Chanel v. The RealReal

WHO:

Plaintiff: Chanel: luxury fashion house and

Defendant: The RealReal: marketplace for authentic luxury consignment

WHEN:

Filed: November 14th, 2018

WHERE:

U.S. District Court for the Southern District of New York

ISSUE:

Chanel sued The RealReal for trademark infringement, counterfeiting, false advertising and unfair competition

APPLICABLE LAW:

Trademark: a symbol, word or words that are legally registered or established by use, as representing a company or product.

Lanham Act: a national system of trademark registration, which protects the owners of federally registered trademarks from the use of similar marks that would be likely to result in consumer confusion or brand dilution.

First Sale Doctrine: a legal concept that limits the rights of an intellectual property owner to control the resale of products embodying its intellectual property.

CHANEL’S ALLEGATIONS:

Chanel alleges that The RealReal is selling counterfeit Chanel bags, violating Section 32 of the Lanham Act and confusing consumers who are led to believe The RealReal is affiliated with the fashion house. Chanel states that The RealReal’s “authentication experts,” as advertised on their website, are not qualified to distinguish between an authentic or counterfeit Chanel bag. Chanel alleges they have found several counterfeit bags on The RealReal’s website, citing that the serial numbers on all authentic Chanel bags do not match up. A Chanel spokesperson says the training and knowledge required to authenticate Chanel branded goods could only reside within Chanel. When consumers are led to believe “so-called experts can authenticate genuine Chanel-branded goods, it deceives them.” Chanel also cites two customer reviews on The RealReal’s website that discussed The RealReal’s alleged selling of counterfeit Chanel bags. Chanel also claims that The RealReal does not sufficiently inform its customers that the two brands are not affiliated. Chanel has asked The RealReal to stop advertising and selling bags that feature the Chanel logo and stop using the word ‘vintage’ in connection with Chanel bags that are not at least 50 years old. Chanel has also requested the court order The RealReal to notify customers who have purchased Chanel bags from their website that their bags may not be genuine.

THE REALREAL’S DEFENCE:

According to a representative for the company, The RealReal “unequivocally rejects” the lawsuit. The RealReal states that Chanel’s claims are “nothing more than an alarmingly thuggish effort to stop consumers from reselling their authentic used goods and to prevent customers from buying those goods at discounted prices.” In a letter to U.S. District Court for the Southern District of New York Judge, Gabriel Gorenstein, The RealReal claims that “Chanel’s actions are not a good faith effort to police counterfeiting but rather a targeted campaign to prevent certain competitors from operating in this specialized market.” The luxury reseller moved to dismiss Chanel’s claims, stating that every product sold is authenticated by their experts, hence making the allegations false and frivolous. The RealReal based their dismissal on Tiffany Inc. v. eBay Inc., where the court rejected direct liability claims against eBay for allowing counterfeit jewelry to be auctioned on the platform. Based on this decision, the plaintiff (Tiffany) must prove the online marketplace had knowledge of the specific listings of counterfeit goods. The RealReal’s assertion that Chanel’s suit is blocked by the First Sale Doctrine, which generally allows the resale of trademarked products after the trademark owner’s first authorized sale. The RealReal has highlighted its authentication process as a rigorous procedure designed to ensure that only genuine products are sold on its platform and prides itself on removing fake items from the market. The RealReal’s website states that the brands sold on their site are not involved in the authentication, and none of the brands sold assume any responsibility for any products purchased from the website and are not partnered with or affiliated with The RealReal.

THE OUTCOME:

The RealReal moved to dismiss Chanel’s claims, stating that “Chanel’s actions are not a good faith effort to police counterfeiting but rather a targeted campaign to prevent certain competitors from operating in this specialized market.” The court denied The RealReal’s motion to dismiss.

The court found that The RealReal’s statements, such as “we ensure that every item on The RealReal is 100% the real thing,” are “an unambiguous representation of the fact that all of the products advertised and sold by The RealReal are 100% authentic.” Judge Vernon S. Broderick also noted that The RealReal’s declaration that it “authenticates every single item sold” represents that all products are authentic, based on the standard definition of the word. Notably, The RealReal did not acknowledge the existence, or the possibility, of counterfeit products on its website or in its terms of service. Given that The RealReal offered no disclaimer anywhere, Chanel sufficiently alleged that such representations were false by citing seven examples of counterfeits that The RealReal had sold.

The court uses a 2 prong test to determine if Trademark infringement exists:

1. Does the mark merit protection? Yes, the Chanel mark does

2. Is The RealReal causing consumer confusion? The court found that Chanel makes it very clear that they do not sell second-hand items; therefore, consumers would not assume The RealReal and Chanel are affiliated. The sophisticated consumers of the fashion industry are not likely to think they are buying from Chanel when purchasing from The RealReal.

The RealReal does not use the Chanel mark in any other way than to identify Chanel products. They are not suggesting the sponsorship or endorsement of Chanel. The Judge states that The RealReal controls the trademark luxury goods by curating them, and they set the terms for while customers can purchase these goods. Since The RealReal reaps these benefits, they must also carry the corresponding burden of liability from the sale of luxury goods. Judge Vernon S. Broderick sides with The RealReal on some issues and Chanel on others.

OUR THOUGHTS:

If the Chanel goods sold by The RealReal are later found to be counterfeit and, therefore, are subject to trademark infringement, this could change the landscape for luxury resale. Even though a majority of items are authentic and go through a variety of checks by trained professionals, luxury resale companies could lose credibility and consumer trust. Consumers who bought the counterfeit goods could also sue The RealReal, further damaging business.