Fashion

Luxury Fashion Resale: Legal Considerations And Challenges

The impact of counterfeits on the luxury fashion resale industry.

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Street Style – Paris Fashion Week – Womenswear Fall Winter 2023 2024 : Day Nine

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The dramatic growth of the secondhand apparel market in the past few years has captivated fashion enthusiasts and investors. The big brands are also paying attention, some even finding their own opportunities in this surging playing field.  But whenever a business model depends on the use of others’ branded goods, there’s a balance between the first sale doctrine and the material modifications that can spell lawsuit. Resellers must also pay careful attention to determining the authenticity of secondhand apparel before advertising it as such, to avoid inadvertently selling counterfeit merchandise.

This surge in the resale market has been fueled by increasing awareness and concern for sustainability, coupled with consumer’s increasing desire for affordable yet quality apparel and classic fashion. In response to consumer demands, more retailers and brands are entering into the resale market, contributing to its estimated global market value of $119 billion in 2022. Online reselling platforms such as Poshmark, the The RealReal, and Vestiaire Collective, have played a significant role in this rise, offering authentication services and making it convenient for consumers to find high street and luxury apparel of their choice at attractive prices.

Many luxury brands such as Gucci, Rolex, and Burberry have been eager to embrace the trend and capitalize on the success of the resale industry, leading them to partner with existing resale platforms and even create their own curated platforms dedicated to their brand. However, other brands, such as Chanel, have taken a different approach. Some of these giants have sued to enjoin what they perceive as a threat to their brand. Suits have claimed trademark infringement and dilution, false advertising, unfair competition, and false advertising.

As a general practice, the reselling of authentic, legally acquired goods is allowed under the common law first sale doctrine. The first sale doctrine provides that a once a trademark owner sells or distributes his or her product, the owner no longer has the right to control further distribution or resale of that specific item. However, the first sale doctrine may not provide a safe harbor if the reseller “materially” alters the branded goods of another.  While there’s no bright-line definition of material alteration that places a reseller in the danger zone, the courts consider whether use of the plaintiff’s trademark on the resold goods is likely to cause consumers to be confused and perceive a relationship between the plaintiff and the reseller.  

In March 2018, Chanel filed suit against luxury reseller What Goes Around Comes Around (“WGACA”) claiming that WGACA “has attempted to deceive consumers into falsely believing that Defendant WGACA has some kind of approval of or relationship or affiliation with Chanel or that Chanel has authenticated WGACA’s goods in order to trade off of Chanel’s brand and good will.” The court granted partial summary judgment as to Chanel’s claims involving non-genuine counterfeited bags or genuine bags that were never authorized for sale but were instead loaned to retailers for display only. The court held that because “Chanel has established that it did not authorize the initial sale of these goods, they ‘cannot be considered genuine as a matter of law and infringement is established,’” even though the goods have been authorized for manufacture and meet Chanel’s quality requirements. The case between Chanel and WGACA is still ongoing.

In November 2018, Chanel filed a similar lawsuit against luxury reseller The RealReal where it argued that The RealReal engaged in infringement, counterfeiting, false advertisement, and unfair competition by “claim[ing] to be offering for sale of ‘100% authentic’ Chanel-branded products, when, in fact, some of the goods are counterfeit Chanel products” and “deceiv[ing] consumers that there is an affiliation, sponsorship and/or association between Chanel and The RealReal when there is not.” Chanel pointed to “at least seven (7) counterfeit Chanel handbags” sold by The RealReal. The RealReal filed counterclaims arguing, among other things, that Chanel has engaged in “anticompetitive conduct” under the Sherman Act. Specifically, The RealReal claimed that “Chanel has attempted to monopolize the Relevant Market,” and “use[] its power to inhibit the growth of or eliminate entirely other competitors in the Relevant Market.”

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In support of its anticompetitive counterclaims against Chanel, The RealReal points to Chanel’s failure to bring similar claims against Farfetch, a luxury resale platform comparable to The RealReal and WGACA. Chanel asserts that its dispute with The RealReal and WGACA centers around their insufficient authentication processeses. In contrast, Chanel has an ownership interest in Farfetch and exerts control over Farfetch’s authentication of Chanel goods.

While the dispute between Chanel and The RealReal is ongoing, The RealReal has removed its “100% Authentic” warranty from its website and instead provides customers with a more nuanced assurance of product authenticity by describing its “rigorous, brand-specific authentication process.” However, as The RealReal scaled inventory and laid off employees in an attempt to boost profitability following its IPO, there have been increasing concerns from consumers regarding The RealReal’s ability to authenticate items.

In addition to engaging solely in the resale of pre-owned apparel, there is a growing emergence of companies that specialize in upcycling and repurposing vintage apparel. One such company, Shiver + Duke, sources Chanel buttons and transforms them into unique pieces of jewelry. Chanel filed suit against Shiver + Duke claiming that the upcycling of Chanel items is likely to “cause confusion or to cause mistake or to deceive Defendants’ customers or potential consumers and the public as to the source or sponsorship of Defendants’ goods,” and “is likely to dilute Chanel’s famous marks by impairing their distinctiveness.” The two parties reached a settlement in November 2022. While the terms of the settlement remain undisclosed, the removal of all Chanel branded jewelry from Shiver + Duke’s website indicates that Chanel had the upper hand.

The cases discussed above raise numerous questions for resale platforms: How do resellers ensure that counterfeit or unauthorized products do not make their way onto their platforms? Should resale platforms have the brands themselves authenticate products? Or should they provide disclaimers to ensure that customers are aware that the platforms are not affiliated, endorsed, or sponsored by the brands? What are the parameters for resellers who want to upcycle secondhand apparel? It is imperative for resale platforms to take substantial measures to ensure authenticity while remaining transparent and providing clear disclaimers of affiliations with brands.

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BE019E9B-6BAD-4806-AC86-25E8632E65B0Nicolette Shamsian joined Above the Law as a fashion law columnist in 2023. Nicolette earned her B.A., summa cum laude, in Political Science and minor in Entrepreneurship from the University of California, Los Angeles and her Juris Doctor from UCLA School of Law. Nicolette is currently an associate in the Litigation group at Irell & Manella. Nicolette’s work at Irell focuses on intellectual property litigation. As Irell’s resident fashion law aficionado, Nicolette enjoys leading discussions to keep attorneys in the firm up to date on noteworthy fashion law cases.

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