Trademark protection safeguards brands from counterfeits, but does it protect them from second-hand sales and upcycling?
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The fashion industry has a negative environmental impact: land for crops, water consumption, carbon dioxide emissions, polluting dyes, and tons of waste.
The fashion secondary market presents one of several ways to fight against fashion waste.
The idea of “thrifting” is booming due to changes in how consumers view second-hand, seeing it as a way to own luxury and making the “green”, ethical choice.
E-commerce has also transformed pre-owned fashion, as shoppers no longer have to go into a brick-and-mortar store and sort through items.
Instead, online second-hand marketplaces transcend physical distances, territory barriers and time zones. They offer items to anyone, anywhere, shipped to your doorstep.
Yet, as it often happens, things are more complicated.
Unauthorized use of trademarks is potentially damaging to brands and raises issues of authentication, consumer confusion, brand trust and brand dilution.
Circular economy and counterfeiting
With thriving second-hand stores and marketplaces, brands have another market to monitor and more battles to fight.
Luxury brands in particular face a challenging problem: in luxury, value is tied to authenticity, which is harder to establish on an open online marketplace that is not controlled by the brands.
With little oversight, these platforms can become a new selling platform for counterfeiters, a place to offer pre-owned counterfeits or sell new counterfeits as if they were pre-owned.
Not only is there the issue of brand authentication and control, but also the ability to spot fakes: gently used items or items that show signs of wear may make it even more difficult to tell whether an item is original or fake.
Ultimately, having counterfeits out there damages brand reputation and its value. It can also cause brand dilution, hurt customer trust, and affect brand exclusivity in the eyes of consumers.
Brands’ reaction to resale platforms
Brands have different strategies when it comes to independent resale platforms that sell their trademarked items.
Some brands oppose the sale, while others accept the situation and work with online platforms.
Cooperating with resale platforms, they gain some control over the items offered for sale.
They also create new resale channels in which they can profit from unsold inventory without announcing markdowns or sending the items straight to incineration or the landfill.
This approach may benefit their bottom lines and grow their customer base.
In other cases, fashion houses chose a different course of action, as we see in the legal action filed by Chanel.
In 2018, Chanel filed a complaint against luxury consignment platform TheRealReal (TRR), alleging that TRR sold counterfeit Chanel products.
In a U.S. federal court, Chanel claimed trademark infringement and counterfeiting, false advertising and unfair competition.
On top of selling counterfeits in specific instances, it alleged that TRR has deceived customers into believing that it has authorization from Chanel, association or affiliation with the brand.
In addition, it claimed TRR infringed upon Chanel’s trademark by using it in its advertising and marketing.
TRR rejected the accusations and claimed that Chanel is trying to stop the second-hand circular economy.
Trademarks and the first sale doctrine
The question is what can a trademark owner do if an unauthorized third party resells items bearing its trademark on an online platform?
Generally, the principle of exhaustion of intellectual property rights applies to resale.
The exhaustion Doctrine or the First Sale Doctrine says that an owner (such as a distributor or reseller) has the right to resell a branded item in an unchanged state.
This means that the exclusive right of the intellectual property owner is exhausted after the goods were first sold with his consent, either by himself or by an authorized party in the territory.
After this first sale, there are no more exclusive rights to the circulation of the product, which becomes the property of the buyer.
The exhaustion doctrine agrees with U.S. trademark law since the resale of a genuine product is generally not confusing for consumers (if confusing, like Chanel claims in its fight against TRR, it may be deemed unlawful regardless of the first sale doctrine).
The general principle of exhaustion has its limits. Exceptions to the doctrine apply when there is reason to oppose it, such as when the items are materially different and do not meet the trademark holder’s standards of quality.
The resale of trademarked goods that have undergone changes and alterations may result in trademark infringement.
Rolex, for example, has prevailed against La Californienne, a company that customizes vintage Rolex watches, over its sale of modified watches bearing Rolex trademarks, alleging counterfeiting.
La Californienne was banned from using Rolex trademarks as part of the heritage of its watches or in any advertisements.
Upcycling and trademark infringements
In the fashion industry, upcycling generally refers to the reuse of goods.
It is usually applied to the repurposing of pre-owned fashion (when elements of pre-owned fashion items become part of new ones), although it can refer to pre-consumer textiles (when textile leftovers are used to create new products).
Trademarked buttons on new bracelets, designer bags bearing logos cut to create watch bands, and garments turned into patches sewn onto apparel.
When done with the intellectual property owner’s consent and collaboration it can be a great choice.
But search platforms like Instagram, and you find numerous “upcycled” items incorporating parts and pieces from famous luxury brands, often unauthorized.
It is easy to view the upcycling trend as the conscious choice in a world that suffers from too much waste, yet we should admit that it builds on the coveted symbols of prestige and luxury.
The question remains: Is upcycling legal?
Brands look to stop the unauthorized resale and reuse of authentic goods carrying their names and trademarks.
They claim trademark infringement, unfair competition, and trademark dilution.
In another Chanel case, the luxury fashion house filed a suit against Shiver and Duke for allegedly selling jewelry featuring Chanel’s iconic “C” logo.
Chanel claimed that Shiver and Duke abused the Chanel trademark.
In response, Shiver and Duke claimed, among other things, that its actions are protected by the First Sale Doctrine.
The companies finally reached a settlement.
Before this, Louis Vuitton also reached a settlement after filing a case against Sandra Ling Designs, Inc. and Ms. Ling for allegedly engaging in trademark counterfeiting, infringement and dilution.
Sandra Ling Designs used Louis Vuitton pre-owned goods that they disassembled or deconstructed to create new apparel, handbags and accessories.
In other cases, they added things like beading and stones to the goods – which all still show the Louis Vuitton trademarks.
Louis Vuitton claimed that the new and altered items do not meet the luxury fashion house’s aesthetic and quality standards.
In that, it claimed that the items were no longer Louis Vuitton items. New and “materially different” goods are not protected under the first sale doctrine.
The lawsuits highlight the issue of what falls into the First Sale Doctrine since upcycled items are materially different from the original goods.
And if materially different, they can be classified as new fake items.
What these brands are saying is that upcycling is no excuse to use their trademarks and build on their reputation and that they hold the exclusive right to upcycle.
Defendants, on the other hand, rely on disclaimers, stating that customers are not confused.
Instead, they know they are not purchasing a genuine item and that the item was created with no approval or affiliation to the original brand.
The court recently addressed this issue in a case concerning the sale of refurbished trademarked watches.
The case was filed by watchmaker Hamilton against Vortic LLC and its founder.
The defendant sells wristwatches that feature parts from antique pocket watches by Hamilton, with visible Hamilton trademarks.
Hamilton claimed trademark infringement and counterfeiting because the watches were modified so extensively that they became new goods that should not bear the Hamilton trademark.
The court agreed with Vortic, saying that restored and modified watches consisting of original parts are not likely to cause consumers confusion, largely due to Vortic’s disclosure, as well as factors such as Vortic’s marketing descriptions and its predominating logo.
Upcycling has not yet been debated in many courts.
Yet, what we have seen so far may indicate that disclosures and disclaimers are relevant (they lessen the potential for confusion and show good faith), and so is the quality of the upcycled item (it reduces the risk of consumer dissatisfaction with the products and damage to reputation).
Wiser online brand protection services
Taking up upcycling or using technology for authentication may be the way for brands going forward, together with brand protection services that enforce their intellectual property online and out-of-court.
For a quick and effective online brand protection solution, Wiser Market offers a robust online brand protection strategy.
The Wiser Market digital brand protection strategy includes 24/7/365 worldwide brand monitoring.
The Wiser innovative system scans online channels, including websites, online marketplaces, social media, mobile apps, search engines, and other platforms, to detect IP infringements and enforce your trademark rights.
Our team of experts has extensive knowledge and is dedicated to tailoring a unique solution that best serves your needs and helps you fight against any form of online trademark infringement.
With Wiser Market, your brand will have an efficient and cost-effective IP protection solution, from detection to enforcement of your IP rights, allowing you to focus on growing your business.
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Disclaimer: This information is intended to help the reader gain a basic understanding of the issue. It is NOT designed to provide legal, business, or other relevant professional advice.
What is a trademark?
According to USPTO, a trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. Some examples include brand names, slogans, and logos.
What is the First Sale Doctrine?
The First Sale Doctrine, also called the Exhaustion Doctrine, states that an owner has the right to resell a branded item in an unchanged state. This means it is generally legal to resell a trademarked item after it has been sold in an authorized sale by the IP owner, even if the trademark owner does not consent to the resale.