The Hermès Hoax – Does Hermès Really Have It in the Bag? How the Birkin Bag May Be an Antitrust Law Violation

Whether you’ve seen unboxing videos on TikTok or these bags on the arms of celebrities (and their children!), the Birkin handbag has permeated the fashion world. When it comes to luxury goods, Hermès is consistently seen as the pinnacle of high fashion; other brands are certainly similarly exclusive, but few are as elusive as Hermès. In particular, no Hermès product proves to be as mysterious and out-of-reach as the Birkin, with average prices ranging between $10,000 and $60,000, though some bags are up to $500,000, and waitlists extend for months or years. Accordingly, the Birkin is considered a prime investment, with an average annual return of 14.2% from 1980-2015, even outperforming the S&P 500, having an average annual return of 8.65%. Plus, the Birkin has only experienced positive fluctuations since its introduction into the market. 

However, money and time are not the only limitations on acquiring this investment: customers must also be personally invited to purchase one by an Hermès sales associate. Further, the bags are not sold through Hermès online. Hence, the Birkin’s low supply and selectivity, coupled with its high demand and unique desirability, are key to Hermès’ market power. 

While scarcity is central to Hermès’ business scheme, brand identity, and overall success, it may also be causing major trouble. Hermès currently faces a lawsuit, Cavalleri et al. v. Hermès International et al., for allegedly violating U.S. antitrust and competition laws by illegally tying Birkin bag sales to the purchase of other Hermès products (their “tying scheme”). Plaintiff Tina Cavalleri, a California resident, spent tens of thousands of dollars at Hermès and alleges that sales associates directed her, along with other customers, to buy ancillary products in order to achieve purchase eligibility for Birkin handbags. This essentially makes the purchase of a Birkin contingent on buying other products. More specifically, Cavalleri accuses Hermès of exploiting their market power through this scheme, effectively increasing the price of Birkin handbags while simultaneously profiting off the sale of other products, such as shoes, scarves, belts, jewelry, and home goods. 

As part of this tying arrangement, Hermès allegedly directed sales associates to only offer Birkins to consumers with a  “sufficient purchase history” or “purchase profile.” The amount that consumers must pre-spend on other products to prove brand loyalty and ultimately qualify for the Birkin bag is unknown and completely discretionary. Also, sales associates are likely incentivized to enforce this arrangement. While associates receive no commission on Birkin bags, they receive a 3% commission on ancillary products and a 1.5% commission on non-Birkin bags. Arguably, this further contributes to Hermès’ overall market authority and harms competition and consumer welfare.

Even though other brands may employ similar tactics, the complaints allege Hermès perpetuates its monopoly by controlling brand image, distribution channels, and product availability. Accordingly, Plaintiffs assert that Hermès has violated Section 2 of the Sherman Antitrust Act, California’s Cartwright Act, and California’s Unfair Competition Law.

Generally, to establish a violation of Section 2 of the Sherman Antitrust Act, there must be proof that Hermès possesses “monopoly power in the relevant market” and that acquisition or maintenance of this monopoly power has been through  “exclusionary,” “anticompetitive,” or “predatory” conduct. Similarly, Section 16727 of California’s Cartwright Act requires proof that Hermès has sufficient economic power in the market for the tied/ancillary products to cause harm to competition in the overall market for the tied/ancillary goods. Further, California’s Unfair Competition Law prohibits “unlawful, unfair, or fraudulent” conduct in connection with business activities. 

At this stage, Hermès has filed a Motion to Dismiss as of July 2024, and Plaintiffs have filed an Opposition to Hermès’ Motion to Dismiss as of August 2024. Though Plaintiffs assert that Hermès has unprecedented control over market dynamics, Plaintiffs may not be able to overcome Hermès’ arguments. Hermès asserts that their anticompetitive conduct has not been willful, that Plaintiffs have not adequately defined the market, and that their Birkin bag operations are “procompetitive,” thus not causing economic harm. Legal experts similarly posit that it may be difficult for Plaintiffs to specifically define the market in which Hermès maintains its supposed monopoly power. However, Plaintiffs contend that case law does not require a defined market, and even if this was a fundamental component, the Birkin bag comprises a submarket in and of itself due to its uniqueness and desirability. 

It is unclear whether Plaintiffs will prevail with their myriad claims, even with the various laws invoked, especially considering the September 19, 2024 hearing. In fact, the California federal judge, Judge Donato, not only said that Plaintiffs should amend their complaint as the current version does not show how Hermès has foreclosed competition, but also terminated Hermès’ Motion to Dismiss. He didn’t see how “competition has been ‘substantially foreclosed’ in the luxury handbag market” through the alleged tying scheme. He even saw Hermès’ practices as procompetitive, saying "If their business model is, 'We have a $10,000 bag that you want, but before you get that you have to spend $30K to show us your love,' why wouldn't the customer say 'forget it'?"  Moreover, Judge Donato specifically said: "… How does that foreclose competition from Gucci?" Overall, there isn’t necessarily an antitrust issue just because Birkins are expensive and clients are not able to purchase one when they wish.

Nonetheless, the outcome is still up in the air. This case could certainly impact the luxury landscape, especially with the trend toward heightened antitrust scrutiny in the current legal environment. However, considering the complex challenges Plaintiffs face and the most recent hearing, Hermès may, in fact, have this one in the bag.

Sterling Terranova is a second-year law student at Wake Forest University School of Law who recently joined the editorial staff of the Journal of Business and Intellectual Property Law. She holds a B.S. in Psychology with minors in Sociology and Criminal Justice from the University of Georgia. Next summer, Sterling will be interning with Alston & Bird in Atlanta.

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