Challenged Couture: Antitrust Class Action Against Hermès Signals New Industry Trend
Daniela Pagnozzi
Nov 4, 2024
4 min read
Updated: May 8
Earlier this year, antitrust lawsuits became an unexpected trend that has put the fashion world on alert.[1] These lawsuits raise the question of whether a crackdown on luxury brands’ business practices is here to stay or just a fad.[2] This past March, French fashion house Hermès made headlines after it became the named defendant in an antitrust lawsuit, Cavalleri v. Hermès International.[3]Cavalleri was filed just one month before the Federal Trade Commission announced its own antitrust lawsuit against other fashion companies.[4] With these two cases looming, luxury companies may need to broaden their trend forecasts to account for potential antitrust scrutiny.[5]
Hermès is among the few luxury brands that have not sacrificed quality for rapid output, as the fashion industry has become inundated by fast fashion.[6] Unlike other brands, Hermès avoids using mass production techniques and loud marketing campaigns which have become the industry norm.[7] Instead, the brand aligns its business approach with its roots as a quality leather goods manufacturer by continuing to train its leatherworkers in hand-stitching bags.[8] For Hermès, this commitment to quality comes at a price.[9]
This quality-over-quantity approach is the catalyst for Cavalleri, where plaintiffs allege that Hermès intentionally restricts the output of its bags to monetize on the high demand and to harm competitors.[10] At the center of the lawsuit is the plaintiffs’ allegation that Hermès conditions a customer’s eligibility to buy a Birkin or Kelly bag on the purchase history of “ancillary” products.[11] The plaintiffs argue that this practice amounts to a tying arrangement and is thus subject to antitrust scrutiny.[12]
The Supreme Court has held tying arrangements are not inherently illegal and, in some instances, can be pro-competitive.[13] However, tying arrangements can raise antitrust concerns when a seller possesses sufficient economic power to restrain free trade in the relevant market.[14] Hermès argues the plaintiffs assume that a company presumptively controls the market merely by producing a low supply of the product and that this assumption does not capture antitrust jurisprudence in its entirety.[15] The Supreme Court has defined market power as the “ability to raise prices profitably by restricting output.”[16] In Judge James Donato's view, the plaintiffs have struggled to offer evidence that Hermès manufactures a small quantity of Birkin and Kelly bags to cause other luxury handbag brands to restrict output as well, leading to an increase in market-wide prices.[17] Hermès argues the plaintiffs misguidedly define the relevant market as a single market consisting of only Birkin and Kelly bags.[18] Even if Hermès has made a name for itself in a level of its own, courts have rejected arguments that a single branded product constitutes a relevant market.[19] Hermès maintains that the company does not require extensive purchase history for eligibility but that even if that were true, it would not be illegal.[20]
The plaintiffs’ characterization of Hermès is not entirely unfounded—its products are expensive and limited in supply—but the plaintiffs have failed to demonstrate how this violates antitrust laws.[21] During a case management conference this past September, Judge Donato struggled to identify the purported injury, a key requirement for an antitrust claim.[22] The judge stated Hermès can run its business how it chooses, including producing a small number of Birkin and Kelly bags and charging a hefty price tag.[23] Despite suspicions of a weak antitrust argument, the case is still pending.[24] Accepting the plaintiffs’ arguments could alter antitrust understanding across the legal landscape, specifically as it relates to defining the relevant market for handbags.[25] Fashion houses should keep an eye on this case; a judgment against Hermès could signal antitrust scrutiny may be more than just a passing trend.[26]
[12]See id. at 6–7; see alsoN. Pac. Ry. Co. et al. v. United States, 356 U.S. 1, 5–6 (1958) (defining tying arrangement as “an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier”); Tying the Sale of Two Products, Fed. Trade Comm’n, https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/tying-sale-two-products (last visited Oct. 31, 2024).
[13]See Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 36–37 (2006).
[15]See Defs.' Notice of Mot. and Mot. to Dismiss Pls.' First Am. Class Action Compl. at 6, Cavalleri v. Hermès Int’l, No. 24-cv-01707 (N.D. Cal. filed July 2, 2024).
[16]Ohio v. Am. Express Co., 585 U.S. 529, 549 (2018).
[18]See Defs.’ Reply in Supp. of Mot. to Dismiss Pls.’ First Am. Class Action Compl. at 7, Cavalleri v. Hermès Int’l, No. 24-cv-01707 (N.D. Cal. filed Sept. 9, 2024).
[19]See Green Country Food Mkt., Inc. v. Bottling Group, LLC, 371 F.3d 1275, 1282 (10th Cir. 2004).
[20]See Defs.’ Reply in Supp. of Mot. to Dismiss Pls.’ First Am. Class Action Compl., supra note 18.
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