By: Carson Easterling
The developing nature of the modern fashion industry, including the recent emphasis on sustainable fashion, has created a need for new legal issues to be addressed. As awareness of the waste and environmental harm caused by the fashion industry has come under fire in recent years, many consumers have turned to purchasing designer products from secondhand consignment stores, especially those operating on an online platform. One successful luxury consignment store is The RealReal.[1] The RealReal is a California-based online consignment store for luxury products.[2] The RealReal operates by accepting luxury designer property from potential sellers on a consignment basis.[3] The RealReal then takes the property through an inspection and authentication process before marketing and selling the luxury goods to potential consumers.[4]
While consumers and environmentalists have eagerly embraced luxury consignment, high-end brands, such as the iconic French-brand Chanel, have taken issue with the new market.[5] Chanel is a fashion brand now based in New York, New York.[6] The brand is known for their double “CC” monogram and other widely known trademarks that are easily recognizable throughout the world.[7] Chanel is a brand that prides itself on luxury and quality and the potential misuse of their famous trademark has raised serious concerns within the company.[8] Chanel has historically exercised an extreme amount of control over the creation, marketing, and distribution of its products.[9] Therefore, Chanel has raised legal concerns over The RealReal’s guarantee that every item advertised to consumers on the site is 100% authentic, directly threatening Chanel’s control to protect consumers from low-quality counterfeit products.
In 2018, Chanel alleged that it had uncovered at least seven counterfeit Chanel bags listed on The RealReal’s site.[10] After discovering that TheRealReal was not authenticating Chanel products as advertised, the company filed suit in U.S. District Court for the Southern District of New York alleging trademark counterfeiting and infringement, false advertising, and unfair competition under New York common law.[11] In determining that the claims should be allowed forward, the court relied on the Second Circuit’s rationale in Tiffany v. eBay[12] where the court noted “the law prohibits an advertisement that implies that all of the goods offered on a defendant’s website are genuine when in fact . . . a sizeable proportion of them are not.”[13] While it is still undetermined if the seven unauthenticated bags will satisfy the court’s interpretation of “a sizeable proportion,” the court noted that unlike eBay, The RealReal exercises substantial control over their products by taking physical possession of the items to approve their authenticity.[14] The application of the language comes as a clear warning to secondhand dealers claiming 100% authentic luxury goods. The RealReal and similar online consignment stores receive substantial benefits from taking physical possession of luxury goods and reselling them to consumers. Therefore, the companies assume the additional burden of ensuring that their products satisfy any guarantees made that their products are 100% authentic.[15] The court noted secondhand sellers may bear the potential liability of marketing, selling, and distributing counterfeit goods in the markets they’ve created.[16]
In February 2021, The RealReal was granted permission to amend their initial answer to assert counterclaims based on internal Chanel documents that recently emerged.[17] The RealReal has asserted counterclaims against Chanel alleging antitrust violations specifically “that Chanel has engaged in violations of Section 1 and 2 of the Sherman Act, anticompetitive arrangement in violation of the Donnelly Act, tortious interference with contract, and tortious interference with prospective business relations.”[18] The counterclaims were based on new information that Chanel had previously invested in another secondhand luxury consignment store, Farfetch.[19] The RealReal has alleged that Chanel has violated antitrust laws by attempting to monopolize the secondhand market through strategic investments and litigation. Specifically, The RealReal noted that Chanel has declined to pursue litigation against FarFetch for the same conduct that Chanel alleges is illegal for The RealReal. The RealReal raised these allegations after discovering that Chanel has previously invested in FarFetch and would therefore benefit from FarFetch’s success, and alternately, The RealReal’s failure, in the secondhand market. Additionally, The RealReal alleges Chanel went further in their attempts to monopolize the secondary market by using its dominant reputation to pressure popular stores, such as Neiman Marcus and Saks, to deny The RealReal advertising and retail relationships.
The current legal battle displays the full implications of attempting to integrate sustainability into the world of high fashion. The current legal battle displays the ongoing friction between traditional fashion brands dragging their feet to embrace the adaptations within the modern fashion world, and their desire to protect their consumers and guarantee the quality of their products. Internal memos from Chanel U.S.’s President and Chief Operating Officer adequately capture the company’s struggle to simultaneously “address the threats from the secondhand market while exploring the opportunities it provides.”[20] The final ruling in the current case could send a clear message to the future of sustainable fashion efforts through consignment. Both online consignment stores, as well as fashion giants, need clearer guidelines about how they may control the prestige of their brand while adapting to a secondhand market going forward.
[1] About, The RealReal, https://www.therealreal.com/about (last visited Mar. 24, 2021); Sustainability, The RealReal, https://www.therealreal.com/sustainability (last visited Mar. 24, 2021).
[2] Chanel, Inc. v. RealReal, Inc., 449 F. Supp. 3d 422, 430 (S.D.N.Y. 2020).
[3] Consignment Terms, The RealReal, https://www.therealreal.com/consignor_terms#:~:text=The%20RealReal%20markets%20and%20sells,%22)%20on%20a%20consignment%20basis (last visited Mar. 24, 2021).
[4] Id.
[5] Sharon Edelson, The RealReal Cites Antitrust Concerns in Counterclaim to Chanel Lawsuit, Forbes (Feb. 1, 2021), https://www.forbes.com/sites/sharonedelson/2021/02/01/the-realreal-cites-antitrust-concerns-in-counterclaim-to-chanel-lawsuit/?sh=20ff01967360 (“In the last three years, Chanel in the U.S. has targeted the secondhand industry with ‘three lawsuits and 15 cease and desist letters for trademark violations such as false association, false endorsement, false sponsorship, and unfair competition.’”).
[6] Chanel, 449 F.Supp.3d at 429.
[7] Id.
[8] Id.
[9] Anna Cabigiosu, An Overview of the Luxury Fashion Industry, in Digitalization in the Luxury Fashion Industry 9, 19 (2020) (“Custom-made products enhance the sense of exclusivity that a luxury product can offer. These attributes must be managed concurrently and require a consistent and coherent approach to create and maintain a luxury fashion brand positioning.”).
[10] Chanel, 449 F.Supp.3d at 433.
[11] Id. at 429.
[12] 600 F.3d 93 (2d Cir. 2010).
[13] Id. at 114.
[14] Chanel, 449 F.Supp.3d at 444; Kassidy Michel, Chanel v. The RealReal: Luxury Meets Resale, Univ. Cin. L. Rev. Blog (Dec. 14, 2020), https://uclawreview.org/2020/12/14/chanel-v-the-realreal-luxury-meets-resale/#_ftn19.
[15] Chanel and The RealReal Both Nab Wins in Latest Round of Ongoing Counterfeit Lawsuit, The Fashion Law (Mar. 31, 2020), https://www.thefashionlaw.com/chanel-the-realreal-both-nab-wins-in-latest-round-of-ongoing-counterfeit-lawsuit/.
[16] Id. (“’By adopting a business model in which [TRR] itself controls a secondary market for trademarked luxury goods, and by curating the products offered through that market and defining the terms on which customers can purchase those products, [TRR] reaps substantial benefit,’ according to Judge Broderick.”).
[17] New York Judge Greenlights The RealReal’s Antitrust Counterclaims in High-Stakes Lawsuit by Chanel, Paul Weiss (Feb. 24, 2021), https://www.paulweiss.com/practices/litigation/antitrust/news/new-york-judge-greenlights-the-realreal-s-antitrust-counterclaims-in-high-stakes-lawsuit-by-chanel?id=39456.
[18] The RealReal Files Anti-Competition Counterclaims Against Chanel in Ongoing Legal Battle, The Fashion Law (Feb. 26, 2021), https://www.thefashionlaw.com/with-court-approval-the-realreal-files-anti-competition-counterclaims-against-chanel-in-ongoing-legal-battle/.
[19] Edelson, supra note 5.
[20] Id. (“Chanel cites benefits to becoming more involved in the secondary market, including communicating directly with a client who’s purchased through secondhand, potentially capturing client data, which would allow Chanel to establish a relationship with a new client and expose the new client to the Chanel experience.”).