Coach's PR Disaster: Waging War Against Legit Online Customers [Update]

Like many premium retail brands, Coach (COH) has long waged war against eBay (EBAY) users that sold counterfeit knock-off goods. However, the company's increasingly aggressive and expanding actions have just sparked a class action suit.

An ex-employee, Gina Kim of Seattle, claims that she was selling some of her used bags on eBay when she received a letter from Coach. In the letter, Coach alleged trademark infringement, threatened her with a $2 million lawsuit, and demanded that she send in all her Coach-branded products along with a check for $300.

This isn't the first time a consumer has alleged that the company interfered with the legitimate selling of branded products online, and raises the question of whether Coach management has decided to increase its profits by effectively stopping the trade in used products.

According to the lawsuit, Coach has threatened other people without investigating whether the items sold are actually counterfeit. Kim claims that eBay has closed her account at Coach's request.

However, recent history of Coach actions targeting eBay users goes well beyond assumptions that people are selling counterfeit bags. Some eBay sellers, who apparently would buy goods at one of Coach's outlet shops and then resell them at a profit on the auction site, claim to have been banned from the stores for life. This has apparently been happening since at least 2007, with stories of people being required to produce ID to make even a cash purchase and letters banning customers handed to them by store clerks.

There are questions of whether Coach could legally take such actions. Courts have generally upheld that people who buy merchandise (versus licensing content under restrictive conditions) can do what they want with the products after purchase. And in 2008, a federal court ruled that eBay was not legally responsible to keep users from selling counterfeit Tiffany products. Whether a company like Coach can ask eBay to keep people from selling clearly authentic products seems even less likely.

The company must know that products purchased at its stores are legitimate. (Uh, Coach, you're not taking those counterfeit knock-offs that you get governments to impound and selling them at your outlets, right?)

In such cases, clearly the company can't be worried about fake goods. Its lawyers must know that people have a legal right to dispose of what they purchased as they wish. And as people are unlikely to sell new bags for less than they paid, the issue can't be undercutting prices.

What does make sense is that Coach wants to retain as many sales as possible and have people buy new products. Perhaps the $492.3 million in net income for July through December 2010 isn't compelling enough to management.

It certainly seems as though the company is poised on the brink of a PR abyss. Coach hasn't yet responded to a request for more information. An update to this post will add the answer, if and when it comes.

[Update: Here's the response from Coach associate general counsel Nancy Axilrod. Regarding the lawsuit, "Our policy is to not comment on the specifics of pending litigation. We believe the lawsuit has no merit whatsoever and we intend to vigorously defend against it." Concerning the allegations that some people were being kept out of the stores:

It is entirely untrue that eBay users have been "banned from Coach outlet stores because they would buy products from Coach and then sell them on eBay." I think what you may be referring to is our policy on quantity limits.

Like many luxury brands, Coach has a policy which limits the number of identical or similar items that may be purchased by an individual. Coach's policy on quantity limits is posted in Coach stores, and has been instituted for good reason. If an individual purchases a significant volume of goods, or is in the habit of purchasing duplicate items, it suggests that such individual is making these purchases for resale. Coach has worked hard since its inception in 1941 to establish a name brand synonymous with quality and excellence. To maintain the fine reputation we have crafted, we carefully select our distribution channels and provide superior services, including our return and repair services. Unauthorized distributors lack the ability and commitment to provide these services and therefore cannot uphold the integrity of the Coach brand. Accordingly, quantity limits are necessary to protect both the Coach brand, and our customers.

Related:

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• Google and the Seven Stages of Astoundingly Bad Crisis PR
• Clear as Stained Glass to Court: eBay Wins Tiffany Counterfeit Suit
• Coach Fights Phony Bags with a Phony Person?