The equivalent of one garbage truck full of clothes is burned or dumped in a landfill every second. The fashion industry is dominated by the glorified notion of conspicuous consumption: just watch as Burberry burns millions of dollars’ worth of merchandise rather than tarnish the brand’s exclusivity. Sustainability, conspicuous consumption’s arch nemesis, has sorely needed a rebrand. Sure, Burberry assured the world that the energy generated from the burning of its products was captured, making the bonfire environmentally friendly. But this lip-service is less satisfying to a rising segment of sustainability-conscious consumers. “A recent survey from Boston Consulting Group found that sustainability’s impact on the buying decisions of consumers of all ages grew from 38% in 2019 to 53% in 2020. The increase was smaller among Gen Zers (48% to 52%) and millennials (46% to 57%), but from higher base points.” At this moment in time, a majority of every generation now say they shop the secondary market for goods. Stella McCartney, at one time an outlier for “controversially eschew[ing] fur and exotics and embrac[ing] pleather” has become an “industry leader in the charge to make fashion more sustainable.”
While the shift to sustainability may not be Copernican just yet, several intrepid platforms have sprung up to take advantage of this change in consumer tastes. The resale market has struck fashionable gold; trading the staid and frumpy Goodwill for the trendy, hip Vestiare Collective. Other resalers include Depop, Farfetch, and The RealReal (“TRR”). As hinted to in another resaler’s name, “What Goes Around Comes Around,” these resalers have “given rise to a more circular economy.” Their business is booming – many simply cannot keep up with demand, a good problem to have. Even the Coronavirus, harbinger of doom for the traditional fashion market, could do nothing to stop demand for resold luxury goods. In fact, the pandemic has done quite the opposite, making high-end second-hand luxury goods even more sought after. This success has turned heads in the fashion world’s establishment. Scores of brands have approached these resalers, befriending them to secure more sales. It’s a win-win really: the resalers solve their supply problems, while the brands have a way to relieve themselves of mounting stocks and are given a bigger platform to sell when stores are closed. Burberry has even made its deal with TRR public. Hey, it’s better than just burning unsold stock. TRR sells products “for around 80% of the full retail price, on average. The RealReal’s cut is 50-80% of the sale, depending on the value of the item.” Gucci owner Kering, not needing a Daniel to read the writing on the wall, have purchased stakes in Vestiare Collective and TRR. Kering’s CEO stated that he wanted to “encourage people not to have unused clothing sitting in their closets and rather get them back into circulation.” Other firms have made their own moves: Chanel invested in Farfetch; Switzerland’s Richemont purchased outright Watchfinder, and the American Neiman Marcus took a position in Fashionphile. According to Boston Consulting Group, the global resale market is worth as much as $40 billion in this nascent stage. It really seems that these resalers have a massive hit on their hands.
But where there’s a hit, there’s a writ. In November of 2018, Chanel, the 110-year Paris-based fashion institution, filed suit against TRR in the SDNY, alleging a litany of grievances including trademark infringement, counterfeiting, false advertising, and unfair competition (Chanel v. The RealReal, 2020 WL 1503422 (S.D.N.Y. Mar. 30, 2020)). It went for TRR’s jugular, asserting that TRR’s authentication experts could not ensure that TRR sold 100-proof authentic Chanel products. Chanel paraded more than half a dozen counterfeit found bags on TRR’s website, as well as a myriad of serial numbers that did not match Chanel company records. On this front, Chanel’s attack was enough to convince the judge to side against TRR at the motion to dismiss stage. Chanel had plausibly alleged that “TRR’s advertising regarding the authenticity of the products it sells was literally false or, in the alternative, impliedly false and likely to mislead or confuse customers.” TRR’s approval process presents a headache for the firm on the IP front as well. On the one hand, favorable precedent exists in the widely cited Tiffany (NJ) v. eBay (600 F.3d 93 (2nd Cir. 2010)). There, the Second Circuit “brushed aside claims of direct liability and found that to establish contributory liability, a plaintiff must show that an online marketplace had knowledge of specific counterfeit listings.” Under this standard, “many online marketplaces are unlikely to be liable for any kind of infringement.” But TRR independently certifies the authenticity of the products it sells, along with exercising price control. The Court refused TRR’s motion to dismiss on this issue, opening the door to direct liability for the sale of counterfeit goods, and narrowing Tiffany’s holding.
Not one to take a beating laying down, in October of 2020, TRR unleashed a coruscating counterattack against Chanel. Evidently, discovery had revealed some juicy tidbits within Chanel’s camp. TRR argues that these developments show that Chanel is engaging in anticompetitive behavior. TRR first asserts that Chanel orchestrated a broad boycott conspiracy of resalers across the fashion industry, leveraging its influence to force publications like Vogue, Women’s Wear Daily, and the New York Times and retailers like Saks Fifth Avenue and Neimann Marcus to not do business with TRR and other resalers. The second allegation is that Chanel has engaged in bad-faith lawsuits targeting resalers like TRR (and What Goes Around Comes Around – also the subject of a simultaneous Chanel lawsuit) while conspicuously not taking action against Farfetch for the exact same behavior. Recall above that Farfetch is part-owned by Chanel. TRR takes this to show that Chanel is trying to shut down the secondary market for its products, and that it would only tolerate second-hand sale by a firm that Chanel has a stake in. TRR founder and CEO Julie Wainwright notes that “while other brands are embracing the circular economy, Chanel views it as a threat that needs to be stifled.” Internal documents unearthed in discovery establish Chanel’s growing awareness and acceptance of the resale market. One document states that “selling a second hand luxury product was before seen as a last resort, it’s now seen as a piece in itself of one’s consumption strategy”; another that “55% of core luxury clients have bought or consider buying second hand.” It is axiomatic that Chanel wishes to profit off the fast-growing second-hand market. TRR alleges that Chanel’s exerted monopoly power in its scheme to “impair the growth and development of innovative resale rivals like TRR who threaten Chanel’s dominance.” On February 24th 2021, the presiding judge permitted TRR to amend its original answer to the 2018 trademark and counterfeiting case with its anti-competition counter-attack. TRR’s amended answer introduces an “unclean hands” defense as well, an interesting legal doctrine. As explained by The Fashion Law, “under the unclean hands doctrine, TRR must allege the ‘same type’ of statements and conduct by Chanel.” With that in mind, the resale company claims that Chanel has made the “same types of statements” – i.e., “false statements about the authenticity of Chanel items bought online and on secondary resale platforms like TRR.” For instance, “Chanel claims on its ‘anti-counterfeiting’ webpage that there are ‘no authorized sellers of Chanel leather goods . . . on the Internet,’ and that items purchased on ‘unauthorized websites are likely to be fake.’” These statements “are objectively false,” according to TRR, as “a Chanel handbag purchased on TRR’s website is categorically not ‘likely to be fake.’” Many of TRR’s claims are hard for Chanel to refute and will likely survive the motion to dismiss stage. Extensive discovery awaits.
The circular economy is probably not a panacea to fashion’s sustainability problem, but it is a good start. Depending on how Chanel v. The RealReal shapes out, the contours of the resale industry may start to show.
Ali Nayfeh is the Online Content Chair for Fashion for the Harvard Journal of Sports and Entertainment Law and a second-year student at Harvard Law School (Class of 2022).