Costco’s Alleged Bait and Switch Advertisement Could Cost Them

UPDATE: On July 10, 2014, the parties stipulated to a dismissal of all claims with prejudice. The terms of the settlement are not known, though the parties were engaged in a protracted dispute over discovery requests prior to settlement.

Luxury fashion company Michael Kors has sued warehouse retailer Costco Wholesale Corp. in federal court over an alleged “bait and switch” advertisement. Kors accuses Costco of false advertising and unfair competition under the federal Lanham Act and New York common law. The complaint centers around an email blast advertisement that Costco sent to its customers regarding “Mother’s Day Gift Ideas.” The advertisement, pictured below, touts “Designer Handbags starting at $99.99,” and features a picture of three large handbags, one of which, according to the complaint, “is unmistakably a Michael Kors handbag that prominently features the Michael Kors Trademarks.” Furthermore, three of the seven smaller handbags featured in the advertisement are also Michael Kors handbags, according to the complaint.

Kors alleges that Costco is not an authorized retailer of its handbags. Furthermore, Kors alleges that its handbags are not available on the Costco website, nor are they generally available in Costco’s retail stores. To this end, Kors notes that it sent investigators to nineteen Costco stores in the United States, none of which carried the designer’s handbags.

Kors argues that the advertisement in question deceived consumers by “add[ing] to the perceived value of Costco’s handbag selection, and mak[ing] Costco’s other handbags look more valuable by means of their association with Michael Kors’ luxury handbags.” Kors also claims that the bait and switch advertisement increased sales of Costco’s other products. Kors seeks an injunction to bar Costco from using Kors’ trademarks, from advertising or selling any Michael Kors products, and from making any representations regarding an affiliation with Kors. In addition to actual damages and Costco’s gains, profits, savings, and advantages obtained as a result of the advertisement, Kors also seeks attorneys’ fees and costs, and treble damages based on Costco’s allegedly willful conduct.

As others have noted, Costco is no stranger to lawsuits of this nature. The famous jewelry company Tiffany & Co. also recently sued Costco over the sale of unauthorized Tiffany-branded engagement rings. That case is still pending.

It is no surprise that luxury fashion companies go after wholesale and discount stores that they feel are infringing their brand names. As Kors stated in its complaint, the company has “invested hundreds of millions of dollars to market and advertise the Michael Kors brand,” and “carefully controls the channels of distribution and the depiction of products in advertisements to maintain the prestige that its customers associate with the brand.” When high-end fashion companies feel the cache of their brands are being challenged, they must take action to protect their valuable brand names.

For more information of the either of the cases discussed above, or for other fashion law advice, please contact Anthony V. Lupo and Amy E. Salomon.