In March 2024, two private individuals (Cavalleri and Glinoga) filed a class action lawsuit alleging that Hermès was 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”.
What they were alleging is that you can’t buy a Birkin bag unless you’ve previously bought other items from Hermès. They said that they had to purchase other items first (the cost of which was significant), and even then, it didn’t mean that they’d “qualify” to purchase the elusive Birkin bag. 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 the fuss about a bag named after the actress Jane Birkin?
The Hermès reputation
In their lawsuit, the claimants acknowledged that “for decades, Hermès has developed its reputation and distinctive image”, with its origins going back to 1837. It sells direct to consumers through its own retail stores and, save for Birkin bags, also on its website. As a result, 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 said that these bags are not publicly displayed for sale.
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, but also the fact that it has the Hermès name attached to it. Intellectual property 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 can create a bag with a similar design and/or apply the Hermès stamp. That is lawful anti-competitive behaviour in the sense that a luxury brand owner can keep other competitors out of their own space, which is carved out by their IP rights, goodwill and reputation.
When does a dominant position become a problem?
Just because you are a well-known luxury brand, your marketplace position is not automatically a dominant one. For example, can similar products be purchased elsewhere? Hermès is not the only brand owner occupying the luxury bag space. If you can’t get a bag from Hermès, you could try your luck with brands like Chanel, Louis Vuitton or Gucci.
The luxury market for bags may be small compared to the mass market, but it is a different playing field. The quality and price of such products in the luxury market are higher, which consequently tends to mean that a large group of consumers cannot gain access. Does that mean that Hermès could be abusing a “dominant position” by limiting access to its bags, or suggesting that customers need to have built up a portfolio of other accessories first? The answer depends on size, the identified market, what practices are in play and what effect these have on consumers. These points were all in issue in the US case.
What happened in the US suit?
The claimants in the US case tried to argue, through a number of amended claims, that Hermès was being anti-competitive. Cavalleri spent tens of thousands of dollars at Hermès and claims that they “had been coerced into purchasing ancillary products in order to obtain access to Hermès Birkin bags”. When asking about buying another 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.
A US judge dismissed the most recently amended claim on the basis that there was no recognisable product market, no establishment of market power (it cannot be assumed that a significant market share equals power) and no anti-competitive harm.
In the US, the problem for the claimants was establishing (i) what was the relevant market and (ii) what the share of that market was? Ultimately, there was not enough evidence to support the claimants to deal with these two issues, as well as insufficient evidence of the effect in the marketplace (no doubt because of the availability of other luxury bag alternatives).
Put simply, just because these bags were kept for those who were willing to pay the higher price, that didn’t amount to anti-competitive behaviour. This might not be the end of the story as the claimants could bring a claim in state court, but bear in mind they have already been given several opportunities to refine their case.
What does that mean for luxury brands in the UK?
Competition law in the UK does not allow dominant businesses to require customers wishing to purchase one product to purchase a different one in addition – “tying” as it is known. This is specifically referred to by the Competition & Markets Authority as bad practice.
In the UK, a dominant position is typically 40% or more of the relevant market. However, even if there is a dominant market position, there has to be evidence of abuse (which can include tying practices). This is further complicated by the fact that market power can also come from a brand owner’s suite of IP rights and its significant goodwill and reputation (which is not inherently objectionable).
To really test the UK position, we would need to see a case get off the ground under UK law. In the meantime, the US decision will no doubt be seen as a significant boost for UK luxury retail brands. By the very nature of allure and price, there is a reserved marketplace for them in which to trade. Brand power does not automatically equate to an anti-competitive starting point. Absent evidence of internal reward systems that promote tying and which unfairly exclude consumers, the luxury space will be hard to criticise for its brand magnetism. That said, it may be worth luxury brands ensuring that their internal paperwork is in order, if ever there is a knock on the door with the CMA asking questions about selling practices.
Martin Noble is an IP and media partner in Freeths’ Birmingham office. His expertise encompasses the full range of IP rights, including patents, trademarks, designs and copyrights, and his practice spans the technology, manufacturing, retail, education and energy sectors. He can be reached at [email protected].
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