Plaintiffs fight Hermès' attempt to avoid lawsuit over Birkin bag scheme

Plaintiffs who sued Hermès in March for alleged violations of U.S. antitrust and competition laws in connection with its “unlawful” tying deal with Birkin bags are fighting the brand's attempt to dismiss the case. In a recently filed motion to dismiss, plaintiffs Tina Cavalleri, Mark Glinoga and Mengyao Yang claim that the arguments for dismissal put forward by Hermès International and its U.S. subsidiary (collectively, “Hermès”) are “unpersuasive” and “deficient.” [in] merits” and therefore the Court should uphold the action against the famous luxury goods brand.

In their opposition brief filed on August 16 in the U.S. District Court for the Northern District of California, Cavalleri, Glinoga and Yang (the “plaintiffs”) take up Hermès' July motion to dismiss, arguing that the Birkin bag maker's motion lacks merit, particularly with respect to their “market power” and antitrust claims. These claims, the plaintiffs' suit allege, are based on Hermès' alleged tying scheme in which the company illegally “exploits the power of customers.”[s] The government is “undermining the market power” of its most valuable product, the Birkin bag, by “forcing consumers to purchase other byproducts” before they get the chance to acquire the coveted handbag.

Market power

To defeat Hermès' attempt to dismiss, Cavalleri, Glinoga and Yang argue that they have alleged an impermissible tying arrangement under the Sherman Act despite Hermès' arguments to the contrary. Among other things, the plaintiffs object to Hermès' claim that they failed to assert that the company holds a monopoly position “in a clearly defined market.” They claim that at this stage of the proceedings, case law does not require them to “strictly define a market for the product.” And even if they did, they did indeed “adequately define” the market in which Hermès has market power: “Plaintiffs argue that [Hermès’ has] Market power in the relevant market for luxury bags, and alternatively [they] advocate for a “sub-market”, [as] The uniqueness of the Birkin bag can create a sub-market, a concept related to single-market brands.”

> A unique product: It is the “uniqueness of the Birkin bag” that creates the sub-market in question, “a concept related to single-market brands,” the plaintiffs claim, referring to the Supreme Court decision in Jefferson Parish Hosp. Dist. No. 2 v. Hyde, which they believe is key to their “market power” arguments. (In this case, the Supreme Court ruled that the strict per se The prohibition of tying is “appropriate in … situations where the existence of market power is likely … [W](if the seller offers a unique product that the competition cannot offer…). Here, the plaintiffs argue that the Birkin Bag has “a unique brand identity, craftsmanship and exclusivity” and “unique desirability, incredible demand and low supply”, making it so that “there are only ‘imperfect substitutes’ for the Birkin Bag”, a fact that they believe makes their per se Coupling claim.

Hermès' argument that they failed to claim “a clearly defined market” is “also false,” according to Cavalleri, Glinoga and Yang. They claim that Hermès overlooked required elements such as economic interest and unique product factors. These elements show that they have claimed a per se Tying claim, which requires the plaintiff to prove that “(1) there is a link between two different products or services sold on the relevant markets; (2) sufficient economic power on the market for the tying products to influence the tied market; and (3) an impact on a non-negligible volume of trade on the market for the tied products.”

Intentional anti-competitive behaviour

As for Hermès' claim that they failed to allege “intentional anticompetitive conduct,” Cavalleri and Co. call that argument “unsubstantiated” and point to case law that they believe supports their claims in the present lawsuit. Specifically, they claim that they need only allege that Hermès “obtained or maintained its monopoly through 'anticompetitive conduct.'” They argue that they met that requirement by making “detailed” claims about the “unique market power” of the Birkin bag, and [Hermès’] pricing scheme to achieve super-competitive prices.”

In addition, they claim that they further asserted that Hermès “willfully[s] anti-competitive conduct” through allegations about how its “commission system … incentivizes its sales staff to implement the tying system by paying commissions on the sale of tied items, but not on the Birkin bag.”

The plaintiffs elaborate on Hermès' “intentional anticompetitive conduct” and rebut the company's argument (which it makes in its motion to dismiss) that its activities around the Birkin bag are “pro-competitive.” The claim that Hermès' Birkin bag-centric scheme is not anticompetitive is “baseless,” according to Cavalleri, because “potential buyers of a Birkin bag [are] forced to initially purchase completely unrelated byproducts” from Hermès. The plaintiffs cite Supreme Court precedent that holds that tying is anticompetitive “if the existence of coercion is probable.” They also point out that the U.S. Court of Appeals for the Ninth Circuit recently ruled that allegations of tying separate products together “weed out procompetitive tying arrangements.”

Antitrust position

At the same time, Cavalleri, Glinoga and Yang claim that Hermès' arguments that they do not have antitrust powers because there is no “exclusion of competition” since “otherwise they would not have bought [the tied products, including jewelry, shoes, perfume, and home goods] from another seller on the tied product market” are also pointless. Since Hermès’ sales practices allegedly “cause economic damage [by] Reduce[ing] The plaintiffs insist that they are entitled to assert their antitrust claims.

As for Hermès' contention that it must demonstrate – which it has so far failed to do – that “the tying transaction affects a non-trivial portion of the market” in order to succeed in its claim, Cavalleri, Glinoga and Yang argue that, consistent with the Ninth Circuit's case law, the scope of the tying transaction in question simply cannot be “de minimis.”

In brief: Plaintiffs claim that they have, in fact, sufficiently shown that Hermès violated the Sherman Act by making the ability of a consumer to purchase a Birkin bag (the “binding” product) contingent on his/her agreement to purchase “additional” scarves, shoes, etc. that he/she would not otherwise purchase (the “binding” products). Therefore, they ask the Court to sustain their complaint despite Hermès's efforts to dismiss it.

The case is Cavalleri et al. v. Hermès International et al.3:24-cv-01707 (ND-Cal.)