King County resident Gina Kim posted for sale on Ebay a handbag she had purchased at a Coach store. She then received a cease and desist letter from Gibney Anthony, Coach’s legal representatives. The letter directed her to sign a statement indicating she took wrongful action in seeking to sell a counterfeit product, threatened up to $2 million in penalties, and demanded she pay $300 immediately. Now Ms. Kim, a 31-year-old Seattle Central Community College student, is filing suit.
She hired a Seattle law firm to represent her, and has now filed a complaint in federal court. The complaint, which can be read here, is seeking class action against Coach for (1) violation of the Washington Consumer Protection Act, (2) misrepresentation of trademark infringement, (3) defamation, and (4) tortuous interference with business expectancy.
The story is getting national attention: it is the focus of an associated press article, a Wall Street Journal blog post, and a feature on ABC News. Regardless of what you think of the tactics employed by Coach and their lawyers, the broader question behind the story is: what can retailers do to protect their products?
The sale of counterfeit products is widely accepted as a serious problem for high-end retailers. The annual US counterfeit market is estimated at $200-$250 billion. Retailers are trying to cut into this illicit market, but consumers of genuine items have a right to resell their validly purchased goods.
It seems that Coach’s aggressive strategy of sending cease and desist letters to individuals with genuine merchandise has backfired. In addition to receiving negative PR, Coach is now facing a class action lawsuit. Without knowing the details of past efforts to curb the sale of counterfeit merchandise, I can’t help but think there must be better alternatives to Coach’s aggressive strategy. One option that might be preferable is to notify online sellers and purchasers of the risks of selling counterfeit material, and to educate consumers on how to differentiate counterfeit products from genuine products.
Let’s take a quick look at how Coach’s actions violated Ms. Kim’s rights according to the complaint.
First, the Washington Consumer Protection Act prohibits deceptive trade practices. To prevail on a claim for violation of the Consumer Protection Act (CPA), the plaintiff must show (1) an unfair or deceptive act or practice; (2) in trade or commerce; (3) which affects the public interest; (4) that injured the plaintiff’s business or property; and (5) that the unfair or deceptive act complained of caused the injury suffered. Under Washington law, for conduct to be an unfair or deceptive practice under the Consumer Protection Act (CPA), it must have the capacity to deceive a substantial portion of the public.
The complaint alleges that the cease and desist letter amounts to an unfair and deceptive practice because it threatened and demanded payment from an owner of a genuine Coach product who had a right to resell the good.
Second, under federal law any person who knowingly materially misrepresents that material or activity is infringing upon a trademark shall be liable for any damages, including costs and attorneys’ fees.
The complaint alleges that Coach violated this law when, without conducting a thorough investigation, it (1) notified eBay that the handbag was counterfeit, and (2) sent the cease and desist letter requesting monetary damages.
Third, a false statement generally violates defamation law if it tends to injure a person in his trade, office, business or profession. Ms. Kim’s complaint alleges that Coach’s false statements that her merchandise was counterfeit were defamatory because they prejudiced her business credit, property, and operations.
Last, the complaint alleges that the Coach’s conduct tortiously and intentionally interfered with a business expectancy. Individuals have a general right to conduct business without wrongful interference. Under Washington law the elements of tortious interference with prospective advantage or business expectancy are: (1) the existence of a valid contractual relationship or business expectancy; (2) that defendants had knowledge of that relationship or business expectancy; (3) an intentional interference inducing or causing a breach or termination of the relationship or expectancy; (4) that defendants interfered for an improper purpose or used improper means; and (5) resultant damage. According to the complaint Coach violated this law when it intentionally interfered with Ms. Kim’s valid business expectancy for the sale of the handbag.