Louis Vuitton has one of the most recognisable brands in the world, and one of the most copied. Together with fake Rolexes, knock-offs of the iconic handbags are one of the most commonly sold products on the sidewalks of New York.
But French luxury-goods group LVMH (which owns Louis Vuitton, among other mega-brands) can’t go after street peddlers. eBay (EBAY), however, is within legal reach, and the group just won a $63 million suit against the auction site in French court for allowing the sale of counterfeit merchandise on its servers.
eBay isn’t taking this one lying down, and has vowed appeal. LVMH is out to protect an “anti-competitive business practice,” the company charges in a furious press release, and the group is trying to restrict not only the sales of counterfeit goods, but also the thriving legal trade of second-hand goods and last year’s models — a key eBay market. Besides, eBay argues, we invest $20 million a year in fighting the counterfeit goods trade, what more would you have us do?
This case is a must-win for eBay, whose stock is already unloved by the market. The company’s core model relies on the fact that so long as the software works, the number of auctions eBay hosts can scale exponentially with negligible marginal costs. If eBay loses on appeal, its options run from bad to worse. Either institute some sort of “authorised seller” program (contrary to — and more expensive than — the whole idea behind eBay), institute (expensive) extra reviews of auctions, or abandon entire markets altogether.
Ouch, ouch, or ouch.