How Did Hermès Wind Up In This Hot Antitrust Mess?
It used to be just about selling luxury bags for staggering sums of money. But along the way, things took a darker turn...
(Photo by Edward Berthelot/Getty Images)
The day has finally come where frustrated Hermès customers are challenging the brand for making them play their games in order to purchase the popular Birkin handbag. The rules of the game mandate customers purchase an unspecified amount of ancillary products, such as shoes, scarves, belts, jewelry, and home goods, in order to have the opportunity to purchase a Birkin. A class action was filed last Tuesday in the Northern District of California accusing Hermès of antitrust and unfair business practice due to this tactic.
Plaintiffs Cavalleri and Glinoga both attempted to purchase a Birkin bag but were counseled by Hermès sales associates to spend more on ancillary products to obtain access to a Birkin. The plaintiffs highlight that “consumers cannot simply walk into a Hermès retail store, pick out the Birkin handbag they want and purchase it.” In fact, the complaint claims that “the handbags will not be displayed on the sales floor for the general public … [and] most consumers will never be shown a Birkin handbag at a Hermès retail store.” The complaint continues to note that “[t]ypically, only those consumers who are deemed worthy of purchasing a Birkin handbag will be shown a Birkin handbag (in a private room).” The greater their “purchase history” of ancillary products, the more “worthy” Hermès considers a customer to be.
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The complaint provides that Hermès’s game is further encouraged by the compensation structure for its sales associates. Hermès sales associates receive a 3% commission on ancillary products, a 1.5% commission on non-Birkin handbags, and no commission on the sale of Birkins. The complaint claims that sales associates “are instructed by Defendants to use Birkin handbags as a way to coerce consumers to purchase ancillary products sold by Defendants … in order to build-up the purchase history required to be offered a Birkin handbag.”
The plaintiffs specifically claim that Hermès’s tying arrangement violates the Sherman Act, 15 U.S.C. § 2, which prohibits “monopoliz[ation] [of] any part of the trade or commerce among the several states, or with foreign nations.”
A tying arrangement is an agreement in which the seller conditions the sale of one product (the “tying” product) on the buyer’s agreement to purchase a separate product (the “tied” product) from the seller. The plaintiffs allege that the “availability of the Birkin handbags is conditioned on customers purchasing ancillary products.” In this case, the plaintiffs claim that “[t]he tying product, the Birkin Handbags, is separate and distinct from the tied products, the ancillary products required to be purchased by consumers, because consumers such as Plaintiffs have alternative options for the ancillary products and would prefer to choose among them independently from their decision to purchase Birkin handbags.” Thus, Hermès’s tying arrangement “ties two separate products that are in separate markets.”
Tying arrangements are not necessarily unlawful. However, they become illegal where the seller has sufficient economic power with respect to the tying product to restrain free trade in the market for the tied product, affecting a not insubstantial amount of commerce in the market for the tied product. The plaintiffs assert that Hermès has “sufficient economic power in the market for Birkin handbags to coerce at least some consumers into purchasing ancillary products from Defendants.”
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The plaintiffs also accuse Hermès of violating various California statutes for the same reasons described in their Sherman Act claim. For example, the plaintiffs claim that Hermès violated the Cartwright Act (Cal. Bus. & Prof. Code, § 16720, 16726), which prohibits the “combination” of resources by two or more persons to restrain trade or commerce, or to prevent market competition. The plaintiffs alleged that “under the Cartwright Act, a ‘combination’ is formed when the anticompetitive conduct of a single firm coerces other market participants to involuntarily adhere to the anticompetitive scheme.”
The plaintiffs seek a class certification, an injunction preventing Hermès from continuing to engage in the practices set forth in the complaint, and an award of monetary damages.
The outcome of this case remains uncertain. Judicial treatment of tying arrangements has shifted over time. In the 1940s, the Supreme Court released opinions displaying skepticism towards tying. For example, in International Salt Co., Inc. v. United States, the Supreme Court held that the company’s business practice of forcing its customers that lease industrial machinery to buy salt from only them is a violation of antitrust laws. The court reasoned that the likelihood of a salt monopoly was “obvious” because the “volume of business affected” (annual sales of salt used in the machines were about $500,000) could not be said “to be insignificant or insubstantial.” In Standard Oil Co. of California v. United States, the Supreme Court stated that “[t]ying agreements serve hardly any purpose beyond the suppression of competition.”
However, in 2006, the Supreme Court “rejected” its previous dicta that tying serves “hardly any purpose beyond the suppression of competition.” In Illinois Tool Works Inc v. Independent Ink, Inc., the Supreme Court found that the lower court’s presumption that “a patent always gives the patentee significant market power” for the tying product is invalid and held that “in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product.”
Besides the courts’ increased tolerance toward tying practices, the plaintiffs face additional hurdles. Their case centers on Hermès’s “tying policy,” which is more complicated than depicted by the plaintiffs. While sales associates consider purchase history, they also weigh other factors such as the client’s involvement in the fashion industry or their social following, as well as the strength of their personal relationship with the client. Furthermore, Hermès’s policy varies depending on the store location. For instance, securing a Birkin at the Paris Hermès store, even without any purchase history, is quite feasible due to its larger inventory.
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According to a Washington Post article, Susan Scafidi, academic director at Fordham University’s Fashion Law Institute, remarked, “Hermes has it in the bag.” She noted the absence of a formal policy outlining minimum spending requirements, making it challenging to prove that ancillary products are being forced on buyers.
This case deserves close attention as its outcome could impact other major brands. While the Hermès game is widely recognized in luxury circles, many luxury brands incentivize customers to build purchase histories by reserving special privileges for their most loyal patrons.
Nicolette Shamsian joined Above the Law as a fashion law columnist in 2023. Nicolette earned her B.A., summa cum laude, in Political Science and minor in Entrepreneurship from the University of California, Los Angeles and her Juris Doctor from UCLA School of Law. Nicolette is an attorney whose work focuses on intellectual property litigation. As a fashion law aficionado, Nicolette enjoys leading discussions to keep attorneys up to date on noteworthy fashion law cases.
