The rise of secondhand: should we rethink the First Sale Doctrine in trademark law?

The secondhand industry keeps booming and reached $177BLN in global sales in 2022.

As reported by thredUP in the 2023 Resale Report, the global secondhand market is set to nearly double by 2027, reaching $350BLN and being expected to grow 3x faster on average than the global apparel market overall.

The percentage of products in our closet coming from secondhand will exponentially increase and this trend will impact the market share of fashion companies, especially the ones operating in the premium and luxury segments. According to the same report, by 2024, 10% of the global apparel market is expected to be made up of secondhand apparel.

While secondhand is a virtuous trend to be encouraged from an environmental and ethical perspective, brands are trying to figure out how to make the best of it.

We can observe a wide range of reactions from brand owners:

• Questioning: some brands pointed out secondhand resellers’ inadequacy to authenticate products (Chanel vs The RealReal, Chanel vs What Goes Around Comes Around; Rolex “certified pre-owned” watches);
• Partnering: some other brands launched official collaborations (to quote a few examples, Gucci and Stella McCartney with The RealReal, Burberry and By Far with Vestiaire Collective, Tommy Hilfiger with thredUP);
• Insourcing: many of the brands have launched their own resale channel, thus bringing secondhand in-house (Aigle, Balenciaga, COS, Diesel, Ganni, Gant, Hugo Boss, Levi’s, Lululemon, Patagonia, The Kooples are a few of the brands contributing to the exponential uplift in brand-owned resale shops).

While individual arrangements between brands and platforms certainly present advantages for the parties involved, the reality is that, in order to rebalance the interests at play, the ecosystem as a whole needs a harmonized approach applicable to all the stakeholders.

In this regard, we should all keep in mind that:

• Rightsholders are the ones heavily investing in their brand equity, among others, through marketing, product innovation and brand protection;
• Consumers buying on secondhand platforms are looking for branded products precisely thanks to such investments made by brands.

Trademarks remain a major driver for consumers when purchasing through the secondhand channel. Therefore, to rebalance the interests at play, we should look into trademark law and ask ourselves whether the latter, especially “trademark exhaustion” (also known as the “first sale doctrine” principle, explained below) should be rethought to embrace the new and fast-growing resale trend, which is set to last (and, once again, be encouraged!).

The most appropriate way to rethink trademark law in light of secondhand would be to look for a win-win approach from which both brand owners and secondhand platforms, and ultimately consumers, would benefit. Indeed, the whole secondhand uplift exists today thanks to the intuition and investments of pioneer secondhand platforms, such as Vestiaire Collective, The RealReal, or Vinted, which have been able to massively reshape consumers’ shopping habits and make secondhand a global phenomenon.

So, what role can IP play in this context? Let’s take one step back: trademarks are the most durable IP asset, potentially with unlimited duration, contrary to other IP rights such as copyright, designs and patents. Such durable exclusive nature of trademark rights is mitigated considerably by the principle of trademark exhaustion.

This doctrine exists to strike a balance between the interests of rightsholders, dealers, consumers and the general public by preventing the trademark owner from using their trademark rights to hinder the further commercialization of the goods. Thus, after the introduction in the market of a branded product by its rightsholder, the same product can be resold endless numbers of times without any interference or, most importantly, any additional remuneration for the trademark owner.

However, this is not the case when dealing with other IP assets: authors of certain types of copyrighted works are entitled to be remunerated any time that their artwork is reproduced (music, books, movies) and authors of some other copyrighted works (paintings, plastics, sculptures) in several countries are remunerated every time their work is sold to a new owner under certain conditions (e.g. “droit de suite” conceived in France in 1920 then incorporated in the Bern Convention in 1948, in all the EU countries following Directive 2001/84/CE and in many other countries all over the world – however notably not yet in the US). Thus, the singer Mariah Carey receives royalties every time the song “All I Want for Christmas Is You” is on the radio during the holiday season. Similarly, every time a Picasso painting is sold by an auction house, Picasso’s heirs receive a royalty. More recently, we have also observed how the resale of NFTs can generate royalties for its creator in most cases on contractual grounds.

The proximity, or overlap, between the art and fashion worlds is clear when thinking of luxury products (Hermès or Chanel bags, Patek Philippe watches or limited edition sneakers), which may appreciate over time, similarly to artworks. However, contrary to copyrighted works, trademarked products do not entitle their owner to any reward after their first sale. The justification for this theoretical distinction seems even weaker if we consider that most fashion products are also protected by copyright in many countries in the world.

Similarly, although in different terms, in the patent world we also see a sort of reward for owners of so-called standard-essential patents (SEPs), with exclusive rights subjected to limitations. SEPs are patents declared essential to an industry standard; in other words, it would be impossible to implement a standard without using the patents. They are common in the mobile telephony and telecommunications industry. Given their value for collective progress, the owner of a SEP has an obligation to license its use to other companies on fair, reasonable and non-discriminatory terms (FRAND). This limitation on the patent owner’s exclusive right is compensated by the payment of royalties by the licensees. Thus, here we see how patent law intervenes to readjust the imbalance suffered by essential patents owners.

Regarding fashion resale, trademark exhaustion lacks such “readjustment” or compensation for the rightsholder, even though the resale of a branded product will undeniably occur thanks to the brand equity, which would not exist without the significant investments by the brand itself over time (sometimes hundreds of years). Isn’t one of the ancillary purposes of intellectual property to encourage innovation by protecting the innovators? Why would brands keep investing and innovating if the return on investment is to be shared with multiple players?

The resale in fashion has passed from being a relatively niche phenomenon for vintage aficionados to a new ordinary shopping habit adopted by consumers of different generations. This will keep on growing with an increasing number of commercial players populating the space in various countries, among others Vestiaire Collective, Vinted, The RealReal, Luxe Collective, Preclothed, and for watches Chrono24, Watchfinder, Watchbox; major marketplaces have also entered the space, such as Zalando, Mytheresa, LuisaViaRoma x Vestiaire Collective, Reselfridges, Farfetch.

With such an ever-growing number of players, has the time come to rethink a system where fashion brands also benefit from the resale, going beyond individual agreements negotiated on a case-by-case basis? Should we rethink the first sale doctrine and mitigate it by establishing standard royalties that brands should perceive from organized big players (threshold to be set) any time that an item is sold through their channel? Should this occur through a voluntary (auditable) disclosure pattern, or through tracking technologies as applied in music streaming? Further, should the royalty correspond to an industry standard or vary from one brand to another?

Recognizing royalties on secondhand sales would constitute an asset-light business model that would also limit the brands’ need to relentlessly renew their offerings to keep up with the rhythm of this fast market, allowing brands to slow down and focus on value over volume and speed while making profits from the resale. This would generate a positive impact on the environment by limiting waste and reducing CO2 emissions.

Many questions to answer, but what seems certain in the long term is that the current situation should be rebalanced in favor of all the stakeholders involved.

The opinions expressed are my own and not those of my employer.