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"eBay ordered to pay damages in sale of fake goods"
That's the headline, the country is France. Is there any efficiency rationale for this decision? The alternative equilibrium involves a fair number of fakes, some good discounts for real items, an overconcentration of trading activity is easily verifiable or not worth faking items, and of course a diminution in the value of brand names. The latter effect may even be welfare-improving once you consider price discrimination and the association of brand names with monopoly rents. You can put the penalty on the seller but how is eBay to detect possible fakes? Buy and inspect the wares? Shut down trade in any fakeable item? I would think it is also easy enough to "buy fakes" from your buddy, in essence keep the cash, give him a percentage, and then sue eBay for the "loss." If the owner of the brand can sue would not the French court consider a suit from the buyer of the fakes as well?
Posted by Tyler Cowen on June 30, 2008 at 03:42 PM in Law | Permalink
Comments
Actually eBay did shut down an auction my wife had of a fake LV purse last year, so they DO CURRENTLY engage in policing. Hey, it's France; it's like expecting a rational judicial decision in Looney Tunes Land.
Posted by: Fundman at Jun 30, 2008 4:03:47 PM
Should we be surprised? This is coming from a country where most people would probably tell you the
equilibrium amount of crime in a society is no crime at all.
Posted by: Jay at Jun 30, 2008 4:49:02 PM
I interned at a women's accessories manufacturer in their legal department (not one involved in the suit, from what I can tell). Part of our job duties entailed searching through eBay for what we thought were fakes (and typically, it was easy to spot with as little as a day's training), email eBay via their VERO program, rinse, repeat.
What's interesting is that the number of pure counterfeiters was very low. What I mean by that is simply that each "counterfeiter" sold, on average, under three or four fake handbags over the course of, say, 3 months. Those who sold multiple counterfeits were easily identified and shut down, unlikely to return anytime soon. So basically, there are no arch criminals who are (a) selling counterfeits (b) on eBay. More likely -- and I think this is obvious -- there's a handful of downstream providers who are making and selling these fakes; those fakes end up in then hands of various women across the country; and sooner or later a percentage of them end up on eBay via a number of channels.
But if there are few, if any, eBay sellers whose business is reliant on counterfeits to any appreciable degree. And these eBay sellers are obtaining the bags via tag sales, estate sales, at thrift shops, in association with consignment shops, etc. That is, they're picking up used bags and making a best (albeit bad) guess as to the validity of the logo on the bag; they are *not* going to Canal Street in NYC and knowingly buying a fake Louis Vuitton handbag (or 50).
So I wonder: is counterfeiting of women's accessories any worse today than it was pre-eBay? It seems the answer is "not appreciably." The bags for sale on eBay, by and large, were purchased used. The consumer who originally purchased the bag almost certainly did not calculate or internalize the re-sale value of that bag when purchasing it, so it's unlikely that the demand for counterfeit handbags went up because of eBay. The person selling the bag on eBay, again, probably isn't knowingly or appreciably in the counterfeiting business, so that person also has a minimal effect on the demand for counterfeits.
This isn't to say that, for brands like LV, fakes on eBay are a non-issue -- that's a topic for another day. But the real problem here for the brands isn't eBay, and that's pretty clear.
Posted by: Dan Lewis at Jun 30, 2008 4:56:13 PM
Dan, the difference between buying a fake bag on Canal Street vs. buying one on eBay is that the buyer on Canal Street knows the bag she's buying is fake.
LV can probably tolerate people zipping around with pleather LV bags they bought for twenty bucks, even if it does diminish the value of their mark, because those bags are not substitutes for real LV mark bags. The tradeoff is probably buying a bag at Target or buying a faux LV bag on the street. However, buyers of LV bags on eBay (for the most part) are just trying to save money on a real LV bag. Thus, counterfeit bags on eBay compete directly with real bags (assuming counterfeiters are good at their jobs).
Another angle: because eBay can't inspect every bag, this decision (if implemented) will force them to shut off sales of LV bags entirely, which is presumably what LVMH wants. Thus, shutting off the secondary market becomes a resale price maintenance scheme, which is also good for LVMH.
As it stands now, bags sell on eBay for much less than their retail prices, so the market already seems to be taking a "counterfeit probability discount" into effect. Ahh, capitalism.
Posted by: Kyle S at Jun 30, 2008 5:19:18 PM
LVMH ... successfully challenged eBay for a second time in the French court, arguing that 90 percent of the Louis Vuitton bags and Dior perfumes sold on eBay are fakes.
If it is true that 90% of the Louis Vuitton bags and Dior perfumes on eBay are fakes, shutting down the trade in these items on eBay may be reasonable.
Posted by: lemmy caution at Jun 30, 2008 6:33:08 PM
Why don't LVHM bags come with a license?
Posted by: kurt at Jun 30, 2008 6:54:04 PM
I'm not understanding how counterfeiting name-brand products is welfare-reducing at all, provided the counterfeit product functions more or less the same as the "genuine" article. We aren't talking about sellers copying some sort of costly IP. I suppose the counterfeiters are free-riding off of the marketing of the main company, but so what? These are signals in the zero-sum game of social status.
Makes one wonder what the wealthy would do if they no longer had the ability to distinguish themselves from plebs by purchasing expensive, trademarked name brands.
Posted by: Grant at Jun 30, 2008 8:17:26 PM
Kyle:
Yep, I understand that, and your other reasons for LV not liking eBay are accurate and important. But I'm saying something different -- I wonder if *sellers* on eBay also don't know that they stuff is fake.
Posted by: Dan Lewis at Jun 30, 2008 9:12:11 PM
They hate America period
Posted by: k at Jun 30, 2008 9:20:47 PM
I'm positive that eBay loses money on fakable items overall - I read they have 2000 anti-fraud staff - but they're probably hesitant to ban them because...where does it stop?
Posted by: Paul N at Jun 30, 2008 9:39:33 PM
As Dan says, the counterfeit bags are identifiable. I doubt there are many people buying counterfeit bags on Ebay without realizing they are counterfeit. The counterfeit bags are priced differently from the genuine articles and are recognizable with some research form their pictures.
Posted by: Cliff at Jun 30, 2008 9:39:42 PM
Kurt has the right idea: each LVMH could have an identification number. eBay could require that the seller to demonstrate that they have the right number before they could access the eBay market.
However, there are some problems with the design of such a system, as I briefly talked about here: http://www.bizop.ca/blog2/due-diligence/badges-of-authority/ebay-to-pay-61m-for-allowing-a.html
There is a huge opportunity here for the right franchise system to provide this added value.
Posted by: michael webster at Jun 30, 2008 9:47:19 PM
EBay could require sellers of commonly counterfeited goods to post a bond of say twice the average sale price if it's an auction or twice the list price if it's a fixed price listing. If buyers suspected they got a fake they could send the bag to eBay, Luis Vitton, or some other certified inspection shop. If the bag was a fake the buyer would get a 200% refund and the fake would be destroyed. Once a merchant sells so many fakes he's banned. Even if buyers know they are getting a fake they still have an incentive to report fakes.
The downside is perhaps everyone will want their bag checked. However after awhile you should stop seeing that many counterfiet goods, and if the buyers pay some nominal price, such as shipping, not all goods will be sent for inspection.
Posted by: M at Jun 30, 2008 10:45:26 PM
Makes one wonder what the wealthy would do if they no longer had the ability to distinguish themselves from plebs by purchasing expensive, trademarked name brands.
The wealthy no longer distinguish themselves from the plebs by purchasing expensive, trademarked name brands. They distinguish themselves from the plebs by purchasing organic local produce, "fair-trade" goods, and eco-friendly hand-made items. Not only are these items limited to the upper classes by the designed-in natural scarcity of the product, but unlike trademarked name brands the wealthy can claim moral superiority for consuming those products.
Name brands are a fascination of the lower-middle and working class, and at the high end perhaps the more crass neuvo-rich upper-class.
Posted by: Rex Rhino at Jul 1, 2008 1:17:42 AM
Strange. Hollywood has engaged in a massive campaign against counterfeit videos, the US government has joined in especially against China, and French luxury goods makers are wrong in protecting their trademark because the counterfeits are sold through a US owned business ?
I have got news for you: if you purchase counterfeits on that trip to Asia and bring them over a border in any developed country, you will face a massive fine and, possibly, a jail sentence. "Sorry, I had no idea that Rolex I bought for 50 dollars was a fake" is an excuse that doesn't cut it with any customs officer anywhere.
Ebay know what they are doing, are very good at it, and can certainly correct this problem easily. In the meantime French law applies in France and there is no free lunch.
Posted by: 4degreesnorth at Jul 1, 2008 11:49:55 AM
Ebay can just post policy that sellers are not allowed to ship to France. Problem solved. If the seller ships to France anyway, the seller is liable. The buyer can see prior to bidding or buying that the object cannot be shipped to France or within France. The buyers in question go away as well. Cheap solution.
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