The new war against the counterfeiting of second-hand luxury goods on the Internet.

Monday, 24 of July of 2023

In recent years, the market for buying and selling second-hand luxury goods has experienced exponential growth. Changes in consumer habits, concern for the environment and the new generations' taste for vintage have driven this new purchasing model. In Spain, mobile apps such as Vinted or Vestiaire Collective are already part of the daily life of fashion lovers.

However, the rise of the resale market has caused the sale of fakes to skyrocket. This new scenario encourages products of illicit origin to be marketed quickly and without rigorous authenticity control. This is a new challenge for fashion companies and for the protection of industrial and intellectual property rights.

First of all, and in general terms, we must point out that the resale of legally acquired articles is lawful and has a clear legal basis: the exhaustion of trademark rights. As is well known, article 34 of the Trademark Law 1/2001 ("LM"), grants the owner of a trademark the power to prohibit a third party from using the same or a similar sign in the market without its consent. However, the moment the owner markets for the first time in the European Economic Area a product incorporating its trademark, he will not be able to prohibit third parties from reselling such product nor control its subsequent distribution, i.e., the trademark right is "exhausted". This is established by Art. 36 LM and its correlative Art. 15 of Regulation 2017/1001 of June 14, 2017, on the European Union trademark.

Well, currently this new purchasing model is mainly articulated through online platforms that act as intermediaries, where consumers, or stores, can buy, sell, and exchange second-hand items. This further enhances the rise of counterfeiting, since the use of these platforms is conditional on the registration of a profile under a fictitious name, which makes it difficult for exclusive rights holders to discover the identity of infringers.

In turn, and in accordance with art. 17 of Law 34/2022 of the Information Society Services and Electronic Commerce ("LSSI"), marketplaces are not liable for the commission of unlawful acts arising from the content they host, except when they have actual knowledge that an infringement is taking place. Consequently, platforms such as Vinted or Depop will only be legally liable for the sale of counterfeits, i.e., for acts of trademark infringement (Art. 34 LM) or industrial design infringement (Art. 45 of Law 20/2003 on Industrial Design) when they have actual knowledge of such unlawful acts. Consequently, right holders may be helpless in cases where the online platform does not comply with formal requirements without achieving the effective knowledge required by Art. 17 LSSI, and at the same time, the identity of the seller of the counterfeits is hidden under a fictitious nickname.

In these cases, the figure of the preliminary proceedings -art. 256 of Law 1/2000, of January 7, of Civil Procedure ("LEC")- becomes essential, since it allows to request the marketplace to provide the necessary data about the potential infringer in order to initiate the relevant legal actions before the Courts.

At the international level, the central player of this issue before the courts is the luxury clothing and accessories brand CHANEL®, as it is the plaintiff in two of the most relevant ongoing proceedings against two of the most famous resale marketplaces in America, TheRealReal and What Goes Around Comes Around ("WGACA").

Thus, in March 2018, CHANEL® filed a suit against WGACA for acts of trademark infringement through the sale of counterfeit goods and for the introduction into commerce of items that, although manufactured by the plaintiff, had not been authorized for sale; as well as for misleading advertising and unfair competition on the grounds that WGACA had taken advantage of the maison's reputation to grow its business and create the perception among consumers that the two companies were associated.

On a preliminary basis, the New York District Court granted in part and summarily some of CHANEL®'s claims and concluded that the first sale doctrine (U.S. equivalent of trademark exhaustion) did not apply to the case, since WGACA had offered for sale for the first time articles that, although manufactured by Chanel, had never been authorized for sale, which amounted to trademark infringement.

The second of the lawsuits filed by CHANEL® in the New York District Court in 2018 was against TheRealReal, which also brought actions for, among others, trademark infringement arising from the sale of counterfeits, and for misleading advertising by the defendant claiming that the products marketed were authentic. What is interesting about this case, and which adds a different dimension to the controversy, is that TheRealReal filed a counterclaim against Chanel for acts of violation of state and federal antitrust laws by considering that its conducts are part of a market elimination strategy of the resale business model.

In view of the foregoing, we can conclude that the growing luxury resale market has generated a scenario prone to the sale of counterfeit or illicitly sourced products, which requires the creation of legal solutions and responses adapted to this context and to the particularities of the fashion industry.