The use of (luxury) brands by resellers – Legal considerations illustrated by the case of Chanel vs. What Goes Around Comes Around

We would like to take this opportunity to thank Sarah Lena Mines, who joined us during her legal clerkship, for her great support with this article.

1. Background

Back in 2018, French luxury manufacturer Chanel filed a lawsuit in the United States against New York-based company What Goes Around Comes Around (“WGACA”). The long-awaited jury trial began on 9 January 2024.

Chanel manufactures luxury products in the areas of apparel, accessories and cosmetics. WGACA sells pre-owned luxury products online and in retail stores, in particular clothing, clothing accessories, bags and jewellery from various manufacturers, including Chanel. According to WGACA, the items are purchased by retailers and private individuals and are then subject to a multi-stage authentication process.

The subject of the legal dispute is Chanel’s accusation that WGACA is selling counterfeit Chanel products and Chanel products that are not intended for sale. In addition, WGACA implied that there was a non-existent link between WGACA and Chanel by using Chanel's trademarks to promote its services, such as the hashtag “#wgacachanel”.

These two allegations are typical of disputes between trademark owners and commercial resellers on the second-hand market, which also occur regularly in Germany. At the heart of the matter are the conflicting interests of the original manufacturers, who want to protect their – often well-known and prestigious – trademarks, and the promotional interests of resellers on the second-hand market. The fundamental issues at stake are who is responsible when counterfeit goods end up in the Second-Hand market and how resellers can promote the brands they carry.

2. Legal framework under German law

How are such cases to be assessed under German law? In principle, the use of another person's trademark without the consent of the trademark proprietor constitutes a trademark infringement. In this case, the trademark owner is entitled to injunctive relief pursuant to Section 14 (2) nos. 1, 2, (5) of the German Trademark Act. In the case of manufacturers of luxury goods, the extended protection of a trademark with a reputation under Sec. 14 (2) sentence 1 No. 3, (5) Trademark Act is often also taken into consideration.

On the other hand, resellers must in principle be able to use third party trademarks to promote their products. German law strikes a balance between those conflicting interests of the parties involved. It differentiates between the following types of trademark use:

a) Distribution of products labelled with the brand

With regard to resale, the legal assessment depends, among other things, on whether the reseller is dealing in used original goods or whether they are accused of selling counterfeit goods.

For resellers of original goods, Sect. 24 (1) Trademark Act applies. According to the principle of exhaustion set out in this provision, the proprietor of a trademark is not entitled to prohibit the use of the trademark for goods which they themselves first put on the market in a country of the European Economic Area (EU Member States, Switzerland, Norway) or which were first put on the market with their consent. The sale by a reseller of second-hand original goods which have been lawfully put on the market is therefore generally not objectionable under trademark law. However, the situation is different for original goods that have been put on the market elsewhere, for example in the US. In such cases, the trademark proprietor may indeed prevent the resale of such goods in Germany pursuant to Sec. 14 (2) No. 1, (5) Trademark Act.

In the case of counterfeit goods, of course, exhaustion cannot occur from the outset because they have not been put on the market by the trademark proprietor or with his consent within the meaning of Sect. 24 (1) Trademark Act. Rather, it must be assumed that the reseller who sells counterfeit goods bearing the trademark uses the trademark for his own goods and thereby infringes the exclusive right of the trademark proprietor (BGH, judgment of 15 March 2012, I ZR 52/10, para. 22 – Converse I).

In a case such as the one mentioned above, it would therefore be of decisive importance (also) under German trademark law, whether the goods offered are original goods which have also been put on the market within the EEA, at least with the consent of the trademark proprietor. In the event of a dispute, the burden of proof – and thus the legal and economic risk – is generally borne by the reseller (BGH, judgement of 15 March 2012, I ZR 52/10, para. 26 – Converse I).

b) Use of brands in advertising

The use of trademarks by resellers in their advertising, for example on their website, in social media or by booking relevant keywords, is also particularly sensitive. The trademark is regularly an important keyword to draw attention to one’s own offering. From the perspective of the trademark owner, however, there is a particular risk of exploitation of the trademarks reputation. It is not only a question of whether, but also of how the trademark is used.

The principle of exhaustion pursuant to Section 24 (1) Trademark Act also applies in this respect. It allows the reseller not only to sell the (original) goods but also to advertise them under their trademark (so-called “right of announcement”). Of course, if the advertised goods are not original goods, the principle of exhaustion does not apply to the advertising of these goods either (BGH, judgement of 28 February 2007, I ZR 77/04, para. 21 – AIDOL). The principle of exhaustion applies regardless of whether the reseller only sells products of the particular manufacturer or also competing products (BGH, judgement of 28 June 2018, I ZR 236/16, para. 54 – keine-vorwerk-vertretung). The fact that a reseller such as WGACA also offers products from other manufacturers does therefore not prevent them from using a trademark in advertising.

However, exhaustion only occurs if the trademark is used exclusively in relation to the corresponding product. In particular, the reseller may not use the trademark to advertise their company independently of these products (BGH, judgement of 28 February 2007, I ZR 77/04, para. 21 – AIDOL). In particular, the trademark proprietor may oppose the use of the sign despite exhaustion for legitimate reasons under Section 24 (2) Trademark Act. Such legitimate reasons exist if the function of the trademark as a guarantee of origin is jeopardized or if the distinctive character or the reputation of the trademark is unfairly exploited or impaired (BGH, judgement of 28 June 2018, I ZR 236/16, para. 76 – keine-vorwerk-vertretung). In this respect, it must also be taken into account that luxury brands in particular are often well-known trademarks that have a correspondingly high reputation and advertising impact.

The use of a (well-known) trademark is therefore problematic if the trademark is used to advertise one's own business in a way that goes beyond what is necessary to indicate the sale of the specific branded goods on offer. In particular, it may also be relevant whether the reseller makes it sufficiently clear that there is no economic link between him and the manufacturer in order to avoid any impairment of the trademark’s function as an indication of origin (BGH, judgement of 28 June 2018, I ZR 236/16, para. 76 – keine-vorwerk-vertretung).

Whether and when this is the case depends on an examination of all the circumstances of the case. For example, in a case such as the one mentioned above, it would have to be carefully examined whether the use of the trademarks still has a sufficient connection to the original products or whether the reseller is already using the advertising effect of the trademark for their own business. Against this backdrop, advertising measures that suggest a direct link between the reseller and the original manufacturer – such as domains or hashtags (“wgacachanel”) – should be treated with caution. It cannot be ruled out that the public may assume a position as an official reseller or otherwise assume special expertise of the reseller.

3. Relevance for practice

The boundaries of permissible use of trademarks by resellers are complex and require careful legal consideration. Both trademark owners and resellers need to be aware of these limits in order to protect their rights and avoid conflicts.

The use of trademarks in advertising plays an important role, particularly in the area of pre-owned luxury goods. However, this also creates a particularly strong incentive to take undue advantage of the attraction of the well-known trademark: According to a 2019 survey relating to Germany, 40% of respondents stated that they only buy luxury goods from authorised retailers; 24% of respondents agreed with the statement that they spend a lot of time verifying authenticity.

Trademark owners are rightly concerned to protect the distinctiveness and promotional power of their brands. While they may have to accept the sale of their original products, they do not have to accept the transfer of the reputation and prestige of their brands to resellers who are not economically linked to them.

4. Conclusions for your company

In order to effectively defend your trademarks in the market, on the one hand, and to act in such a way that you do not run the risk of becoming involved in legal disputes, on the other hand, the following recommendations should be made:

If you are a manufacturer of branded products: Seek advice on whether third parties are entitled to use your trademarks outside your distribution network and without your consent.

If you are selling second-hand goods under a third party brand:

• Ensure that they are original products put on the market in the EEA.
• Seek advice on your marketing strategies so that you can do business without conflict. Caution and legal protection are required when using third party trademarks in advertising. This is especially true for well-known trademarks.

We provide you with comprehensive advice on these issues in advance of legal disputes. In the event of a dispute, we will enforce your trademark rights against unjustified use or defend your distribution and advertising against unjustified restrictions.