Resale Market on the Petri Dish: The RealReal Amends the Complaint by Adding An Antitrust Claim Against Chanel

*** The writing does not, and is not intended to, constitute legal advice by any means***

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Source: The official website of The RealReal

The legal battle between Chanel and The RealReal goes a long way back. In 2018, Chanel initiated a trademark infringement lawsuit against The RealReal when The RealReal had authenticated Chanel handbags, which later turned out to be fakes. Now, it has evolved to include an antitrust counterclaim by The RealReal. The RealReal alleges that Chanel has been unlawfully attempting to assert dominance in the resale market. Despite Chanel's efforts to block the addition of the antitrust counterclaim, Judge Gorenstein granted a motion for leave to amend the initial complaint. Rule 15(a)(2) of the Federal Rules of Civil Procedure affords the presiding judge the discretion in granting the motion and the presumption is towards granting it. "The court should freely give leave (italicization mine) when justice so requires." The Supreme Court ruled that, absent either bad faith or undue delay on the part of the movant, the denial needs to be justified. See Foman v. Davis, 371 U.S. 178, 182 (1962). Judge Gorenstein reasons that neither is found in the present case. The RealReal then proceeded to amend the complaint.

Now let's get to the substance of it. According to the amended answer, The RealReal states that it brings the antirust claim to "confront and stop Chanel's efforts to stymie competition that would benefit the customers of [The RealReal] and consumers generally." It further alleges that "Chanel has waged an aggressive campaign of exclusionary conduct" so as to disrupt and interfere with the RealReal's existing business relationships. According to the allegations, The RealReal believes that Chanel is engaging in this series of exclusionary acts because its hard-sealed dominance is being chipped away by prominent resale market players, including The RealReal. The specific actions being complained of are as follows:

1) entering into exclusive contracts with high-end retailers and using its monopoly power to force these retailers to refuse to engage in any ancillary relationship with resale competitors

2) engaging in a concerted refusal to deal with print and digital advertisers that deprived competitors from placing advertisements in the most highly desirable locations

This vertical boycott claim (a concerted refusal to deal) under the Sherman Act is subject to the rule of reason analysis. That is, The RealReal has to demonstrate that anticompetitive effects flowing from Chanel's exclusionary conduct outweigh pro-competitive ones. It remains to be seen how the judge would characterize the alleged misconduct. Having said this, it's really interesting to see how interlocked intellectual property law and antitrust law can be in the context of luxury brands. Whatever the outcome of this case will be, it is likely that the losing side would be irreparably harmed in terms of reputation. I've never seen the inner-workings of a resale market player vis-à-vis an established luxury house this scrutinized in the eyes of the public. The tense relationship is indeed on the petri dish.