The RealReal and Chanel have each scored a few wins in the highly-watched trademark-centric lawsuit
that the famous French brand waged against the resale giant for
allegedly selling counterfeit goods, and using the Chanel name to
“deceive consumers into falsely believing that [it] has some kind of
approval from or an association or affiliation with Chanel [when it
doesn’t] or that all CHANEL-branded goods sold by The RealReal (“TRR”)
are authentic.” In response to the motion to dismiss that the San
Francisco-based resale site filed last year, a New York federal court
has agreed to toss out a number of Chanel’s claims, while enabling three
to remain intact.
On Monday, Judge Vernon Broderick of the U.S. District Court for the
Southern District of New York granted TRR’s motion to dismiss in part,
agreeing to toss out Chanel’s claims of trademark infringement, and
false endorsement and unfair competition, as well as the Paris-based
brand’s claims under New York State General Business Law on that basis
that TRR’s “use of Chanel’s genuine trademarks is not likely to cause
customer confusion, and because Chanel has not adequately alleged injury
to the public at large.”
At the same time, the judge refused to dismiss Chanel’s trademark
counterfeiting/infringement and false advertising claims, and similarly
kept its common law unfair competition claim in play, as well because
Chanel “adequately alleges that TRR marketed and sold counterfeit Chanel
products, and because [TRR’s] advertising regarding the authenticity of
the products it sells is literally false.”
In the recently-released opinion and order, Judge Broderick looks
first to Chanel’s claims of trademark infringement, false endorsement
and unfair competition, which he says Chanel “does not plausibly allege …
based on [TTR’s] use of genuine Chanel trademarks” in connection with
its sale of authentic Chanel products, as the Lanham Act – the federal
statute that governs trademarks and unfair competition – “does not
prevent one who trades a branded product from accurately describing it
by its brand name, so long as the trader does not create confusion by
implying an affiliation with the owner of the product.”
Here, Judge Broderick asserts that Chanel fails to successfully make
its claims because it is “highly unlikely that a customer buying a
secondhand Chanel product from [TRR]—which unambiguously holds itself
out as consignment retailer in a luxury market— would confuse the nature
of [TRR’s] business, the source of its products, or its affiliation—or
lack thereof—with Chanel.”
To be exact, the judge points to the following factors as examples of
why consumers are not likely to be confused about the source of the
goods in question or be misled into believing there is an affiliation
between TRR and Chanel given TRR’s use of Chanel’s trademarks: 1)
“Chanel’s trademarks are incredibly well-known, recognizable, and
prevalent in the luxury fashion market;” 2) “As Chanel makes clear in
[its complaint], [it] does not sell secondhand or vintage Chanel goods,
and in that sense, [TRR] does not directly compete with Chanel;” 3)
“Chanel has identified no evidence of actual customer confusion, or that
[TRR] has adopted the genuine Chanel trademarks in bad faith;” and 4)
“the luxury fashion market is a relatively sophisticated market that …
commands top-dollar prices.”
The judge similarly states that “Chanel has not plausibly alleged
facts suggesting that [TRR] ‘stepped over the line into a likelihood of
confusion by using [Chanel’s] mark[s] too prominently or too often, in
terms of size, emphasis, or repetition,” and thereby, diminishing the
merits of a nominative fair use defense. “Chanel has identified no facts
suggesting that The RealReal displays Chanel-branded goods ‘more
prominently than other luxury-brand goods,’” Broderick asserts, and “has
offered no non-conclusory allegations to suggest that [TRR]
inaccurately depicts its relationship with Chanel or Chanel’s products
and services.”
This is particularly true, according to the court, given the
disclosure on TRR’s website that “[b]rands identified on [its website]
are not involved in the authentication of the products being sold, and
none of the brands sold assumes any responsibility for any products
purchased from or through the website,” and that “[b]rands sold on the
[website] are not partnered or affiliated with [TRR] in any manner.”
With those claims out of the way, Judge Broderick states that Chanel
does, in fact, “plead sufficient facts to plausibly allege a cause of
action for trademark infringement based on [TRR’s] advertisement and
sale of counterfeit Chanel products.” And while the resale site is
“involved neither in the manufacture nor the affixing of [Chanel’s]
trademark to [any counterfeits], its sale of the [counterfeits] [is]
sufficient ‘use’ for it to be liable for the results of such
infringement,” Broderick declares, due to the nature of its model.
As distinct from the Second Circuit’s finding in Tiffany Inc. v. eBay Inc.,
in which eBay was let off the hook for the counterfeits sold on its
site, Judge Broderick says that TRR may be liable for infringement in
connection with the sale of allegedly counterfeit goods because it
“retains the power to reject for sale, set prices, and create marketing
for goods, and unlike eBay is more than a platform for the sale of goods
by vendors.”
“By adopting a business model in which [TRR] itself controls a
secondary market for trademarked luxury goods, and by curating the
products offered through that market and defining the terms on which
customers can purchase those products, [TRR] reaps substantial benefit,”
according to Judge Broderick. “As a result of this business model,
[TRR] must bear the corresponding burden of the potential liability
stemming from its ‘sale, offering for sale, distribution, [and]
advertising of’ the goods in the market it has created.”
In terms of the alleged counterfeits sold by TRR, the court states
that “Chanel has adequately averred that its own investigation revealed
that [TRR] marketed and sold counterfeit Chanel products, and Chanel has
also alleged that [TRR’s] own customers have complained about the
receipt of counterfeit merchandise,” which is “sufficient to plausibly
allege that [TRR] directly infringed Chanel’s trademark.”
Finally, as for Chanel’s false advertising claim, the court sides
with the “iconic” fashion brand, determining that TRR’s “advertisements
regarding the authenticity of the products it sells, considered in
context, are literally false.” For instance, TRR’s statement that
it “ensures that every item on [its site] is 100% the real thing” is an
“unambiguous representation of fact,” per Broderick, which stands in
contrast with “Chanel’s allegations that certain products advertised and
sold by [TRR] are counterfeit.” As such, this “suffices to establish a
plausible allegation of literal false advertising based on [TRR’s]
representation that all the products it offers have been authenticated
and are 100% the real thing,” thereby, enabling Chanel’s claim to move
ahead along with Chanel’s unfair competition and
counterfeiting/trademark infringement claims.
Chanel made headlines when it first filed suit against The RealReal in November 2018,
accusing the popular resale site of “selling counterfeit CHANEL
handbags,” despite its claims that it “ensure[s] that every item on[its
site] is 100% the real thing.” The fashion brand went on to claim that
while “there is no nor has there ever been any approval by or
association or affiliation between Chanel and The RealReal …. the
RealReal understands that the value of its CHANEL-branded inventory and
attraction for consumers is enhanced if consumers believe that Chanel
has a business relationship or affiliation with The RealReal.”
From the outset, The RealReal has vehemently denied Chanel’s claims,
characterizing the brand’s suit as “nothing more than a thinly-veiled
effort to stop consumers from reselling their authentic used goods, and
to prevent customers from buying those goods at discounted prices.”
oa here
Tucked
away in the bowels of the Brooklyn Army Terminal is a 4,000-square-foot
warehouse filled from wall to wall and floor to ceiling with garbage
bags. They contain castoffs from New York’s fashion studios: mock-up
pockets ripped from sample jeans, swatches in next season’s paisley
print.
There is denim
here in every wash, spandex in every hue. Dig through one bag and it is
possible to find a little rug of carmine-colored fur and yards of gray
pinstripe wool suiting. In another, embroidered patches from GapKids and
spools of ribbon in velvet and lace.
Nearly
6,000 pounds of textile scraps arrive each week to be inspected, sorted
and recycled by five staffers and many more volunteers at FabScrap, the
nonprofit behind this operation. Since 2016, it has helped New York’s
fashion studios recycle their design-room discards — the mutilated
garments, dead-stock rolls and swatches that designers use to pick
materials and assess prototypes.
So
far, the organization has collected close to half a million pounds of
fabric from the design studios of large retailers like Express, J. Crew
and Marc Jacobs and independent clothiers in New York, New Jersey and
Connecticut. Their discards have been shredded and recycled into
stuffing and insulation or resold to fashion students, educators and
artists.
“So
much waste gets created in the design process,” said Jessica Schreiber,
the executive director of FabScrap. “But it’s the tip of the iceberg.”
As climate change has accelerated,
corporations of all kinds have become increasingly preoccupied with
their sustainability cred. Four-fifths of consumers feel strongly that
companies should implement programs to improve the environment,
according to a recent Nielsen study.
Clothing
companies in particular have faced pressure to change, from
politicians, protesters at fashion shows and shoppers of all ages who
want to reduce their carbon footprints. The fashion industry is often erroneously cited as the second-most polluting business in the world, but overproduction, chemical use, carbon emissions and waste are certainly issues it contends with.
Ms.
Schreiber understood early the angst that waste was causing designers.
In 2014, she was overseeing the Department of Sanitation’s refashionNYC
program, which collects old clothing and textiles at farmers’ markets
and in participating apartment buildings.
She
received a string of similar calls from brands including J. Crew,
Eileen Fisher, Express, Mara Hoffman and Marc Jacobs. The companies were
sitting on piles of seasonal prints and swatches that couldn’t be
donated but shouldn’t be thrown out.
“It
really hit a nerve with people,” Ms. Schreiber said. Half of the
designers had resorted to hoarding scraps under their desks as they
tried — and failed — to find places to give them away. “There was a lot
of guilt,” she said, and no clear path.
Spinning a Sustainable Yarn
For
a designer, cutting down on waste isn’t as simple as recycling a few
bags of fabric every week. It requires overhauling the brand’s business
model: forgoing seasonal collections; eschewing — or being rejected by —
traditional retailers that accept only large orders and standard
packaging; selling directly to consumers; and getting design teams to
think about the sustainability and supply chain of each material and
garment.
Dana
Davis, the vice president of sustainability at Mara Hoffman and an
early FabScrap adopter, remembered feeling anxious about how the company
could better deal with waste. “It just felt burdensome,” she said. But
after a conversation with Ms. Hoffman, the designer, it became clear to
them that change was necessary.
The
company began shipping swimwear in compostable bags and made long-term
commitments to the materials it purchased. To cut excess inventory, the
brand moved away from the fashion cycle and the industry norm of placing
orders on projection.
There
are still challenges — like making sure consumers and retailers
actually compost the bags — but other brands are getting on board with
changes at the design, manufacturing and distributional levels.
It’s
hard to pinpoint how much waste is created before a garment even
reaches the consumer. Factory waste is not tracked by outside agencies.
Supply chains are now so complex and reliant on remote contractors and
subcontractors that the companies can’t account for all the materials.
Even
if a brand wanted to find out how much fabric waste it created, “it
would be very difficult for them to research that, because different
factories might have different processes,” said Timo Rissanen, an
associate professor of sustainability at Parsons School of Design.
Wendy
Waugh, the senior vice president of sustainability at Theory and a
FabScrap client, knew that determining the brand’s total waste would be a
challenge. The company works with many different fibers, which are
sourced from all over the world. The company’s “Good Wool,” for
instances, comes from a farm in Tasmania, and is scoured, spun and dyed
at a mill in Italy before it is warehoused and sold around the world.
After
a fiber is harvested and spun, it is sent to a factory where it is cut,
dyed and trimmed. Reverse Resources, a software company that works with
major apparel factories in Bangladesh and Sri Lanka, found that 20
percent of the fabric used in the cut-make-trim phase is ultimately
thrown out.
Linda
Greer, the founder of the Clean by Design program and a former
toxicologist at the N.R.D.C., has advised many garment and dyeing
factories in China. She said that brands frequently reject fabrics
because they don’t match the desired shade exactly.
“I’ve
seen so many ‘weeping piles’ of miscolored fabric,” Ms. Greer said.
“Sometimes they can touch it up. And sometimes they throw it away.”
Once
a garment is complete, it can present another problem: excess
inventory. In some cases those garments are incinerated, which prevents
them from being resold at a discount, Mr. Rinassen said.
Last year, Burberry burned $37 million of clothing and cosmetics to maintain “brand value.” The previous year, H&M came under scrutiny after it was reported to have incinerated 60 tons of unsold merchandise.
Stephanie
Benedetto founded Queen of Raw, an online marketplace for dead-stock
fabrics and a FabScrap partner, after seeing how much manufactured
material was sitting in warehouses ($120 billion worth, by her
estimate). At that volume, she said, waste isn’t just environmentally
irresponsible — it’s “a C.F.O. issue.”
Apparently,
also, a marketing issue. Fashion companies have been quick to invest in
environmentally friendly marketing. There have been capsule collections
derived from natural fibers like orange pulp (Salvatore Ferragamo),
pineapple leaves (H&M), grape skin (& Other Stories) and
mushrooms (Stella McCartney), and a wide selection of recycled polyester
made from fishing nets (Burberry) and beach-strewn plastic bottles
(Adidas).
These usually amount to little more than P.R. gambits and short-term fixes.
Samantha
MacBride, an assistant professor at Baruch College and a waste
management professional, said that the ideas big brands implement often
reflect a lack of understanding about waste management.
The
way to minimize trash, she said, isn’t by devising a green marketing
strategy or using new technological fixes. “The key is to produce less,”
she said.
Sorting Through Scraps
Standing on the FabScrap floor, it is impossible not to feel overwhelmed by the enormous pile of trash.
Ms.
Schreiber noted that the bags in the facility were “almost irrelevant
in the scheme of what is probably generated.” None of the overstocked
garments languishing in company warehouses are here. Nor are the huge
quantities of fabric that are tossed from the factory floor.
Beneath
the heap, seven volunteers slowly and manually sorted by material every
scrap that came in. They inspected and removed labels and rubbed the
fabric between their fingers. It could not have been further from the
mechanized processes at a recycling plant, which employ feats of
engineering — eddy currents, magnets and near-infrared scanners — to
identify and categorize various types of metals, plastic and paper.
There
is no technology in use that can detect the differences between, say,
spandex and wool. “The infrastructure is lacking,” Ms. Schreiber said.
“Like the fact that the sorting still all happens by hand is bonkers.”
The
recycling processes are similarly decades behind. Today, there are a
number of companies, like Evrnu and WornAgain, that are just beginning
to recycle fibers, a process that involves shredding and dissolving the
fibers into a pulp that can be respun into a new fabric.
Ms.
Schreiber said that if clothing scraps were treated “as a
waste-commodity stream, not a nonprofit-managed material, we would be
further along in the tech.”
In
the back corner of the warehouse is one of FabScrap’s two shops, where
it sells many of the larger pieces its employees and volunteers find
among the scraps. On any given day, some fashion students stop by,
shopping and drawing inspiration from the ends of dead-stock rolls that
are cheaper here than at fabric stores in the city.
Jasmine
Velazquez, a fashion student at F.I.T., studied some green leather that
she wanted to use for an upcoming assignment. “I’d rather buy leather
from here than support the industry like that. Sustainability should be
more important to me because I am a student,” she said.
In
June, FabScrap opened a second shop, on a block in the garment district
teeming with secondhand shops, and just a stone’s throw from F.I.T.
Camille
Tagle, the director of reuse and partnership at FabScrap and a former
evening wear designer at Pamella Roland, pointed out some of the special
fabrics that filled the shelves. There were rolls of baby blue suede
and white cotton with geometric fil coupé accents. Above the shelves
were nearly full cones of thread in colors that evoked a Pantone guide.
“If it doesn’t match by a fraction of a shade, it’s out,” she said.
One
piece in particular, a shawl’s length of pink crinkle chiffon with
sequined flowers, caught her eye. Each flower had at least three or four
colors arranged in a different pattern. “It takes a lot of time,” Ms.
Tagle said. “A designer had to communicate all of those details to the
mill.”
A steady traffic of
students and hobbyists came in to peruse the shelves and scour the
scrap bins. Olivia Koval, who is pursuing an M.F.A. in textiles at
Parsons, left the shop with a tote bag full of mutilated jeans and denim
scraps. She planned to overdye and felt them together to make a larger
fabric.
“For people to feel inspired by something that was headed for the trash is really important for me,” Ms. Tagle said.
Since
opening six months ago, the Chelsea store has served 4,800 customers.
Next year, FabScrap plans to set up operations on the West Coast.
In
spite of what she has built, Ms. Schreiber is measured about FabScrap’s
success. “This is such a small group of self-selecting companies, and
this is a very niche part of their waste stream,” she said. “That’s
what’s so frustrating.”
