Estée Lauder sues Walmart for selling counterfeits

Estée Lauder continued Walmart in California federal court over allegations that a big-box retailer sold counterfeit beauty products on its website and did not do enough to ensure that only authorized, 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 brands, but were determined to be counterfeit, according to the complaint filed Monday.

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

It’s unclear exactly when Estée Lauder purchased and tested the products, but the lawsuit comes several months after CNBC published an investigation into counterfeit beauty products and fraud at 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 is unclear whether the products cited in the suit are the same counterfeits supplied by CNBC to Estée Lauder.

Estée Lauder and Walmart did not immediately respond to requests 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 buyers in its lawsuit. The former beauty company called Walmart’s conduct “extreme, outrageous, fraudulent…despicable and harmful.”

The counterfeit products were promoted and advertised to shoppers on the platform, Estée Lauder brands were used in search engine optimization tools to drive traffic to listings, and Walmart profited from the sales, the complaint states.

Additionally, “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 buyers, the complaint states.

At the heart of CNBC’s investigation into Walmart’s online marketplace was what steps the company took or did not take to police its third-party sellers and the products they offered to prevent fraud and the sale of counterfeits on the platform.

In its complaint, Estée Lauder said Walmart promotes “the reputation and professionalism” of sellers authorized 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 becomes clear given [counterfeits] were allowed to be sold on Defendants’ website despite their stated careful screening process as to who they choose as a Seller/Marketplace Partner,” the complaint states. “Accordingly, Defendants know or had reason to know that the vendors with whom they partnered and “regularly review[ed]“were selling products that infringe the Estée Lauder brands.”

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

However, this strategy carries risks, the CNBC investigation found. Offering counterfeit, potentially dangerous products to shoppers through third-party marketplace sellers exposes Walmart to liability and could erode customer trust at the core of its brand.

Since a court ruling in 2010 after Tiffany sued eBay for counterfeit products on the platform, it can be difficult for brands to hold platforms accountable for their role in selling counterfeit products. Sometimes they avoid prosecution unless the conduct is extreme or particularly egregious, experts have previously told CNBC.

The Shop Safe Act, a bipartisan federal bill that aims to curb the sale of counterfeits in online marketplaces, is designed to address some of the problems posed by the Tiffany v. eBay decision by incentivizing platforms to better vet sellers and the products they offer. When platforms comply with certain anti-counterfeiting measures, they could be released from liability if a seller offers a counterfeit product.

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