Chanel and The RealReal Both Nab Wins in Latest Round of Ongoing Counterfeit Lawsuit

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.”
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Why Competitor Poshmark May Be The RealReal And ThredUp’s Best Friend In Exploding Resale Market

Investment analyst Michael Binetti, Credit Suisse, is out with a bold prediction: “We believe the secondhand/resale market could grow much faster in the near-term than the +mid-teens growth that industry sources project.”

As current projections stand, the combined digitally-native resale and the traditional, largely brick-and-mortar thrift/donation secondhand fashion market will reach $51 billion by 2023, according to ThredUp, a major player in the resale fashion market and the primary source of the industry’s data.
By 2023, the resale segment is expected to account for 45% of the secondhand apparel market’s sales or $23 billion, growing from a mere 25% ($7 billion) of the total $28 billion in 2019.
The RealReal, the recently made public luxury resale company, the privately-held ThredUp, and social commerce peer-to-peer marketplace Poshmark are the current resale leaders.




Dynamic growth in the online sales channel will be the main driver of growth, gaining twice as fast as thrift/donation or over 30% per year from 2019 to 2023. This will be thanks to consumers, most especially women, gaining awareness of the convenience of this new model as an alternative to giving bags of old clothes to Goodwill, Salvation Army or local thrift stores.
As mentioned, Credit Suisse’s Binette expects it to advance even faster, though he didn’t speculate just how much faster it will grow. However, he said, “We’ve networked extensively with management teams across the secondhand retail category and the most consistent comment we’ve heard is that the industry unanimously believes it is barely scratching the surface with the addressable market of consumers that would consider re-selling/consigning online.”

Supply, not demand is the industry’s challenge

Increasingly, women are willing to give secondhand shopping a try, with ThredUp reporting the number of women who’ve purchased secondhand has grown from 44 million in 2017 to 56 million in 2018, roughly half of all adult women.
However, the linchpin for resale’s future is getting inside people’s closets and convincing them to turn over enough good-old stuff that online buyers will want.
After all, they have been filling their closets with off-price (Marshalls, TJ Maxx), fast fashion (Zara, H&M), value chain (Walmart, Target) clothing at an aggressive pace, but this isn’t the stuff that a vibrant resale market is made on. The ThredUp study, supplemented with data from Credit Suisse, estimates that about 35% of consumers’ closets in 2018 are accounted for by clothing from these three sources and their share has grown from 28% since 2008.
Instead, the stuff consumers are most likely to want to buy in resale is department store (14% share of closet in 2018) and other specialty retail (13%) brands, which they also may want to hold onto longer. Mid-priced fashion (Gap, J.Crew) that comprises 20% share of closet today may go for ThredUp or Poshmark, but not The RealReal.
It isn’t consumer demand that could hold the fashion resalers back. It’s getting their hands on enough stuff that their customers will want. As a result, each player’s consignment strategies are critical to their future success.

Getting real is The RealReal’s key consignment strategy

The RealReal identifies unlocking the ~$200 billion of luxury goods available in the U.S. for the resale market as its greatest market opportunity, as well its most critical challenge.
“The biggest obstacle to growth for REAL is acquiring the right level and types of supply,” writes Cowen’s Oliver Chen, in a report on a recent meeting with The RealReal’s CEO Julia Wainwright and CFO Matt Gustke.
“Management highlights it is more difficult to get someone to consign for the first time,” he explains, but adds that after their first consignment, The RealReal customers typically return two-to-three times a year.
With Gucci, Louis Vuitton, Chanel, Prada and Hermès its leading brands, The RealReal has found making face-to-face connections with wary luxury consumers critical to getting prime merchandise. So, it operates three stores, two in NYC and one on Melrose Avenue, Los Angeles, where well-heeled shoppers can come in and meet with authentication experts. Such personal connection raises their comfort level.
The RealReal also operates 11 locations nationwide for jewelry, watch and handbag valuations, plus the convenience of free “white glove” in-home consultation and pickup in 20 markets.
In a previous discussion with CEO Julie Wainwright, she shared that not only do the stores pave the way for better consignments, they also result in an order size twice as large as is typical online. “It is a marketing tactic and sales tactic and product acquisition tactic,” Wainwright said. “We find we get lots of high-quality consignments when we do pop-ups,” like one recently in Las Vegas.
The RealReal is approaching half a million buyers and if turning new RealReal buyers into consignors is its primary way to source new supply, it has a long runway.
According to the BCG-Altagamma True-Luxury survey among consumers who met a threshold of luxury spending (~$5,500 in past year), only half of the U.S. luxury consumers surveyed have participated in the secondhand market. Among the other half, 21% have sold and bought, 18% have purchased only and 11% have only sold.
The RealReal is still in the early days in tapping its potential market. “Resale drives a perpetual consumption cycle that fuels recurring consignments and purchases as it provides liquidity to consignors to purchase new and secondhand items – this should support solid GMV (gross merchandise value) growth over the long-term,” Chen writes.

ThredUp has it in the bag

ThredUp’s consignment strategy is literally in-the-bag with its “Clean Out Your Closet” service where a potential consigner requests a postage-paid Clean Out Kit to bag up unwanted items. These item can either be sold for cash or credit to use at Reformation or Polarn O. Pyret for childrenswear or donated to charity along with a $5 cash gift.



The company notes, however, that it is picky about what consignments it accepts: only items in pristine condition with no damage or alterations, including missing sizing information. Given those criteria, ThredUp reports it only retains about 40% of the items shipped for resale. The rejects can be returned to the sender for a small fee or donated to charity.
Right now, through October 20, ThredUp is hot on the trail for fall fashion, offering a 20% extra payout for seasonally-appropriate sweaters, coats, boots, overalls, jumpsuits and designer handbags. In-demand brands it is on the hunt for include Madewell, Patagonia, Lululemon, Everlane, Sorel, Eloquii and Torrid.
ThredUp is also crossing over into physical retail in new partnerships just announced with Macy’s and J.C. Penney. ThredUp departments will shortly open in 40 Macy’s and 30 J.C. Penney locations.
These locations will give consumers an extra dose of confidence and credibility to ThredUp when they first meet the brand there. No word that consignments will be accepted there, but one can imagine each department will have a stack of clean-out bags readily at hand.

Poshmark takes a do-It-yourself approach

Poshmark claims to be the No. 1 fashion buying and selling platform, with some 50 million sellers. A recent survey by Raymond James supports that claim, with 67% of women surveyed recognizing the Poshmark name, as compared with 44% who know ThredUp and 12% The RealReal.
But unlike ThredUp and The RealReal, Poshmark operates under a different business model. It doesn’t take possession of the clothing for sale. It works as a peer-to-peer marketplace where sellers list items and Poshmark takes a piece of the action once a sale is completed.
With its stripped-down business model, it gives sellers the tools to make sales, but also requires them to do the heavy lifting to photograph, describe, and price each item. Poshmark provides a prepaid shipping label when an item is bought, but the seller has to package it and take it to the post office to ship.
It also supports sellers with what it describes as virtual shopping parties where people gather on the app to enjoy selling events around a theme or brand. Success in fashion has given Poshmark confidence to branch out into home decor and housewares.

Awareness builds customers and consignors

To attract people to the circular fashion resale economy, both Credit Suisse’s Binetti and Cowen’s Chen identify building awareness of the potential of resale platforms like The RealReal, ThredUp and Poshmark is critical.
To create awareness, all three companies have taken to television to get the word out. In that Poshmark is the leader, running 14,872 spots in the last 30 days and ranking No. 311 in terms of overall advertising spending, according to ISpot.TV. ThredUp (2,674 airings and No. 839 in sending) and The RealReal (2,533 airings and No. 1,020 in spending) lag far behind.
And from that awareness, consignments grow. Signs are that American consumers are already lightening their load, as the ThredUp study reports consumers have reduced the number of items in their closets from 164 in 2017 to 136 in 2019. But that also means, they may have fewer choice items to pass along into the resale channel.
Ultimately Poshmark’s heavy-lifting in the awareness department may be a blessing for both ThredUp and The RealReal. After a few times a person does all the work on the back end to make a sale –or not make a sale if the price isn’t right or the description fails – my guess is that people looking to get in on the resale action may quickly turn to the frictionless and more convenient alternative that ThredUp and The RealReal offer.
Poshmark may open the door for customers to try online resale, but I bet that ThredUp and The RealReal will be the ones that will keep them around for the long haul and get the best pickings from their closets.

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