What luxury fashion can learn from Hermès’ Birkin lawsuit

A proposed class action filed in the US has recently hit the headlines, as French luxury label Hermès faces up to allegations of anti-competitive behaviour.

In the court papers, filed on 19 March in California, two individuals (known as Cavalleri and Glinoga) allege that Hermès has been involved in the “unlawful practice of tying the purchase of the defendants’ popular Birkin bags to the purchase of other defendant’s luxury clothing and accessory items”. To put it another way, it is alleged that you can’t buy a Birkin bag unless you’ve previously bought other items from Hermès. A quick internet search will tell you that a ‘standard’ Birkin bag could cost around £10,000, but the diamond covered crocodile skin version might set you back 20 times that figure. So, what’s all the fuss about a bag named after the actress Jane Birkin?

The claimants acknowledge in their court papers that “for decades, Hermès has developed its reputation and distinctive image”, with its origins going back to 1837. It sells direct to consumer through its own retail stores and (save for Birkin bags) also on its website, meaning you cannot click and buy a Birkin bag online. The claimants also allege that consumers “cannot simply walk into a Hermès retail store, pick out the Birkin handbag they want and purchase it”. They are not publicly displayed for sale, they allege. [Hermès has stores located in the UK, Australia, the US and China.]

The fundamental point here is that as a brand owner, Hermès enjoys a significant position in the marketplace by virtue of its goodwill and reputation. It’s not just the design of the Birkin bag, it’s also the fact that it has the Hermès name attached to it. IP rights permit businesses to enjoy a monopoly in the marketplace where they can create a situation where only their genuine article can be sold – no-one else could create a bag with a similar design and/or apply the Hermès stamp.

It is not as if Hermès is the only luxury brand owner in this space either. If you can’t get a bag from them, you could try your luck with other labels like Chanel, Louis Vuitton or Gucci. So, if the case was brought in the UK, Hermès might argue it is not abusing a dominant position as it is not the only  player in this sector.

The claimants in the US case are concerned because they believe Hermès is being anti-competitive. Cavaleri spent tens of thousands of dollars at Hermès and “had been coerced into purchasing ancillary products [such as shoes, scarves, ties, belts, jewellery and homeware] in order to obtain access to Hermès Birkin bags”. When asking about buying a further Birkin bag, they were told they hadn’t been consistent enough with their purchases, while Glinoga was told by a sales associate that they’d have to buy ancillary products “in order to potentially obtain a Birkin bag”. Sales associates, it is alleged, get no commission on the sale of a Birkin bag, but up to 3% on other products – so it is in their interests to maintain the hunger of consumers for the illustrious handbag.

The latest news development is that Hermès has issued a strike-out application to be heard from July onwards, on the basis that the claim is legally flawed. The label’s argument is centred on its position that it does not sit in a dominant position in the market for the Birkin bag, as there are many other bags available and therefore there is no coercion on consumers. Hermès also states that having a loyal following is lawful where they are simply “creating better, more desirable products than anyone else”. Other brands and lawyers in this area will be watching proceedings closely.

The case might never get off the ground in the US – as a class action it will need the support of many [a class action needs more plaintiffs/claimants/aggrieved consumers]. Other than the two stories in the US court papers, alongside similar online anecdotes, no hard evidence of Hermès’ company policy has been unearthed to suggest this is a corporate attempt to deliberately induce consumers to buy products that they didn’t come into the store for in the first place.

It is early days, but the case should serve as a reminder to luxury fashion brands and retailers that while IP rights are a lawful form of monopoly in the marketplace, there are lines that you simply should not cross. Competition law in the UK does not permit dominant businesses to require customers wishing to purchase one product to purchase a different one in addition – “tying” as it is known, is specifically referred to by the Competition & Markets Authority as bad practice.

Businesses that are found to have broken competition law can be fined up to 10% of their annual worldwide turnover, be subject to damages claims and their directors disqualified for up to 15 years. This can also negatively impact reputation. It requires businesses to consider whether their internal reward systems promote tying practices and a claim could also lead to the disclosure of any internal communications that promote anti-competitive behaviour. Fair competition should leave brand owners jostling for position using the power of their IP rights (as they are entitled to), without leaning towards activities that distort that competition.

If the US proceedings are not dismissed —they may never see the light of day if an out of court settlement is reached —at least they should make luxury brands and retailers in the UK, as well as the US, reflect in order to ensure they are not the next target of a lawsuit.