The plaintiffs that sued Hermès in March for allegedly violating U.S. antitrust and competition laws in connection with its “unlawful” tying scheme involving Birkin bags are pushing back against the brand’s attempt to get the case tossed out. In a newly-lodged opposition filing, Plaintiffs Tina Cavalleri, Mark Glinoga, and Mengyao Yang assert that the dismissal-centric arguments put forth by Hermès International and its U.S. subsidiary (collectively, “Hermès) are “unpersuasive” and “lacking [in] merit,” and thus, the court should keep their Birkin-focused lawsuit against the famed luxury goods brand in place.
In the August 16 opposition brief that they filed with the U.S. District Court for the Northern District of California, as first reported by TFL, Cavalleri, Glinoga, and Yang (the “plaintiffs”) take on Hermès’ July motion to dismiss, arguing that the Birkin bag-maker’s motion does not hold water, especially with regard to their “market power” and antitrust standing claims. Those claims, according to the plaintiffs’ lawsuit stem from Hermès’ alleged tying scheme in further of which it illegally “exploit[s] the market power” of its most valuable product, the Birkin bag, by “requiring consumers to purchase other ancillary products” before they are given the chance to purchase the coveted handbag.
Market Power
In an effort to fend off Hermès’ dismissal bid, Cavalleri, Glinoga, and Yang argue that they have alleged unlawful tying under the Sherman Act, despite Hermès’ arguments to the contrary. Among other things, the plaintiffs take issue with Hermès’ claim that they have fatally failed to allege that it maintains monopoly power “in any well defined market.” They contend that case law does not require that they “rigorously define a market for the product” at this stage of the proceedings. And even if it did, they have, in fact, “adequately defined” the market in which Hermès has market power: “Plaintiffs plead that [Hermès’ has] market power in the relevant luxury bag market, and alternatively, [they] plead a ‘submarket,’ [as] the uniqueness of the Birkin bag can create a submarket, a concept related to single-market brands.”
> A unique product: It is the “uniqueness of the Birkin bag” that creates the submarket in question, “a concept related to single-market brands,” the plaintiffs assert, citing the Supreme Court’s decision in Jefferson Parish Hosp. Dist. No. 2 v. Hyde, which they claim is key to their “market power” arguments. (In that case, the Supreme Court held that the strict per se rule against tying “is appropriate in … situations in which the existence of market power is probable … [W]hen the seller offers a unique product that competitors are not able to offer …”.) Here, the plaintiffs argue that the Birkin bag has “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 say supports their per se tying claim.
Hermès’ argument that they have failed to allege “a well-defined market” is “also wrong,” according to Cavalleri, Glinoga, and Yang, who claim that Hermès has overlooked required elements like economic interest and unique product factors. These elements demonstrate that they have alleged a per se tying claim, which requires that plaintiffs prove: “(1) a tie between two separate products or services sold in relevant markets; (2) sufficient economic power in the tying product market to affect the tied market; and (3) an effect on a not-insubstantial volume of commerce in the tied product market.”
Willful Anticompetitive Conduct
As for Hermès’ claim that they have failed to plead “willful anticompetitive conduct,” Cavalleri and co. characterize this argument as “unmeritorious” and point to case law that they say supports their claims in the lawsuit at hand. Specifically, they assert that they need only allege that Hermès “acquired or maintained its monopoly through ‘anticompetitive conduct.” They argue that they have met this requirement by way of “detailed” allegations about the Birkin bag’s “unique market power, and [Hermès’] pricing scheme to obtain supracompetitive prices.”
Moreover, they claim that they have further pleaded that Hermès “willfully engage[s] in anticompetitive conduct” by way of allegations about how its “commission system … incentivizes its sales associates to implement the tying scheme by paying commission for the sale of tied items, but not the Birkin bag.”
Delving further into Hermès’ “willful anticompetitive conduct,” the plaintiffs take issue with the company’s argument (which it makes in its motion to dismiss) that its operations surrounding the Birkin bag are “procompetitive.” The suggestion that Hermès’ Birkin bag-centric scheme is not anticompetitive is “meritless,” per Cavalleri, as “prospective purchasers of a Birkin bag [are] forced to buy entirely unrelated ancillary products” from Hermès first. The plaintiffs cite Supreme Court precedent, which establishes that tying is anticompetitive “if the existence of forcing is probable.” They also note that the U.S. Court of Appeals for the Ninth Circuit recently held that allegations of tying separate products together “filter out procompetitive tying arrangements.”
Antitrust Standing
At the same time, Cavalleri, Glinoga, and Yang state that Hermès’ arguments that they have not established antitrust standing because there is no “foreclosure of competition” due to the fact that they would not “have otherwise bought [the tied products, including jewelry, shoes, perfume, and home goods] even from another seller in the tied product market” are also futile. Because Hermès’ sales practices allegedly “cause economic harm [by] reduc[ing] competition,” the plaintiffs insist that they have standing to pursue their antitrust claims.
As for Hermès’ assertion that they need to – but have failed to – allege that “the tying arrangement affects a not insubstantial volume of the market” in order for their claim to move forward, Cavalleri, Glinoga, and Yang state that in accordance with Ninth Circuit precedent, the amount of commerce in question must simply not be “de minimis.”
TLDR: The plaintiffs maintain that they have, in fact, sufficiently alleged that Hermès has run afoul of the Sherman Act by conditioning the opportunity for a consumer to acquire a Birkin bag (the “tying” product) upon his/her agreement to purchase “ancillary” scarves, shoes, etc. that they would not otherwise buy (the “tied” products) from it. As such, they urge the court to keep their lawsuit in place despite Hermès’ push for dismissal.
The case is Cavalleri, et al. v. Hermès International, et al., 3:24-cv-01707 (N.D. Cal.)
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