Estée Lauder sues Walmart, alleging sale of counterfeits

Estée Lauder sued Walmart in California federal court over allegations the big-box retailer sold counterfeit beauty products on its website and didn’t do enough to ensure only authorized and authentic merchandise was offered to consumers. 

Estée Lauder said it purchased, inspected or tested a number of products sold on Walmart.com that used the Le Labo, La Mer, Clinique, Aveda, Tom Ford and Estée Lauder trademarks but were determined to be fakes, according to the suit, filed Monday.

The products include counterfeit versions of Estée Lauder’s Advanced Night Repair serum, a Le Labo fragrance, a Clinique eye cream, a La Mer lotion, an Aveda hair brush and a Tom Ford fragrance. 

It’s unclear when Estée Lauder bought and tested the products but the suit comes several months after CNBC published an investigation into counterfeit beauty products and fraud on Walmart.com.

Two of the counterfeit products cited in CNBC’s investigation — Estee Lauder Advanced Night Repair serum and Clinique Smart Clinical Repair Wrinkle Correcting Eye Cream — were also mentioned in Estée Lauder’s lawsuit. It’s unclear if the products cited in the suit are the same counterfeits CNBC provided to Estée Lauder. 

In response, Walmart initially told CNBC in a statement it requires “all sellers to offer only authentic, lawful merchandise” and it doesn’t tolerate “bad actors” on its platform. It then recalled the message and sent an abbreviated statement to CNBC two hours later that removed that language.

“We are aware of the complaint and have zero tolerance for counterfeit products,” the revised statement read. “We will respond appropriately with the court when we are served.” 

Estée Lauder didn’t return a request for comment. 

While the products were sold by third-party sellers on Walmart’s online marketplace, Estée Lauder said the company played an active role in facilitating those sales to shoppers in its suit. The legacy beauty company called Walmart’s conduct “extreme, outrageous, fraudulent … despicable and harmful.” 

The counterfeit products were promoted and advertised to shoppers on the platform, Estee Lauder’s trademarks were used in search engine optimization tools to drive traffic to the listings and Walmart profited from the sales, the complaint stated. 

Further, “a person shopping on Walmart.com would have reasonably believed that Walmart, and not third-party sellers, was the seller” of the item, which could have caused confusion among shoppers, the complaint states. 

At the heart of CNBC’s investigation into Walmart’s online marketplace was the steps the company took, or didn’t take, to vet its third-party sellers and the products they were offering to prevent fraud and the sale of fakes on the platform. 

In its complaint, Estée Lauder said Walmart promoted the “reputation and professionalism” of the sellers permitted to operate on the platform but said the retailer actually does “very little to ensure that only authorized and authentic products are available” for sale. 

“This is readily apparent given the [counterfeits] were permitted to be sold on Defendants’ website despite their stated careful selection process in who they choose as a Marketplace seller/partner,” the complaint states. “Accordingly, Defendants know or had reason to know that the sellers they partnered with and ‘regularly review[ed]’ were selling products which infringe upon the Estée Lauder Marks.” 

Walmart’s online marketplace has become a key part of its strategy to grow profit faster than sales and better compete against its longtime rival, Amazon. The rapid growth of the online platform helped fuel Walmart’s ascent to a $1 trillion market cap last week, putting it in an exclusive club made up almost entirely of technology companies. 

However, the strategy has come with risks, CNBC’s investigation revealed. Offering counterfeit, potentially dangerous, products to shoppers through third-party sellers on the marketplace opens Walmart up to liability and could erode the customer trust at the core of its brand.

Ever since a 2010 court ruling that arose after Tiffany sued eBay over counterfeit products on the platform, it can be tough for brands to hold platforms accountable for their role in selling counterfeit goods. Sometimes, they avoid lawsuits unless the conduct is extreme or particularly flagrant, experts previously told CNBC.

The Shop Safe Act, a bipartisan federal bill that aims to curb the sale of fakes on online marketplaces, is designed to address some of the issues posed by the Tiffany v. eBay ruling by incentivizing platforms to better vet sellers and the products they’re offering. When platforms comply with certain anti-counterfeiting measures, they could be shielded from liability if a seller offers a fake product. 

Brands widely supported the legislation, but it has so far failed to pass at least three times. That’s partially because Walmart and other online marketplaces like Amazon, Etsy and eBay have lobbied against aspects of it, two U.S. Senate aides, who spoke on the condition of anonymity because the discussions were private, previously told CNBC.