A recently filed lawsuit focuses on whether it is lawful for an exclusive trader of goods to sell only to would-be buyers deemed suitable. The eventual outcome of the case may have significance for the way dealers conduct primary sales of works by artists they exclusively represent – particularly for dealers who only sell to selected collectors.
Filed in March 2024 at the US District Court for Northen California, it is a class action complaint by unsuccessful buyers, aggrieved by selling practices of the defendants, the international luxury goods designers and retailers Hermès (companies registered in France and New York, and trading in the US). The complainants allege violations of US antitrust and unfair business practice laws, citing Hermès’ practice of ‘tying’ the purchase of its Birkin handbags to qualifying previous purchase history.
Birkin handbags are exclusively designed and sold by Hermès: each bag is made from ‘the finest leather by experienced artisans in France’; and purchase prices range from thousands to more than $100,000. Birkin handbags’ unique desirability, extraordinarily high demand and low supply, give Hermès a ‘market dominance’ that, it is alleged, has been unlawfully exploited – by requiring would-be buyers ‘to purchase other ancillary products from [Hermès] before they will be given an opportunity to purchase a Birkin bag’. In particular, it is claimed that ‘Birkin handbags are never publicly displayed for sale at Hermès retail stores; only customers who Hermès deems worthy buyers will be shown one bag in a private room; only the shown bag may be purchased; and bags cannot be commissioned to be made in the style, size, color, leather, and hardware that a customer wants’.
Furthermore, it is claimed that qualification as a ‘worthy’ buyer is determined by ‘Hermès Sales Associates’ according to whether a customer has established a sufficient profile of buying other Hermès products such as shoes, scarves, belts, jewellery and home goods, for which ancillary purchases such associates receive a 3% commission payment – thereby, it is alleged, incentivising such associates’ coercion of customers into becoming Birkin-buyer qualified.
It is axiomatic that sellers should generally be free to choose to whom they wish to sell. However, ‘tying’ laws are aimed at restraining traders from selling one product (the tying good) to a customer only if they buy a second separate product (the tied good). In other words, anti-competitive laws treat – as unfair business practice – threatening to withhold selling a desired tying product unless and until other tied product/s are bought.
Although this is a US lawsuit, antitrust and unfair business practice laws have been developed along similar lines by most trading nations worldwide. Although such laws have national differences and variations – including alternative naming as ‘anti-competitive’ or ‘anti-monopoly’ or’ competition’ laws – a common feature is the curbing of product tying by dominant traders.
The US is the global art market’s leading trading nation (42% by value in 2023), and its judicial decisions on business trading practices often strongly influence other trading nations. Tying violation laws in the US typically require proof of four elements: two separate products are involved; the purchase of the tying product is conditioned on the additional purchase of the tied product; the seller has sufficient power in the market for the tying product. Lastly, and with this fourth factor Hermès’ claimants may encounter legal difficulty: a substantial amount of trade in the tied product’s market is harmed; in other words, proving that the other Hermès ancillary products a customer is required to buy, would cause harm to competitor sellers of such additional products.
Greater China is the global art market’s second leading trading nation (19% by value in 2023), and its Anti-Monopoly Law has been developed since 2007. It is similar to anti-competitive laws enacted by western capitalist economies, by aiming ‘to prevent and restrain monopolistic behaviour, protect fair market competition, safeguard consumer interests, and promote the healthy development of the socialist market economy’. Its provisions prohibit abuses of a market dominant position, including where a seller ‘has the ability to control the price or quantity of goods or other trading conditions in the relevant market’. Abusive conduct includes ‘refusal to deal, exclusive dealing, tying, and discriminatory practices’.
The UK is the global art market’s third leading trading nation (17% by value in 2023). UK-based traders post-Brexit are still subject to EU competition law if their conduct affects the EU market (US and Asia-based sellers are likewise subject to EU competition law). Sales solely within the UK (and not affecting the EU market) are governed exclusively by UK competition legislation, which may diverge from EU competition law in future, but which currently and foreseeably mirror each other – including provisions curbing anti-competitive tying of products by market dominant sellers.
The EU is the global art market’s fourth leading trading nation (12% by value in 2023), and its tying laws are similar to the US, Greater China and the UK. They clarify that ‘two products are distinct if, in the absence of tying or bundling, a substantial number of customers would purchase or would have purchased the tying product without also buying the tied product from the same supplier’; and that coercion involves ‘making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations’. EU’s judicial competition tribunals may entertain a market dominant seller’s defence: that their tying business practices result in ‘economic efficiency in production or distribution that will bring benefit to the consumers.’
Contemporary art dealers and collectors within and beyond the US are keeping a weather eye on the Hermès case, understandably seeing striking similarities between Birkin bag tying sales practices and those of dealers exclusively controlling primary sales of artworks. Prospective buyers of new works by in-demand artists are often placed on confidential ‘waiting lists’ by dealers who exclusively represent such artists. If such dealers exercise their exclusive selling rights by, for example, requiring prospective buyers to purchase other works before they reach the top of a waiting list, they may fall foul of unlawful tying laws – albeit unwittingly.
An unlawful tying lawsuit concerning exclusive handbag sales practices may seem a strange consideration for exclusive contemporary art dealers. But awareness of possible parallels may help such dealers taking steps to avoid inadvertently abusing prospective collectors.
© Henry Lydiate 2024