For six generations, Hermès has epitomized French luxury, making and selling its iconic scarves, belts, jewelry, and, of course, handbags. Some Hermès products, including its Birkin and Kelly bags, are so exclusive that they can’t be bought off the shelf. Customers first have to establish a relationship with the house to purchase these specialty bags. One way to do this is by buying other Hermès products.
Aggrieved by this requirement, plaintiffs in California have filed a class-action suit against Hermès alleging its retail practices violate U.S. antitrust laws. Their core complaint is that customers who want to buy either the Birkin or Kelly bags are “coerced” into first purchasing other “ancillary products,” such as scarves, jewelry, ties, and belts.
Despite the astonishing claim that a customer is “coerced” to spend $1,300 on a shawl or $820 on a belt before being “allowed” to hand over an additional $12,000 or more for a Birkin bag, this suit ushers in a new level of frivolity in antitrust litigation—with potentially damaging consequences.
In antitrust language, the specific allegation is that Hermès is engaged in an illegal tying scheme—where the French company is leveraging its market power in handbags (i.e., the “tying product”) into ancillary goods, such as scarves, belts, jewelry, and shoes (i.e., the “tied products”). Consequently, whatever market success Hermès enjoys in, for example, scarves and belts, is asserted to be because of the “coercion” from customers who only want a handbag. The end goal, the suit asserts, is to monopolize these ancillary product categories.
Central to a tying claim is the need to establish well-defined tying and tied “relevant product markets.” Such an exercise is based principally on grouping close substitutes together. But according to the complaint, there are no substitutes for Hermès handbags. Thus, the Birkin and Kelly bags represent what is called a “single-brand monopoly.” In support of this claim, the complaint identifies Air Jordans and the Love bracelet as other examples of iconic products that, apparently, also have no substitutes.
While it is a useful marketing ploy to emphasize the uniqueness and exclusivity of a product, the fact that high-end luxury goods are highly differentiated and desirable does not insulate them from competition. Rightly, within antitrust law, courts are highly skeptical of attempts to define markets around a single product. In other words, courts rarely define a “market” as just one hospital, one fast-food location, one gas station, one brand of milk, or one brand of clothing. Defining markets so narrowly is appealing for plaintiffs in litigation but rarely matches the economic reality of the true options available to consumers.
Even more troublesome is the complaint’s asserted “ancillary products” market that Hermès is allegedly trying to monopolize. Lumping together scarves, ties, belts, shoes, jewelry, etc. means the complaint is claiming Hermès is trying to monopolize each and every one of these product categories. The idea that Hermès has hatched a decades-long scheme to monopolize, for instance, belts makes zero economic sense, given the plethora of luxury brands currently also offering belts.
Further, if Hermès really wanted to implement a plot to extract more money from its consumers—which is the end goal of a tying scheme—they could do so without tying. Both the Birkin and Kelly bags have a fixed supply because they are handmade. Given the overwhelming excess demand for these bags, it seems fairly clear that Hermès could charge significantly more for them. Yet Hermès has made the decision to make the bags more “affordable” and to allocate them to customers who establish a relationship with the company. This policy has the added benefit of preventing opportunistic resellers from simply walking into various stores and buying out the entire inventory of Birkin and Kelly bags.
Finally, let us really consider the implications of this complaint. If plaintiffs can simply assert that highly differentiated and desirable products are “monopolies,” then this opens Pandora’s box for litigation against, for example, Rolex Daytonas, Porsche 911s, and Taylor Swift concerts. This does not mean Rolex or Hermès should be insulated from antitrust liability. It means that liability should be based on real consumer harm.
While it is easy to knock this lawsuit as “silly” (and it is), that does not mean that frivolous antitrust litigation does not have real social consequences. There is a non-trivial chance that, during the proceedings of the trial, Hermès will be forced to disclose sensitive trade secrets, which it has cultivated over its long history as a luxury house. Thus, even a litigation win could ultimately be a loss for Hermès.
