Following a jury trial early this year, Chanel and What Goes Around Comes Around (“WGACA”) are in the midst of phase two, which is seeing them go back forth over equitable remedies. (You will recall that late last year, SDNY Judge Louis Stanton provided a general outline for the parties’ trial, stating that the first portion of the trial will be presented to the jury, which will be tasked with deciding “which, if any, of the claims made by Chanel [that] [WGACA] is liable [for], to be followed immediately by its award of damages and legal remedies, such as statutory damages.” Then, the jury will be excused, and the parties will present evidence related to “equitable remedies, such as disgorgement and injunctive relief” exclusively to the court.)
Chanel’s motion for permanent injunction: As was previously reported first by TFL, Chanel filed a motion for a permanent injunction in March, in which it is seeking to bar WGACA from continuing to partake in infringing activities, such as “unfairly competing” with Chanel by taking any action that is likely to cause confusion or mistake among consumers; making unauthorized use of Chanel marks “other than to identify the items being offered for sale”; advertising, offering for sale, or selling any CHANEL-branded items that have not been authorized for sale by Chanel; and making any representations regarding the genuineness of any CHANEL-branded items or its ability to make such claims without proper documentation, among other things.
> Additionally, Chanel is also requesting that the court order WGACA to take specific action, such as: (1) recalling all infringing Chanel items that it has sold to consumers or wholesalers since the start of the case back in March 2018; and (2) prominently displaying a disclaimer of affiliation and authorization on its website and on physical products, and prominently post a photograph of the CHANEL-branded item’s Chanel serial number on the WGACA webpage listing the item for sale.
WGACA’s response: WGACA has since responded to Chanel’s motion, arguing that the court should reject Chanel’s proposed motion on the basis that it is “impermissibly overbroad and overreaching,” particularly as “the evidence establishes that WGACA acted in good faith and built its reputation and success by establishing itself as a trustworthy purveyor of authentic luxury items.”
We reported on WGACA’s response at a high level here, including its allegations that Chanel is trying to use the injunction to exert control over (and stifle) the secondary market, but I wanted to delve into a few of WGACA’s arguments in a bit more depth. Among these are Chanel’s bid to: (1) require WGACA to obtain permission from Chanel before legally marketing any Chanel items; (2) require WGACA to include a disclaimer; (3) restrict WCAGA’s ability to sell refurbished items; and (4) prohibit WGACA from offering to guarantee the authenticity of its items.
(1) Permission before legally marketing any Chanel items – WGACA claims that Chanel’s proposed permanent injunction prohibits its from, among other things, “advertising, offering for sale, or selling any CHANEL-branded items without first obtaining permission from authorized personnel at Chanel or having documentary evidence that the item was first sold by Chanel.” It is “commercially untenable” to expect WGACA to obtain the original proof of purchase from every source of the items it sells, WGACA claims, noting that as a result, it would have to “seek and await permission from Chanel before being able to market any authentic product bearing the Chanel trademark.”
More than that, WGACA argues that “there is no justification for this proposed requirement which would completely undermine WGACA’s entire business and create a logistical morass forcing WGACA to regularly seek permission from a hostile actor intent on ending WGACA’s second-hand sales of Chanel all together.”
(2) Disclaimer – Chanel’s proposed injunction requests that WGACA prominently place and conspicuously feature what WGACA calls “an unnecessary and disturbingly provocative disclaimer” that states that: “WHAT GOES AROUND COMES AROUND HAS NOT BEEN AUTHORIZED BY CHANEL TO SELL THIS ITEM. THIS ITEM HAS NOT BEEN AUTHENTICATED BY CHANEL.” Pushing back against this point, WGACA claims, among other things, that “there is no legal requirement that Chanel authorize WGACA to sell an item, yet the proposed disclaimer implies and tends to mislead the public into believing that such permission is required.”
In terms of the disclosure language, namely, the part about items “not [being] authenticated by Chanel,” WGACA argues that it is untrue, as items that have previously been distributed by Chanel have, in fact, been authenticated by Chanel and deemed authentic. Suggesting otherwise would “interfere with free enterprise and WGACA’s business prospects.”
Still yet, WGACA maintains that the disclaimer that it already has on its website – which states that “WHAT GOES AROUND COMES AROUND LLC, IS NOT AN AUTHORIZED RESELLER NOR AFFILIATED WITH ANY OF THE BRANDS WE SELL” – already serves to make the public aware that “WGACA acts independently from the brand houses and itself has evaluated the items for authenticity using a proprietary process.” Since there is “no statement or implication that the item has been inspected and further authenticated by the brand houses, such as Chanel,” WGACA states that “there is thus no need for the over-the-top additional disclaimer that Chanel would impose, which would violate WGACA’s First Amendment rights by compelling speech.”
(3) WCAGA’s ability to sell refurbished items – Two sections in Chanel’s proposed injunction prohibit WGACA from: “(e) Advertising, offering for sale, or selling any CHANEL-branded items which have been materially altered or changed, including, but not limited to, items that have a combination of original and non-original Chanel parts; and (f) Advertising, offering for sale, or selling any genuine CHANEL-branded items that have been repaired, restored, or refurbished without fully disclosing the nature of the repair, restoration, or refurbishment, and the identity of the person who repaired, restored, or refurbished the item.”
Citing Hamilton Int’l Ltd. v. Vortic LLC and Champion Spark Plug Co. v. Sanders, WGACA claims that it and “any second-hand reseller has the right to sell refurbished goods, so long as the proper disclosures are made.” In the event that repairs are made, or non-original parts have been incorporated, “a reasonable disclosure that the product has been refurbished, or that non-original parts are included should be sufficient,” the reseller maintains, arguing that “there is no basis to bar the sale outright.” (For a deeper dive into the Second Circuit’s decision in Hamilton, you can find that here.)
(4) WGACA’s ability to guarantee the authenticity of its items – Finally (for us), Chanel is looking to enjoin WGACA from “certifying, guaranteeing, or otherwise making any advertising claims, representations, or statements regarding the genuineness of any CHANEL-branded items advertised or sold by WGACA or WGACA’s ability to authenticate CHANEL-branded items that are not documented, such as a receipt showing a sale of the item by Chanel or an authorized Chanel retailer or a genuine Chanel Authenticity Card.”
Angling to chip away at Chanel’s claim that when a reseller advertises that every Chanel item it sells is genuine and that every item has gone through an authentication process, “the sale of potentially infringing or counterfeit items makes this advertising claim literally false,” WGACA distinguishes the language it uses. Specifically, WGACA says that it advertises the authenticity of its goods as follows: “This item is guaranteed authentic by What Goes Around Comes Around” and further “[a]ny piece purchased at What Goes Around Comes Around or one of our retail partners has been carefully selected, inspected and is guaranteed authentic.”
This language “is not false,” according to the reseller, and in fact, it claims that it put forth evidence at trial that it “does carefully select, inspect, authenticate its products, and [thus], the jury’s verdict has no bearing on WGACA’s own guarantee of authenticity.”
With the foregoing, among other points, in mind, WGACA urges the court to deny Chanel’s request for a permanent injunction. Stay tuned. I will continue to provide updates.