Hermès battles former employees as sophisticated counterfeit ring is busted
By: Stacey C. Kalamaras, Founding Partner, Kalamaras Law Office LLC
The operation reportedly worked as follows: at the center of the ring was a group of three friends, two of whom worked for Hermès. The third friend imported the leather skins from Italy. To decorate the fake bags, five other Hermès employees secured hardware that Hermès discarded and/or considered not to meet its quality control standards. The remaining defendants assembled the bags.
On September 24, 2020, a Paris criminal court sentenced ten people in a sophisticated counterfeit ring, following a June trial involving the sale of fake Hermès handbags, including the company’s iconic Birkin bag. Seven of the ten were former Hermès employees. These sentences are the culmination of 8 years of investigating the group’s activities. The group was found to have sold hundreds of fake Birkin bags between 2011 and 2014. They primarily “targeted Asian tourists in Paris” and clients in Hong Kong. According to court documents, the ring reportedly sold each Birkin bag between €23,500 and €32,000 (a fraction of the actual cost), and French authorities report the criminal gang generated a profit between €2 and € 4 million.
The charges from the Agence France-Presse included intellectual property infringement and a French cause of action that arises from the misappropriation/misuse of company funds or property. Reports show that each of the defendants received a punishment ranging from six months of suspended jail time to three-year sentences. The “ringleader” received a three-year sentence in abstentia and a fine of €200,000 (a warrant is still outstanding for his arrest). Another highly involved member was sentenced to one year under house arrest, plus a fine of €100,000.
How does a manufacturer suffer such a significant loss from inside its own walls? This was a very unfortunate situation. The Birkin bag is one of the most recognizable and coveted luxury bags in the world and is widely noted as a symbol of success in the fashion industry. Therefore, the temptation of those with questionable moral character is high. Brand owners have a difficult enough time when it comes to combatting counterfeiters and shouldn’t have to worry about battling their own workforce as well! Hermès reportedly had some type of monitoring in place, initially leading it to report the illicit behavior to French authorities, who wire-tapped the home of one of the defendants, ultimately leading to the bust, trial, and conviction. Apparently, the monitoring system wasn’t enough of a deterrent.
What can a brand do to protect itself? All employees should sign confidentiality and code of conduct agreements, if permitted in your jurisdiction. Brand owners should control the ability of their employees to purchase products for personal use, and certainly large discounts for personal purchases should be limited on products that are attractive to counterfeiters. Thorough and regular background checks should be conducted. As reported in this case, at least one of the employees had worked at Hermès for nearly 30 years, since he was a teenager, and claimed he didn’t realize the seriousness of his actions “at the time.” Lastly, brand owners can take a page out of the financial services industry to root out criminal activity, where each employee with access to sensitive data (or in this case, valuable materials) is required to take a one week vacation every year without access to their devices and workspaces. This helps organizations to know if they have a possible leak or theft problem.
I’m sure Hermès is relieved to have put an end to this counterfeit ring but, as brand owners know, another one is probably lurking in the wings to take its place.
Stacey C. Kalamaras is the founding partner of Kalamaras Law Office LLC. She has extensive intellectual property experience with a focus on global trademark protection and enforcement, in more than 150 countries. Her experience includes anticounterfeiting strategies, IP due diligence, and IP agreements. She can be reached at email@example.com.