Entities and individuals have been reselling used clothing, jewelry, handbags, and shoes for decades in the form of thrift shops, consignment stores, flea markets, and garage sales. See Renae Reints, "The Resale Market Is Taking Over Fast Fashion, Report Says," Fortune (March 19, 2019). Currently, consignment, secondhand outlets, and online secondary resellers of luxury goods are big business with entities such as TheRealReal (TRR), thredUP, What Goes Around Comes Around (WGACA), Vestiaire Collective, Tradesy, Re Bag, eBay, and others providing online and sometimes in-store sales of luxury goods. Consumers can purchase high-ticket items such as Chanel, Hermes, Celine, Rolex and more. Some entities even provide assurances of authenticity such as TRR and WGACA. See "What is your authentication process?" The Real Real (Dec. 21, 2018).

Unfortunately, not all products sold are genuine, and brand owners cannot control the secondary market sales of their products. Some fashion houses welcome these booming businesses to perpetuate their brand recognition; however, others are not pleased and believe that the sale of their branded items with the assurance that they are "authentic" runs afoul of their intellectual property and business rights.

Fashion houses thrive on their creativity, and the power and goodwill of their brands. To protect this brand equity, many invest large sums in obtaining and protecting their intellectual property rights. A fashion house's intellectual property can serve as an important tool to stop others from degrading their marketplace exclusivity; however, they must constantly police their rights in order to maintain them and uphold the value of their brand and exclusivity of products.

Intellectual Property Rights Implicated in Fashion Resale

Recent lawsuits demonstrate efforts of fashion brands to enforce their rights against popular reseller outlets and highlight the intellectual property rights involved.

Civil claims may involve trademark issues such as direct infringement, contributory infringement, counterfeiting, false endorsement/unfair competition, and dilution. Regarding direct infringement, the Lanham Act prohibits using "any reproduction, counterfeit, copy, or colorable imitation of a registered mark" in commerce "in connection with the sale of goods with which such use is likely to cause confusion, mistake or deceive," and entities doing so shall be liable in a civil action. See 15 U.S.C. §1114(a).

Contributory infringement is a construct devised by the Supreme Court wherein one can be liable for "[intentionally] inducing another to infringe a trademark, or [continuing] to supply its product to one whom it knows or has reason to know is engaging in trademark infringement." See Inwood Laboratories v. Ives Laboratories, 456 U.S. 844 (1982).

In order to prove trademark dilution, rights owners must establish that their mark is famous and the third-party use of the mark causes dilution by blurring or tarnishment. See 15 U.S.C. 1125(c). Dilution by blurring arises from the similarity between a mark and a famous mark that impairs the distinctiveness of the famous mark. See 15 U.S.C. 1125(c)(2)(B). Dilution by tarnishment arises from the similarity between a mark and a famous mark that harms the reputation of the famous mark. See 15 U.S.C. 1125(c)(2)(C).

In addition, claims for unfair competition and false endorsement can be brought under the Lanham Act §43(a) and applicable state laws. See 15 U.S.C. 1125(a). Rights owners must prove that the mark has been used in commerce or is the subject of "any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which is likely to cause confusion, … or deceive as to the affiliation, connection, or association of such person with another person or as to the origin, sponsorship or approval of his or her goods, or in commercial activities … advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities." See id.

Last, if the "resale" of goods involves knockoff or counterfeit goods, and the item is protected by a design patent (i.e., a shoe or handbag design) the brand owner may bring a claim for design patent infringement if an ordinary observer would think the design is substantially the same as the patented design. See 35 U.S.C. §271, Egyptian Goddess v. Swisa, 543 F.3d 665 (Fed. Cir. 2008). If the knockoff is a copyright protected jewelry design (i.e., a unique and non-functional jewelry design), the brand owner may bring an action for copyright infringement of any knockoff jewelry that bears a substantial similarity to the copyrighted brand product. See 17 U.S.C. §501, Van Cleef & Arpels Logistics, SA v. Jewelry, 547 F. Supp. 2d 356 (S.D.N.Y. 2008).

Relevant Cases

In Tiffany v. eBay, 600 F.3d 93 (2d Cir. 2010), Tiffany sought to stop eBay from reselling its Tiffany-branded jewelry. Tiffany's claims were based upon its position that eBay could reasonably anticipate that any listing for Tiffany merchandise in quantities of five or more was for counterfeit products in view of Tiffany's rigid distribution channels. Ultimately, the courts ruled in eBay's favor, finding it not liable for contributory trademark infringement of the sale of counterfeit Tiffany goods, trademark dilution, and false advertising because it did not use Tiffany's marks more than necessary to identify the item, did not take steps to suggest that it was sponsoring or endorsing the listings, and merely provided a service similar to a swap meet or flea market as a venue for listings created and posted by third parties.

In a more recent case, Chanel brought an action against WGACA on the basis of trademark infringement, counterfeiting, and false endorsement. Chanel v. What Goes Around Comes Around, 1:18-cv-02253 (S.D.N.Y.). As of the time of this article, the case is pending. Chanel claims that WGACA sells counterfeit goods and takes steps "to deceive consumers into falsely believing [that it] 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." It cites to WGACA's marketing efforts that use Chanel's trademarks on its websites and social media accounts wherein it posts "images and content exclusively associated with Chanel" and sales of unauthorized goods. WGACA denies these claims and asserts that it employs its own authenticators or engages third parties to authenticate, and does not sell counterfeit Chanel products.

Similarly, Chanel brought another action against TRR on the basis of trademark infringement, counterfeiting, and false endorsement in connection with the alleged sale of counterfeit Chanel branded handbags. See Chanel v. TheRealReal, Case No. 1:18-CV-1026-VSB (S.D.N.Y.). This matter is still pending. Similar to WGACA, TRR claims that it authenticates its products and Chanel failed to adequately allege trademark infringement because its use is nominative fair use, the Polaroid factors used to ascertain a likelihood of consumer confusion in the Second Circuit weigh in favor of TRR and the first sale rule bars the claim. TRR refutes Chanel's false advertising claims alleging that its advertising does not imply any connection to Chanel, Chanel fails to allege that TRR's advertising is literally false, and fails to allege any injury. TRR denies Chanel's state law claims too.

The WGACA and TRR cases can be distinguished from Tiffany because WGACA and TRR do not provide a platform for third parties to directly sell products, rather, they accept and list all products on a consignment basis or purchase the items outright from a third party for resale on their own site.

Recommendations for Fashion Brands and Resellers

Intellectual property can be a powerful tool to protect brand resources. Fashion brands can invest in protecting their brand names, logos, and product names and even non-functional trade dress by seeking and maintaining trademark registrations in all countries in which products bearing the names and logos, or unique trade dress are sold. Also, copyright protection in the United States can be sought on images of the products that are published in marketing materials and websites. Further, copyright protection in jewelry designs that are unique and non-functional may be available. Last, fashion brands may seek U.S. design patent protection on any unique, non-functional shoe designs and accessories such as handbags, small leather goods, and eyewear. Investing in intellectual property rights and enforcement, although costly, can be offset by the value in the brand and the sale of genuine products.

Also, in view of the ruling in Tiffany, brand owners will need to make a considerable investment in time and money to submit individual complaints on reseller platform sites like eBay or Etsy or social media sites such as Instagram and Facebook. For example, eBay maintains a Verified Rights Owner (VeRO) program in which rights owners may contact eBay to report any listing they believe in good faith is offering infringing products. Upon notice, eBay will take steps to remove the listings, and did so for over three hundred Tiffany listings.

Resellers can protect their reputations by taking great care to avoid selling counterfeit items. Advertisements of goods shall be posted using their own imagery and shall use the marks only as necessary to identify an item. Also, any advertising should not suggest that a brand is sponsoring or endorsing sales. Further, resellers may want to invest in their own trademark protection on their brand name and copyright protection of images of products created.

Kristin B. Kosinski is an attorney at Cislo & Thomas.