Michael Kors Sues Costco

Susan Scafidi in Women's Wear Daily, July 15, 2013

Media Source


By Alexandra Steigrad

 

Michael Kors Holdings Ltd. Is taking Costco Wholesale Corp. to a familiar place – court.

The New York-based clothing and accessories brand slapped the wholesale club with a lawsuit, claiming Costco falsely advertised that it sold Kors handbags.

Filed on Thursday in the Southern District of New York, the suit pointed to e-mail blasts that Costco sent out on April 16 of this year in advance of Mother’s Day. 

Those e-mails, which Kors called “bait-and-switch” e-mails, advertised a selection of “designer handbags starting at $99.99 delivered,”  Next to that text, the Issaquah, Wash.-based chain showcased three handbags, one of which was a monogrammed Kors bag, bearing the “MK” trademark.  Several other photos of Kors bags were also featured in the ad, which prominently displayed Kors’ signature “MK” circular gold-toned hangtag.

Costco did not return calls seeking comment.

According to the complaint, Costco’s ads were meant to “lure unsuspecting customers away from bona fide Michael Kors retailers and into Costco stores.”

Prior to filing the lawsuit, Kors checked Costco’s Web site and sent representatives to 19 Costco retail stores.  The company claims it was unable to find any proof that Costco sold its bags.

“To this date, consumers who arrive at Costco’s Web site through the bait-and-switch ad, or via Costco’s main Web site, will not find any Michael Kors handbags available for sale,” court papers said.

Lawyers for Kors added that: “Costco is not, and never has been, an authorized dealer of Michael Kors handbags, and upon information and belief, Costco does not currently sell Michael Kors handbags.”

Although the lawsuit deals with false advertising, Costco has run into trouble before over allegations that it sold merchandise that it wasn’t authorized to offer.

In February, luxe jeweler Tiffany & Co. sued the wholesaler, claiming it sold engagement rings that it passed off as Tiffany-branded rings in select stores.  Also filed in New York federal court, that suit accused Costco of trademark infringement, and underscored that the wholesaler is not an authorized dealer of its wares.

The larger issue for Tiffany, and for Kors, if in fact Costco did possess its bags, is whether the merchandise it advertised was counterfeit or obtained from the gray market.

Over the last six years, Costco has been sued by Yves Saint Laurent for both selling counterfeit perfume and for repackaging and selling actual YSL cosmetic and beauty products.

In a case that made it all the way to the Supreme Court, Omega SA also sued Costco, challenging the wholesaler’s right to sell “authentic” Omega watches it obtained on the gray market.  Omega won that case in a narrow ruling that said Costco infringed upon Omega’s trademark.  But a subsequent ruling in March from the Supreme Court on a different matter upheld a retailer’s right to buy authentic products from middlemen or distributors abroad and resell them at lower prices in the U.S.  The legal community refers to this as the “first-sale doctrine.”

“Michael Kors is smart to police his brand integrity and to support his authorized retailers, though U.S. law has some limits,” said Susan Scafidi, director of Fordham Fashion Law Institute.  “While luxury labels will never love discounters like Costco, the first-sale doctrine means that discounters have the right to sell designer goods if they can get them through third parties – provided that the goods are legitimate.”

In the Kors case, the fashion brand was unable to find any evidence that Costco sold its bags, and as a result, it is looking for an injunction barring the wholesaler from advertising its products.

The company is also seeking the destruction of any infringing goods, including advertising materials, as well as punitive damages, attorneys’ fees and other costs.