Is it really CH@NEL? – a comment on luxury goods on Internet

“You are in desperate need of Chanel” is what Nigel (Stanley Tucci) said in ‘The Devil wears Prada’ to Andrea (Anne Hathaway), scared of the fashion world, cocooned in a blue sweater.

Today’s world is permeated with the need to get rich, follow trends and aspire to a luxurious lifestyle. It often happens that the accessories of famous designers or even the mist of perfumes signed with their logo allows to touch the realm of the fashion universe. The Internet as, undoubtedly, the most powerful sales tool of today, allows customers who are thirsty for luxury to quickly satisfy their appetite. Popping up like mushrooms, there appear platforms where we can buy cloting sets directly from the Milan or Paris fashion catwalks. Recently there have also appeared online shops offering luxury second-hand products where you can buy clothes, accessories or jewelry of renowned brands for a much smaller amount of money.

Chanel vs. The Real Real

No one needs to be introduced to the brand founded by the Frenchwoman Gabrielle Bonheur. The fashion empire of CHANEL™ is today one of the most recognizable and sought-after luxury brands in the world, with revenues of nearly $9.62 billion in 2017[1].

The Real Real reselling platform offers second-hand clothes and accessories from this fashion house in its assortment. Chanel brought an action against the brand before the Federal Court of the State of New York, accusing the platform of, among others, infringement of trademark rights, unfair competition deeds and breach of consumer rights through sale of counterfeit products.

Prohibition for a second-hand?

The Real Real, however, assured about the originality of the goods, stressing that their authenticity is confirmed by qualified experts and that every copy considered a counterfeit is destroyed. Skeptical representatives of the fashion house add that ‘only Chanel can know how to recognize an original CHANEL™ product’[2]. Any attempt to redistribute the brand’s products will therefore be subject to the risk of selling counterfeit goods. Concluding, this risk should be eliminated by prohibiting the unauthorised distribution of luxury second-hand products.

The Federal Court of Justice did not accept this rather peculiar argument, pointing out that, while control of the sale of certain goods is possible within an exclusive distribution network which allows the selection of authorised distributors, control of the secondary market is no longer possible. In the Court’s view, the introduction of such a restriction would undermine the rights of the proprietor of the item to dispose of it, including its resale[3]. In addition, the argument that there is a risk of confusion that The Real Real gives a potential customer the impression that the distribution of Chanel’s products is authorised by the fashion house itself has also been disproved. The sales platform website contains a statement which, in its content, ensures the independence of the product authentication process from any of the brands whose products are offered on The Real Real’s website.

Sales on the Internet detrimental to the brand’s reputation?

Despite the Federal Court’s dismissal of the claim Chanel does not give up by suing further reselling platforms. It accuses them of violating trademark rights and committing acts of unfair competition against the reputation of the brand (e.g. a lawsuit against What Goes Around Comes Around). It is difficult not to agree with the arguments of the Federal Court, which focus on consumer rights and the exercise of the resale right.

On the other hand, however, the reputation of the CHANEL™ trade mark is undoubtedly an intangible asset of huge financial value and is therefore protected. The brand ensures compliance with the principles of its exclusive distribution network and seeks to combat any conduct detrimental to its reputation. The selection of network members is based on certain criteria and seeks to preserve the exclusive character of the products with the double C logo and the specific ‘aura of luxury'[4] in which they are sold.

Oh, that prestige

On the basis of European law and the jurisprudence of the CJEU, such action is consistent (under certain conditions[5]) with competition rules. The trademark proprietor is entitled to oppose further distribution of goods if it leads, among others, to their deterioration[6]. According to the case-law of the Court of Justice, such damage to the quality of goods does not mean merely a tangible physical blemish, but also a loss of prestige[7].

In this sense, it appears that the redistribution of luxury goods which still create the reputation of a given brand, should be carried out with great care.  In the event of a dispute, the court will have to weigh up, on one hand, the principle of exhaustion of the trademark right and ownership of a legally purchased product and, on the other hand,  protection of the brand reputation. Maintaining the luxurious character of these goods is of key importance here.

The fight continues

It seems that the conflict between Chanel fashion house and The Real Real Internet platform is another manifestation of the struggle to preserve the reputation developed over many years. Nowadays, thanks to, among others, the Internet, maintaining the prestige and quality of products, despite the huge financial outlays, is an even greater challenge, but is undoubtedly worth the efforts. Today’s consumer is hungry for luxury goods, and more and more entities want to satiate this appetite, at least to a small extent.

[1] https://businessinsider.com.pl/firmy/sprzedaz/wyniki-finansowe-chanel-w-2017-roku/z2yh6z7

[2] https://fashionweekdaily.com/the-real-real-chanel-lawsuit/

[3] Judgment of the Federal Court of New York, ref. 1:18-cv-10626-VSB, dated 10.01.19 Chanel vs The Real Real

[4] Definition used by the CJEU in case C-59/08 of 23 April 2009, Copad SA vs. Chrisitan Dior Couture SA.

[5] A product, because of its luxurious nature, necessarily requires selective distribution in order to preserve its quality or ensure proper use. Moreover, distributors are selected on the basis of objective criteria of a qualitative nature. Thirdly, the criteria applied must satisfy the condition of proportionality. – M. Marek ‘Excluding selective distribution from the prohibition of restrictive agreements’, Internet Antitrust and Regulatory Quarterly 2016, no. 7(5).

[6] Article 15(2) of Regulation 2017/1001 of the European Parliament and (EU) Council from 14 June 2017.

[7] Judgment of the CJEU, Case C-59/08 of 23 April 2009, Copad SA v Chrisitan Dior Couture SA. Point 26.