Practical Business Project

Practical Business Project

College of Commerce

International MBA

National Chengchi University

Fall 2007

Louis Vuitton vs. Free-Riders

Professor: Charles Trappey

Advisor: J-J Lin

Authors:

Justine Devisse

Florian Dugenet

Francesca Musacchio

Francesca Margherita Padula

Louis Vuitton vs. Free-Riders[(]

Preface

Luxury goods companies spend billions of Taiwan dollars to advertise and market their products and free-riders attach themselves to the brand recognition which luxury goods companies have built up over the years. To promote the sale of their products, local companies are using brand-name products as free giveaways to attract consumers as a marketing technique. Such companies usually use famous trademarks or the photos of brand-name products as the visual motif of their advertisements. Although they often argue that such use is merely to describe the goods, it will very likely mislead consumers into believing that the trademark owners of the renowned trademarks or brand-name goods have endorsed or agreed to such use or that these companies and the trademark owners are engaged in joint promotion. The buyer of a product obtains only the ownership of the product, rather than the right to use the trademark depicted on the product or the intangible value or goodwill subsisting in the trademark or the brand-name product. Therefore, such use will dilute the trademark and reputation of the brand. The user is taking a free ride on the value of the trademark while the user has no right or authorisation to utilize the intangible right of the mark. The buyer only obtains the right to use the actual product rather than to use the product for commercial marketing or promotion activity. This paper wants to prove that this practice is very common in Taiwan as the country has not developed yet a culture for the protection of Intellectual Property Rights. Our opinion is that it would be an useless effort solving each case individually as far as a general knowledge of why a “well-known trademark” should be protected is spread around the country, both at a legislative and popular level.

“La Maison” in Taipei

The relationship Louis Vuitton has had with Taiwan has old and solid roots. As we have already said the first store in Taiwan was dated 1987, now they are nine spread all over the island.

The impressive data is that, nowadays, 97 percent of the sales obtained by LV in Taiwan refer to Taiwanese customers. This fact explained by a few factors. First that Taiwan is not a typical tourist destination considering the late boom of China, that’s the reason why only 3% of sales are attributed to foreigners. Second that, on average, luxury brands in Asia apply prices 30-40% higher that in their original countries or regions (Europe in this case). Therefore it’s much cheaper for an European to buy a LV bag at home and for a Taiwanese tourist to buy it during a trip in France. Notwithstanding Taiwanese customers are really affectionate to French luxury brands as LV and Chanel proving a sense of style, elegance, research for quality products lacking in Chinese customers (the “newly rich” of Asia). At the present time Taiwan is the fourth largest market in Asia for LV (preceded by Japan, US, Korea and followed by the dogging China).

Louis Vuitton recompenses the Taiwanese market for this continuous attachment, loyalty (and constantly growing sales) through internationally individual events and unique supply of products.

In 1990, fashion fans in Taipei rejoiced at the opening of the first LV Taiwan’s flagship store. Nine years later LV conducted small renovations with new decorations, colour and furniture- but little had really changed. By 1998 LV Paris had launched its Ready-To-Wear collection, enabling LV Taipei to again expand its store size, look and style by combining two building spaces into one flashy new store. “At this time, our LV store was actually classed as the “biggest store in Taiwan, and LV Taipei was also considered to be Taiwan’s first international luxury flagship store,” said Ben Huang, Communications Manager for LV Taiwan.

In 2006, LV Taipei expanded again to accommodate new LV product categories by once more combing two stores into one, making this newest expansion a combination of three stores in one. The new product categories include jewellery, eyewear and a much larger leather goods section

that includes wallets and handbags. “Our new LV Taiwan store is named the Louis Vuitton Maison, and there are currently only five Maison LV stores worldwide, including Paris, New York, Tokyo and Hong Kong. The difference between regular (standard or global) and Maison stores is the attention to cultural features and product offerings. For example, in our Taipei Maison we have bookstores on both the second and fourth floors offering various interesting fashion lifestyle books and magazines and we are planning to open a cafeteria on the rooftop” says Huang.

The Taipei Maison also offers local and international designers and artists the opportunity to periodically decorate certain parts of the building with their very own artistic styles. The latest addition in the Taipei Maison features works by Michael Lin, who has decorated LV’ s corridor with bright, colourful floral designs and prints.

“We are simply responding to the market. This market is growing, it always has been, and we are aiming to meet the demands of our customers” explains Huang. “Taipei is an international city, and our stores appeal to international visitors as well as local consumers. However, unlike LV’ s other international stores, more than 90 percent of the customers in the Taipei store are locals not tourists. Local Taipei shoppers are very interested in books, art and culture, and many people love spending hours in bookstores around the city. This is another reason why our fashion lifestyle book sections have had so much attention recently,” he adds. Taipei’s LV Maison has seen substantial growth in jewellery and watches and these two product categories have the largest floor space within the store. However, the most popular product category continues to be LV’ s leather goods section. “Both local and foreign customers still appreciate the value and quality of our leather goods products” Huang says[1].

“Each of our stores has its own personality and soul. This is very important to bring the brand to a new dimension. Much more than a luxury emporium, it is also shrine to arts and style, with the inclusion of a cultural dimension through works of art and a bookstore…Having a bookstore is a natural choice because there is a strong reading culture in Taiwan, some bookstores are open 24 hours every day of the year!” said Guillaume Thery, CEO of Louis Vuitton Taiwan[2].

LV vs. 7-ELEVEN: Hello Kitty…bye bye Louis

7-Eleven is an international franchiser, licensor, and operator of a chain of convenience stores. Since March 2007, the largest chain store in any category worldwide (beating McDonald’s). Its stores are located in 18 countries with its largest markets being Japan, the United States, Taiwan and Thailand.

In Taiwan the 7-Eleven is one of the most popular convenience stores, and is owned by The Uni-President Chain Store (the largest business entity in Taiwan, strongly connected to the government). The first store opened in 1980 and since then has grown to cover 4385 stores as of 2007. Taiwan has the world's third largest collection of 7-Eleven convenience stores. With 6200 potential shoppers per store, Taiwan also has the smallest number of potential shoppers per 7-Eleven convenience store (compared to Japan's 14946 potential customers for each 7-Eleven and the U.S.'s 48359 customers for each store). Uni-President Chain Sector controls over 50% of the Taiwanese supply of supermarkets, it is also strongly linked to the government[3].

During the period 13th April up to 10th May, 2005 7- Eleven tried to increase its demand base using LV trademark through this advertisement:

“Any consumer who purchases any two kinds of vegetable/fruit drinks at a 7- Eleven stores may get a right to take part in a promotion on the website to win prizes among which Louis Vuitton bags (LV Cherry Bag appraised 42.000 NT$). Besides the publicists used photos of LV bags on the advertisements in a relatively large size at a highlighted position, which in legal terms meant an inappropriate use of (unregistered) mark LV in a promotion flyer. Indeed they did not use the logo of Louis Vuitton but the two letters LV, that is why we talk about unregistered mark, although LV is so famous in Taiwan and in Asia that consumers easily associate the two letters LV to the brand and this, of course, creates confusion on the theoretical sponsorship and origin of the goods and provokes dilution of the image of LV:

Mr Thery was quite upset to know that these advertisements were all over Taiwan, in all the thousands of stores. 7- Eleven was indeed

trying to induce consumers to make a buy at their franchisee by granting consumers the opportunity to join the lucky draw activity.

Recently the company has started a new promotion campaign with Hello Kitty which is, up to now, much more successful and less risky than the LV one. It has increased the average spending, total sales and consumers’ loyalty. Unluckily they have also recently started to sell chocolate parcels overexerting too much on making them similar to Ferrero Rochet in pink.

The fact that a company whose principles are good quality, good credibility, good service together with fair price keeps using other brands’ image to promote its business is meaningful of a general culture unknowing of property rights’ protection.

LV vs. Louis Vuitton Dental Clinic: The never ending story

In May 2005 Mr Hsieh (LV Taiwan attorney) was going to meet a client in the area of Sun Yat Sen Memorial Hall while he suddenly saw something that shocked him, “Louis Vuitton Dental Clinic”. He called LV Taiwan immediately to discover that the CEO did know anything about it, that the company had never been alerted. The first thing Mr Hsieh thought was that they had no idea how long that placard had been there before that morning. The hilarious thing is that they still have no idea. Among the three cases analysed this is, for sure, the most secret. Somewhere in Taipei there is an empty building, brand new but empty with just a huge slogan outside “Louis Vuitton Dental Clinic”. The are of Sun Yat Sen Memorial Hall is a popular tourist place downtown. As we do not know the exact address we could not calculate how many people usually go through that street and have the possibility to read the cloth signboard outside the building of Dr. Sun Yi-Hsien, printed “LOUIS VUITTON” (no logo, illicit use of the name) along with the Chinese “路易威登” as their name. Considering the fact that Louis Vuitton has no trademark registration for the service of dental clinic in Taiwan (or else where the world), the owners of the clinic are obviously promoting the place using the brand’s image as the name Louis Vuitton will easily be linked, in consumers’ minds, to the French brand. Luckily, since 2005 the clinic has not been opened yet (although the placard says “opening soon”) but the huge signboard is still there and is visible and readable by anyone as it’s written both in English and Chinese characters.

Nobody knows anything about this clinic, even the lawyers could only discover the name of the landlord to which they actually addressed the C&D letters but the name of the dentist or the opening date remain secret.

The 1st Cease & Desist letter was sent to this clinic on 17 May 2005 but was returned due to no person at the premises. The cloth signboard remained there and the 2nd Cease & Desist letter was sent to the landlord on 11 Sep. 2007 but the lawyers have received no response to date. Case is pending and LV is following up with the landlord.

LV vs. RT-Mart: Failure to protect

RT Mart is a well-known hypermarket chain with 19 locations around Taiwan

.

We decided to study this case because RT-Mart is not a local company but a Taiwanese-French venture since 2000: controlled by the Auchan (67%). Therefore apart for the legal issues what we are interested in is how a French-controlled company can possibly ignore Trademark regulation[4].

In the promotion flyers RT-Mart showed drawings of LV bags, not real pictures. This fact should not represent such a big problem in the case because the drawing is similar to the real sign.[5]

The 1st Cease & Desist letter was sent to RT-Mart on 28 Oct. 2005. In the legal letter the attorney emphasized the question of where they found so many (original) LV items, whether they imported them and asked for the receipts or any other proofs of the sales. RT-Mart responded and presented several sales note (sale receipt) on which some individuals’ name were showed.

The quantity of 23 pieces showed on those sales notes were much less than the total amount of 156 pieces LV bags claimed on the promotional materials of RT-Mart. Let alone the fact that beyond Louis Vuitton items consumers had the possibility to win other well-known brands’ products (totally 1040 luxury products promoted). Obviously RT-Mart had the duty to prove and show the origin of these items.

A few weeks later the 2nd Cease & Desist letter was sent to RT-Mart but they failed to answer.

LV Taiwan, therefore, filed with a petition with the Fair Trade Committee (FTC) against RT-Mart.

FTC rendered its decision in which determined that the promotion conducted by RT-Mart did not violate the Fair Trade Act (FTA). The main reasoning behind the FTC decision was that, according to them, RT-Mart was the “end-consumer”, thereby, not be bound by the FTA. Thus, the ambiguous interpretation of the Trade Act was justified by the opinion that RT-Mart was the consumer who had bought the bags from the luxury companies and was not re-selling them to hypothetical successive consumers. The end-user/consumer is the person who uses the product, it may differ from the customer which has really bought it but does not necessarily use it. In legal contracts the term is used to differentiate the end-user as a non-reseller.[6]