nominative fair use, the reseller should use the mark only as is necessary to accurately identify the product, and it cannot use the mark to suggest sponsorship or endorsement by the trademark holder. That is the key issue in dispute in this case.
Luxury brands eye secondhand market
The luxury labels are all watching the secondhand market closely, as it is growing in robustness and profitability. Many labels are considering whether to get involved in the secondhand market, where they could authenticate, refurbish, and resell genuine used products and capture some of the profit margins of secondhand resellers.
But they are reluctant to participate in the secondhand market, which would lend it credibility and might be perceived as inconsistent with their brand images if the labels cannot control the way their products and trademarks are being used. That is one of the reasons why this case is of interest to the labels.
Zach Briers is a partner at Munger, Tolles & Olson.
