Chanel, Inc. v. What Comes Around Goes Around LLC — Second Circuit Upholds $4 Million Counterfeiting Verdict but Vacates Costs Award as Premature

Background

Chanel, Inc. manufactures luxury handbags and owns federally registered trademarks including the 'CHANEL' wordmark and the interlocking 'C' logo. It produces goods only to order in authorized factories, records each item's serial number in its internal ORLI inventory system, and does not specifically authorize secondhand sale of its branded goods. In 2012, 30,000 authenticity cards were stolen from the Renato Corti factory, an authorized Chanel manufacturer in Italy. What Comes Around Goes Around LLC and its affiliates (collectively WGACA) resell secondhand luxury goods online and in stores, guaranteeing authenticity through in-house experts.

In 2018 Chanel sued WGACA in the Southern District of New York, alleging trademark infringement, false association, and false advertising based on sales of handbags with stolen or voided serial numbers, handbags not matching ORLI records, and 779 unauthorized 'counter-support' items. A jury found WGACA willfully infringed Chanel's marks, falsely associated with Chanel, engaged in false advertising, and willfully sold counterfeit goods, awarding the statutory maximum of $4 million. After a bench trial on equitable remedies, the district court entered judgment on February 26, 2025, ordering disgorgement of $12,739 in net profits and a permanent injunction. In a post-trial order entered June 26, 2025, the court denied WGACA's Rule 50 and Rule 59 motions and Chanel's attorneys' fees motion, but awarded $560,978.97 in litigation expenses as 'costs.' WGACA appealed only the counterfeiting verdict, the damages award, and the costs award.

The Court’s Holding

The Second Circuit affirmed the February 26, 2025 judgment and otherwise affirmed the post-trial order, vacating only the costs award. On jury instructions, it held the district court adequately charged the jury on the Lanham Act's definition of a 'counterfeit mark,' 15 U.S.C. § 1116(d)(1)(B). The instruction need not track the 'overrun exclusion' verbatim; taken as a whole it conveyed that a counterfeit is a copy that is 'not genuine or authentic' and 'not manufactured by Chanel,' and the district court repeatedly distinguished infringement from counterfeiting during trial.

The court also found no abuse of discretion in excluding evidence that Chanel sued to suppress the secondhand market, which it deemed irrelevant to whether WGACA sold counterfeit goods, while noting WGACA could still cross-examine Chanel witnesses for bias. It upheld the $4 million statutory damages award under 15 U.S.C. § 1117(c), applying the Williams due-process standard rather than BMW v. Gore, and finding the award not 'so severe and oppressive as to be wholly disproportioned to the offense,' given evidence that WGACA kept selling counterfeit bags during litigation and the award's deterrent purpose.

The court vacated the $560,978.97 costs award as premature. Chanel had sought legal-research and ESI-hosting expenses only within its denied attorneys' fees motion, never filing a separate bill of costs under 28 U.S.C. § 1920, so the district court erred in treating those expenses as taxable 'costs of the action.' The case was remanded for Chanel to file a bill of costs with the Clerk in the first instance.

Key Takeaways

• A jury instruction on 'counterfeit mark' need not quote the Lanham Act's overrun exclusion verbatim if the charge as a whole tells the jury that goods from an authorized factory but not approved for sale are infringing, not counterfeit.
• Evidence of a trademark plaintiff's motive to eliminate the secondhand market is irrelevant to counterfeiting and may be excluded, as long as the defendant may still probe witness bias.
• Statutory damages for willful counterfeiting are reviewed under Williams, not Gore, and may exceed actual profits by orders of magnitude to serve deterrence without violating due process.
• A district court cannot award litigation expenses as 'costs' under 28 U.S.C. § 1920 when the prevailing party sought them only in a denied attorneys' fees motion; the party must file a separate bill of costs.

Why It Matters

The decision reinforces the statutory line between infringement and counterfeiting, giving district courts flexibility in wording jury charges while protecting defendants' ability to argue that authorized-factory goods are merely infringing. It also confirms that Lanham Act statutory damages are not punitive damages subject to Gore and can dwarf actual profits where deterrence demands. Finally, the vacatur draws a bright procedural line between attorneys' fees and taxable costs, requiring a separate bill of costs before a district court may award litigation expenses.