Today's post is about the second of five US trademark cases that I will be discussing as part of a Case Law wrap-up for 2024. Stay tuned for the others as well.
Chanel Incorporated v What Goes Around Comes Around LLC, focused on fair use in trademark.
Chanel is a well-known luxury fashion brand that was started in 1909. Its trademarks date back to 1956. What Goes Around Comes Around ("WGACA") runs a large secondary market website for luxury goods. WGACA attempted to enter into an agreement with Chanel, but Chanel is notorious for not permitting sales on the secondary market.
Chanel has a sophisticated manufacturing process and inventory system which includes highly guarded serial numbers (e.g., a database with unique numbers matched to exacting details of corresponding products).
In 2012, some Chanel serial numbers were stolen from an Italian factory.
WGACA prides itself as having the largest collection of vintage Chanel and lists "This item is guaranteed authentic" in its advertising of Chanel bags. In 2015, Chanel let WGACA know that they had a counterfeit bag listed on their site, based on the serial number listed. WGACA denied that the bag was counterfeit, implying that the number had a typo in it, and sold the bag anyway.
In 2018, Chanel sued WGACA in the Southern District of New York (SDNT) for trademark infringement, false advertising, false association and claims under New York business law, deceptive and unfair trade practices, and false advertising. WGACA also raised issues in cross motions for summary judgment.
The District Court narrowed the case to false association and infringement and applied the polaroid factors and nominal fair use (NFU) factors.
The Polaroid factors include: 1) the strength of the mark, 2) the similarity of marks, 3) the proximity and competitiveness of the goods, 4) whether the senior user can “bridge the gap”, 5) actual confusion, 6) bad faith, 7) the quality of both products, and 8) the sophistication of consumers.
The NFU factors include: 1) is the Use necessary, 2) is the Use only as much as needed, and 3) is there inferred sponsorship. The court's decision hinged on the NFU factor 2. The court found, for example, that WGACA used Chanel marks in its URLs, as wallpaper, it used Chanel logos, Chanel fonts, it referred to 100% authenticity and included authenticity cards with purchases, and even celebrated Coco Chanel’s birthday with a sale on Chanel products.
The court determined that WGACA used more than needed, sold non-genuine goods and used stolen serial numbers. The court outlined four types of non-genuine goods sold by WGACA. There were 1) void serial numbers, 2) point of sale items, 3) voided numbers (stolen) -counterfeit, and 4) pirated serial numbers (where the serial # listed doesn’t match the bag).
Six years after the case started, there was a unanimous verdict in favor of Chanel. Chanel was awarded $4 million in statutory damages and further damages yet to be assessed.
This case outlines the importance of policing your mark. Because Chanel pays close attention to the quality of its products and monitors potentially infringing use by others, it was able to address a situation that could have eroded their brand due to selling knock-off, inferior bags.
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