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eBay denied stay in LVMH case

Roger Parloff, writing at his legal blog at Fortune Magazine, reports that

"The French Court of Appeals today denied eBay's (EBAY) petition to stay an injunction issued June 30 by a Parisian court that requires eBay to halt all sales of four LVMH (LVMUY) perfumes over any site worldwide that is accessible from France, according to an eBay spokesperson.

An eBay spokesman says the company "will comply as technically and humanly possible" with the injunction while it continues to pursue its appeal of the ruling."

What is interesting here is that a) the injunction applies to all unauthorized sales, and b) includes sales in the US, where grey market sales are not illegal.

Likely, when this lawsuit crosses the Atlantic, LVMH is going to face a resale price maintenance problem.

Josh Wright, over this his Truth on the Market blog, has a very nice overview of resale price maintenance and anti-trust law in the US.

"Take, for example, resale price maintenance (RPM).

As Coase, Williamson, et al. have taught us, producers always confront a "make" or "buy" decision for each input -- i.e., should I buy that particular ingredient or make it myself (vertically integrate)?

As noted, Coase theorized that the relative cost of these two options, costs which change with technological development, will determine the contours of the firm. Distribution to consumers is, of course, an input every producer needs.

Thus, a manufacturer must decide whether to (1) "buy" the input by selling at a discount to retail specialists, who will then re-sell at a mark-up to consumers (the "price" the manufacturer pays for this service is the difference between the price he charges the reseller and the higher price ultimately charged to consumers) or (2) "make" distribution by expanding his operations to include retail sales to end-user consumers.

From the manufacturer's perspective, the upside of a "buy" approach is that the retailer can specialize in sales to consumers and can thus achieve some productive efficiencies; the downside is that the retailer may shirk -- i.e., he may not adequately promote the manufacturer's product.

As for the "make" decision, the upside is that the manufacturer can much better control how much effort is put into promoting his products; the downside is that the manufacturer, who doesn't specialize in retailing, is likely less efficient at selling to end-users."

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Full post as published by Misleading Advertising Law on July 11, 2008 (boomark / email).