Chanel, Inc. v. WGACA, LLC

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CHANEL, INC., Plaintiff, v. WGACA, LLC, WHAT COMES AROUND GOES AROUND LLC d/b/a WHAT GOES AROUND COMES AROUND, MHW PROPERTIES, INC., WGACA WEB, LLC, PINES VINTAGE, INC., VINTAGE DESIGNS LTD., WCAGA LA, LLC, and Individuals SETH WEISSER and GERARD MAIONE, Defendants.

No. 18 Civ. 2253 (LLS)

United States District Court, S.D. New York

March 28, 2022

OPINION & ORDER

LOUIS L. STANTON, U.S.D.J.

Plaintiff Chanel, Inc. ("Chanel") brings this trademark infringement and false association action against Defendant What Goes Around Comes Around ("WGACA") under the Lanham Act and laws of New York. Chanel alleges that WGACA's advertising and resale practices violate Chanel's trademarks and improperly trade off Chanel's brand in order to create the false perception that WGACA is affiliated with Chanel. As a result, in its Second Amended Complaint, Chanel asserts the following claims against WGACA (1) Trademark Infringement under 15 U.S.C. §§ 1114(1); (2) False Advertising under 15 U.S.C. § 1125(a)(1)(B); (3) False Association and Endorsement under 15 U.S.C. § 1125(a)(1)(A); and several related claims under New York General Business Law for (4) Deceptive and Unfair Trade Practices and (5) False Advertising.

Pending before the Court are the parties' cross-motions for summary judgment. Chanel seeks partial summary judgment holding WGACA liable for trademark infringement and false association under the Lanham Act and dismissing WGACA's affirmative defenses. Dkt. No. 226. WGACA cross-moves for summary judgment dismissing all of Chanel's claims. WGACA argues, among other things, that its use of Chanel's marks in advertising constitutes nominative fair use and that even if its actions infringe on Chanel's trademarks Chanel cannot prove it was injured. Dkt. No. 219.

For the following reasons, the Court grants in part WGACA's cross-motion dismissing the New York Business Law claims, and grants in part Chanel's motion, holding WGACA liable for trademark infringement in WGACA's sales of point-of-sale items, eleven non-Chanel handbags sold as having been authorized for sale by the Renato Corti factory, and one CHANEL-branded handbag with a pirated serial number.

The rest of each party's remaining claims are denied.

BACKGROUND^[1]

Parties

The CHANEL brand was established in 1909 by Coco Chanel and has grown to be an internationally recognized fashion house. Dkt No. 252 (Defendant's Rule 56.1 Response to Plaintiff's Rule 56.1 Statement ("Def. 56.1 Reply")) ¶¶ 1-2. Chanel owns eight famous, federally registered trademarks, including CHANEL and CC (the "Chanel Marks"), as well as Coco Chanel's publicity rights. Dkt. No. 252 (Def. 56.1 Reply) ¶¶ 4-5. The Chanel Marks date back to 1956 and cover leather goods and jewelry, among other things. To this day, Chanel remains the exclusive designer and manufacturer of luxury apparel, leather goods, and other accessories bearing the Chanel Marks. Id. ¶ 3. Chanel has never sold any CHANEL-branded goods in the secondhand market. Id. ¶ 61.

Chanel's products are manufactured in select authorized factories in France, Italy, and Spain on a "to order" basis.^[2] Id. ¶¶ 16-17. Chanel provides its factories with only enough supplies to make the specific number of Chanel products that have been ordered. Id. The supplies provided include the leather, rivets, buckles, zippers, and clasps, as well as a CHANEL-branded label, sticker, and Authenticity Card that each bear a unique Chanel Serial Number. Id. ¶¶ 15, 20. Chanel does not authorize factory overruns and its factories are not authorized to purchase any extra components to enable them to make more handbags than those specifically ordered by Chanel. Id. ¶ 19.

Each unique Chanel Serial Number, and its corresponding Authenticity Card and label, is allocated to a specific factory. Id. ¶ 22. A Serial Number is only assigned to a CHANEL-branded product once the product has been authorized for manufacture and determined to meet Chanel's quality requirements. Id. Although each of Chanel's authorized factories keep CHANEL-branded labels, stickers, and Authenticity Cards in a secure locked area, 30, 000 Chanel labels, stickers, and Authenticity Cards bearing unique Serial Numbers were stolen from the Renato Corti factory in November 2012. Id. ¶¶ 22, 41-43.

Since 1993, Chanel's internal inventory system (the "ORLI System") has been used to track the allotment of the Chanel Serial Numbers to Chanel factories and the assignment of Chanel Serial Numbers to specific CHANEL-branded products after the product has passed the factory's quality control process.^[3] Id. ¶ 29. Once a Serial Number is assigned to an item, the item's type, color, characteristics, and location is entered into the ORLI System. Id. ¶ 23. The System also tracks the status of products as they progress through Chanel's distribution system and the locations where the products are ultimately sold by Chanel. Id. ¶¶ 23, 25. If Serial Numbers are stolen or missing from a Chanel factory, like those taken from the Renato Corti factory, Chanel will void them in the ORLI System. Id. ¶¶ 27, 32, 34-35, 44.

In the ORLI System, Chanel can query the Serial Number on a product it allegedly produced to determine if it actually manufactured, inspected for quality control, approved, and sold a product with that unique Serial Number. Id. ¶ 26. If Chanel did manufacture and sell a product bearing the queried Serial Number, Chanel can then use the ORLI System to determine whether the type, color, and characteristics of the alleged product correspond with those of the genuine product Chanel manufactured and sold under that Serial Number. Id.

WGACA is a retailer specializing in the sale of luxury secondhand clothing, bags, jewelry, and accessories. Id. ¶ 59. WGACA has sold, or offered for sale, secondhand CHANEL-branded products via its website, www.whatgoesaroundnyc.com, in its retail stores, at trunk shows or pop-up shops, and through e-commerce platforms. Id. ¶ 60. Chanel has never authorized WGACA's secondhand sale of CHANEL-branded goods. Id. ¶ 61. Nor does WGACA purchase its inventory directly from Chanel or from any Chanel retail boutique or Chanel authorized retailer. Id. ¶ 64. Instead, WGACA purchases goods from individuals and international whole-sellers, without asking for documentation of how they obtained title to the goods. Id. ¶¶ 103-04, 107.

WGACA, on its website, "guarantees the authenticity of all products sold." Id. ¶ 113. To comply with its authenticity guarantee, WGACA employs a team of in-house experts who authenticate all goods before they are sold. Id. ¶ 67 . It also used to provide an authenticity letter signed by its Chief Executive Officer, Seth Weisser, for every item authenticated and sold. Id. ¶ 72.

However, WGACA does not disclose that these in-house experts have never worked for or been trained by Chanel. Id. SI 68. WGACA does not keep written records of the authentication process for the individual items, but it does maintain a database of the fact that the authentication process was conducted. Id. ¶ 71. It also, since 2017, stopped publicizing on its website the Chanel Serial Number of goods it has available for sale. Id. ¶ 116.

In April 2020, WGACA added the disclaimer: "WHAT GOES AROUND COMES AROUND IS NOT AN AUTHORIZED RESELLER NOR AFFILIATED WITH ANY [sic] THE BRANDS WE SELL." Id. ¶ 124.

WGACA also advertises its products using a combination of its marks and the marks of all of the luxury fashion houses that it sells. Id. ¶ 112. Without Chanel's authorization, WGACA used Chanel marks and indicia, such as Chanel artwork and images of Chanel runway shows, in advertisements and displays featured in-store and on its webpages, social media, and direct-to-consumer emails. Id. ¶¶ 137-141, 143, 146, 148-149, 150-156. WGACA up until 2017 also used the hashtag #WGACACHANEL in its social media posts. Id. ¶ 142.

WGACA'S Contested Conduct

Chanel charges WGACA sold allegedly non-genuine, infringing Chanel products, and improperly used Chanel marks in its advertising and marketing.

Chanel's claims for trademark infringement and false association are based on WGACA's sale of four categories of allegedly infringing CHANEL-branded products: (1) eleven non-genuine and counterfeit CHANEL-branded handbags bearing Serial Numbers that were assigned to and stolen from the Renato Corti factory and which were subsequently voided in Chanel's ORLI System;^[4] (2) two non-genuine and counterfeit CHANEL-branded handbags that have characteristics that do not match the ORLI System's recorded characteristics for the bags associated with those serial numbers; (3) fifty non-genuine CHANEL-branded handbags that bear serial numbers which were voided in the ORLI system during inventory audits at Chanel's factories; and (4) 779 non-genuine point-of-sale items bearing Chanel logos (i.e., counter-support items), which were never authorized for sale by Chanel, sold by Chanel or a Chanel-authorized retailer, or otherwise put into the stream of commerce by Chanel.^[5] Id. ¶¶ 74-111.

Chanel's claim for false advertising, false association, and trademark infringement based on WGACA's advertising practices is rooted in WGACA's: retail displays' prominent use of the Chanel Marks, like a giant CHANEL No.5 perfume bottle or CHANEL-branded cake, Id. ¶ 130-31; direct-to-consumer email advertisements that prominently displayed the Chanel Marks, frequently in WGACA's stylized font, Id. ¶ 133, 135-136; use of #WGACACHANEL in social media posts, Id. ¶ 142 145, 147; and non-product specific advertising, like ads for general WGACA sales, with prominently featured CHANEL-branded items front and center Id. ¶¶ 134-41, 144, 146, 149. Additionally, Chanel points to WGACA's website which uses images of and quotations from...