Regift Responsible This Holiday Season | Perkins Coie
Consumers today are aware of environmental issues. The younger generations in particular have a clear preference for environmentally friendly products: 74% of Millennials and 62% of Gen Z are willing to pay more for sustainable products. Fortunately, consumer demand has caused a noticeable and welcome shift towards sustainability in the fashion and clothing industry. Gone are the days of fast fashion and disposable clothing: consumers are now reducing their waste by purchasing durable and increasingly used products.
Indeed, the resale, or “recommerce” market is currently worth $ 36 billion and is expected to double to $ 77 billion over the next five years. Today’s second-hand space is also diverse. While physical resellers are always in the game, the future of recommerce is digital. Peer-to-peer applications, like eBay, Depop, Poshmark, and Facebook Marketplace, have the largest market share, and managed consignment markets like TheRealReal and Rebag are big players. Even traditional retailers are vying for a piece of the sustainable pie. Pioneers like Patagonia, Eileen Fisher and REI have implemented buyback, exchange and / or resale programs. Other companies, like Levi’s, Arc’teryx, and The North Face, have also harnessed the circular economy by implementing similar programs. More interesting, however, is the recent focus of the luxury market on recommerce. For example, retailer Net-A-Porter recently launched a resale concept, while luxury conglomerate Kering SA bought a 5% stake in French resale platform Vestiaire Collective earlier this year. This is a notable fulcrum given the luxury sector’s historic skepticism towards resale. This shift has undoubtedly come about thanks to luxury resale sites like The RealReal, which have helped raise the public’s perception of reselling beyond “saving” for cheap or unwanted products.
While retail is not new, its renaissance and shift to e-commerce has raised issues that resellers and brands will need to overcome, including the possible extension of second-hand reseller laws to e-commerce and the prevention of intellectual property infringements through appropriate product authentication. As discussed below, resellers and brands can address these issues by planning and leveraging strategic partnerships within the circular economy.
Compliance with laws on second-hand dealers
Traditional brick and mortar dealers are no doubt familiar with the complex environment of used dealers. National and local junk dealer laws were originally established to prevent criminal activity and have proven effective against trafficking in stolen goods. However, they impose onerous requirements on resellers. For example, although they vary from state to state, used reseller laws generally require resellers to be licensed and to submit daily reports detailing their inventory, as well as other information. relating to original owners, ranging from fingerprints and photo ID to attributes. Second-hand sellers are also required to hold each piece of inventory for certain “retention periods” (often 30 days or more) and to comply with law enforcement audits with one day’s notice. Finally, violations of the laws on second-hand dealers can lead to criminal penalties such as fines or imprisonment. It’s important to note that even those with small-scale trade-in programs are subject to the laws of second-hand dealers. .
Online resellers have largely escaped the application of second-hand dealer laws as they often predate e-commerce and sometimes consider brick-and-mortar stores. However, many second-hand dealers laws are worded quite broadly, so they arguably encompass online commerce. Given the recent trend towards stricter regulation in the e-commerce space – for example, the INFORM Consumer Law, which would impose significant verification and disclosure requirements on online marketplaces – it can be assumed that the application of second-hand dealers laws to the digital sphere could be on the horizon. If and when that day comes, it will pose significant regulatory challenges for online resellers. For example, three or more sets of laws may apply when the buyer, seller, and warehouse are in different states. The type of transaction could also affect the application of junkyard laws: some transactions involving store credit instead of cash are exempt from junkyard laws in Washington, other states exempt consignment transactions, and others provide very few or no exceptions at all. Additionally, some states require the collection and recording of fingerprints or other personally identifiable information, sometimes even as granular as eye color, weight and height. The separate regulatory frameworks surrounding the collection of driver’s license data, biometric data, and other personally identifiable information present a number of risks for resellers.
With this in mind, market entrants should work with trusted attorneys to develop a multi-jurisdictional compliance strategy to satisfy relevant second-hand reseller laws, and to develop comprehensive privacy and data security programs for manage the data collected.
Prevention of infringements through proper authentication
It’s a story as old as resale – re-commerce offers many environmental and economic benefits for those seeking offers, but often at a price: namely, the lack of a guarantee that you are buying a genuine product.
The threat of counterfeits poses challenges for both resellers and brands. First, while the first-sale doctrine precludes brand owners from controlling the resale of genuine, unmodified branded goods, the lack of a counterfeit policy could result in the dilution or loss of an owner’s rights. Mark. Counterfeits also present significant risks for resellers. For example, popular luxury consignee The RealReal took a serious reputational blow due to trademark infringement and Chanel’s 2018 infringement lawsuit accusing The RealReal of selling counterfeit CHANEL handbags, despite promises by 100% authenticity. RealReal also faces unique challenges as it is publicly traded. For example, The RealReal’s stock prices fell in response to a 2019 CNBC report, which uncovered hundreds of consumer complaints about counterfeit and damaged products. It was also recently the subject of a shareholder lawsuit over its allegedly misleading authentication process.
The woes of RealReal demonstrate that behind well-intentioned authentication policies, there is still a margin of error.
Some brands have fully amortized resale and have opted for litigation (see above), purchase quotas, or even the destruction of overstocks. Despite these efforts, consumer demand for second-hand products remains. Perhaps this is why some brands have proactively invested in established or emerging re-commerce retailers, such as Vestiaire Collective (Kering), Sellpy (H&M), Stadium Goods (LVMH Moët Hennessy Louis Vuitton) and Fashionphile. (Neiman Marcus) – or have partnered with resellers, like a recent Madewell x ThredUp pop-up store in Brooklyn, New York. By partnering with retail retailers, brands can participate in the authentication process, allowing them to avoid brand dilution while enjoying the benefits of participating in the circular economy. Of course, the cachet and credibility of brand partnerships also reinforce the reputation of resellers.
Brands could also consider setting up their own resale sites, which would separately satisfy consumer demand for fully authenticated second-hand products.
Take away food
There is consumer demand for environmentally friendly resale products, and the retail market is growing at a rapid rate. However, resellers and brands should be careful to take into account the various legal issues that the second-hand space faces.
While still on the horizon, expanded enforcement of ecommerce second-hand reseller laws would pose many challenges, but proper planning can help prepare online resellers for what lies ahead. Compliance and Privacy Advisors can help resellers navigate this difficult and evolving regulatory regime.
Separately, brands faced with counterfeit resellers have various tools to fight counterfeits without involving the courts. For example, “informal enforcement” through letters of formal notice, business-to-business discussions and / or opt-out requests can go a long way in tackling infringements. Trademark owners should rely on trusted intellectual property lawyers to develop an enforcement plan based on the facts of the specific infringement at issue.
Additionally, as several of the above examples show, brands can guard against counterfeiting by proactively participating in the circular economy. Intellectual property advisers can help brands establish partnerships, including through licensing agreements, co-branding agreements, merchandising agreements, and other contractual arrangements. By partnering with resellers, fashion and clothing brands can contribute to sustainability while preventing fakes.
 Gamestop, Inc. v Bridgett, # 2: 17 – cv – 00719 – TLN – KJN, 2017 WL 1929332, at ** 1, 3 (ED Cal. May 10, 2017) (denying GameStop’s motion for a temporary restraining order against law enforcement Californian on used dealers).