Last year, Chanel’s worldwide brand was valued at $13.7bn, an increase of more than $2bn on the previous year and three times what it was worth in 2017, according to Statista. It is therefore no surprise that the company is extremely vigilant in pursuing infringement of its trade mark, which serves to undermine its brand. Indeed, Chanel is notorious for its efforts in defending it against misuse and infringement.
Alongside various ongoing legal battles with retailers who sell allegedly counterfeit Chanel goods, the company has also begun a legal action in London against an online retailer (Kensulate Corporation Ltd, which owns the Crepslocker online store) that sells authentic Chanel goods.
Chanel v Crepslocker: the arguments
The French based fashion house accuses Crepslocker of infringing the Chanel trade mark by tarnishing its positioning as a luxury fashion brand. Its principal arguments against Crepslocker fall under four main headings:
• Using the Chanel trade mark to describe the goods that it sells in the product captions, both in its online store and in a store on e-bay.
• Selling the ‘Chanel’ branded goods alongside goods from other (inferior) brands which do not share the same hallmark of luxury. The Crepslocker website hosts pages dedicated to various brands, where branded products are sold. There used to be a dedicated page for Chanel products, which is now disabled.
• Offering the trade marked goods online, which is not allowed under Chanel’s policies. The official Chanel website makes it clear that there are no authorised online sellers of Chanel leather goods, fashion items and watches. The only exceptions are fragrance, beauty and eyewear products.
• Not offering the luxury experience to customers. Chanel claims that in a test purchase, the item arrived in a crumpled condition and not in the original packaging.
In its defence, Crepslocker invokes the exhaustion of Chanel’s rights to the sold products. Under the trade mark exhaustion rule, after the first sale of a trade-marked product by the trade mark holder, or with their consent, the holder can no longer control the subsequent sale(s) of the product. The exception is that the trade mark owner can oppose subsequent sales for legitimate reasons, especially when the condition of the products has been materially changed or impaired.
Crepslocker further argues that the distinction which Chanel makes between the goods that it sells online and those it does not is artificial. According to Crepslocker, mixing Chanel products with sportswear does not tarnish its reputation, and Chanel has separately collaborated with sports apparel manufacturers for its products.
In prior cases where conflict existed between luxury brands and online resellers, British courts were bound by guidance from the Court of Justice of the European Union (‘CJEU’) – until Brexit took effect last year.
Now that the UK is no longer part of the EU, the dispute will be subject to English law. Post-Brexit, as of January 2021, the UK’s Supreme Court is no longer bound by decisions of the CJEU. However, British courts are free to take such decisions into account in their own rulings.
In terms of trademark rights exhaustion, the Trade Marks Act 1994 is fully harmonised with EU legislation: Directive (EU) 2015/2436. Both approximate to the laws of individual Member States relating to trade marks, stipulating the principle of trade mark exhaustion and providing the same exception.
What the CJEU says
There have been several notable CJEU cases which establish a fairly consistent precedent: they indicate that the EU’s main judicial body is protective of trade mark owners. Of these, three stand out.
From a competition law perspective, in the leading Case C 230/16 Coty Germany GmbH v Parfümerie Akzente GmbH, the CJEU ruled that luxury brand owners are entitled to implement selective distribution systems, i.e. sale systems where they controlled the distribution chain, in order to preserve the luxury image of their respective goods. This entitlement is on condition that the selection of resellers is undertaken based on ‘objective criteria of a qualitative nature that are laid down uniformly for all potential resellers and applied in a non-discriminatory fashion and that the criteria laid down do not go beyond what is necessary’. The ruling allowed brand owners to exclude the internet sale of their goods through contractual clauses.
In Case C 59/08 Copad SA v Christian Dior couture SA, the CJEU held that when a licensee of the trade mark owner sells goods in a discount store, in spite of the contractual provisions of the licence which do not allow the licensee to do this because of the trade mark’s prestige, the trade mark proprietor can invoke the rights conferred by that trade mark against the licensee. This can happen provided it has been established that that contravention damages the allure and prestigious image which confers an aura of luxury on those goods.
When it comes to packaging, the CJEU held, in Case C 324/09 L’Oréal versus eBay, that selling a product after removing its original packaging may be opposed by the trade mark holder, ‘where the consequence of that removal is that essential information, such as information relating to the identity of the manufacturer or the person responsible for marketing the cosmetic product, is missing. Where the removal of the packaging has not resulted in the absence of that information, the trade mark proprietor may nevertheless oppose the resale of an unboxed perfume or cosmetic product bearing his trade mark, if he establishes that the removal of the packaging has damaged the image of the product and, hence, the reputation of the trademark.’
These decisions show that controlling the sales channels and having respect for the integrity of the original packaging are acceptable exceptions to the trade mark exhaustion rule.
Although they are no longer obliged to follow CJEU rulings, it is unlikely that the higher courts in the UK will depart from established trade mark principles without well-grounded reasons.
Crepslocker used to sell both new and second-hand Chanel products. In the case of new goods, it may be possible that the UK courts will deem the situation similar to those already mentioned in the CJEU cases.
However, an element of novelty rests in the used products which Crepslocker kept in consignment from its customers. Here, the courts would probably consider balancing not only Chanel’s rights against those of Creplocker, but also consider the (natural persons) owner’s rights of the used products to have a platform to sell these goods.
Should the dispute end in a settlement or a win for Chanel, this may well have a chilling effect on online resellers of other luxury brands in the UK and elsewhere in Europe.
It can be argued that maintaining the prestige and value of luxury brands, by setting and keeping sales standards and specific outlets, protects both the brands and the consumers of luxury goods, because the large investment they make in purchasing them is not easily diminished.
However, part of Crepslocker’s business responds to a genuine consumer need to own luxury products, and the corresponding demand for them. Careful consideration should be given to determining whether the second-hand luxury goods market is different from the new luxury goods market and if the exception to the trade mark exhaustion principle still applies or not.