6 words in a lawsuit

'Defendant does not dispel this ambiguity'

Photo by P. L. on Unsplash

By now, you might have heard about the lululemon lawsuit against Costco. There’s a fascinating twist that an intellectual property attorney pointed out to me recently, and that I think is worth considering.

For background, let’s go to Alexander Aciman’s exhaustive comparison of a pair of two pairs of pants: one sold by lululemon, and one sold under Coscto’s in-house brand Kirkland Signature. This was published on The Wirecutter about two months before the lawsuit was filed:

For decades, Costco shoppers have played amateur detectives … Flittering across the internet are age-old rumors claiming that some Kirkland goods are actually rebranded Vuori joggers, Grey Goose vodka, or Pureology shampoo, just to name a few.

…

A similar question crossed my mind when I discovered the Kirkland Signature Men’s 5-Pocket Performance Pants. From the design details to the fabric, I couldn’t help but notice how similar they are to the Lululemon ABC 5 Pocket Pants …

…

So I put my detective hat on and investigated: Are Kirkland’s $20 pants dupes of Lululemon’s beloved $130 ABC pants?

Comparing and contrasting the two pairs of pants over the next 2,000+ words, Aciman basically concludes that (a) they sure do look an awful lot alike, and (b) the lululemon pants are simply higher quality than the Kirkland ones.

Unsurprisingly, lululemon is not exactly thrilled about this; hence their lawsuit claiming that by selling alleged knockoffs, Costco is violating intellectual property law and benefiting from lululemon’s “reputation, goodwill and sweat equity.”

Here’s the twist that I think sets this case apart from many intellectual property cases, as IP lawyer Josh Gerben pointed out when we talked.

“You can have a store brand, and it can look a little like a national brand. ‘This is not Coca-Cola, but it is a cola—and it’s cheaper.’ That’s generally been allowed,” Gerben told me. “But with this dupe, the complaint says that Kirkland has a history of working with the actual brands to make a Kirkland version. So, consumers in some cases think the national brand is affiliated.”

Or, as lululemon put it in the legal complaint:

“Upon information and belief, Defendant is known to use manufacturers of popular branded products for its own Kirkland “private label” products. … [N]either Defendant nor the original manufacturer informs their consumers of the connection. … and] this source ambiguity preconditions at least some consumers into believing that private label, Kirkland-branded dupes are in fact manufactured by the authentic supplier of the “original” products.

Defendant does not dispel this ambiguity.“

Those last six words are the most important, at least for this part of the claim.

I asked lululemon for additional comment; a company spokesperson replied:

“As an innovation-led company that invests significantly in the research, development, and design of our products, we take the responsibility of protecting and enforcing our intellectual property rights very seriously and pursue the appropriate legal action when necessary.”

I also asked Costco for a comment, but didn’t hear anything back.

Once again, that’s close to part of what lululemon says is the problem, right?

It’s the idea that Costco benefits from rumors that it’s selling lululemon’s products without the lululemon name—and then neither confirms nor denies the rumors.

By the way, it’s not just the pants; lululemon says Costco is duping quite a few other products as well.

• A bit more context, part 1: Kirkland Signature isn’t just a fun little side business for Costco; it accounts for about one-third of Costco’s revenue, amounting to $86 billion last year — which as The Wall Street Journal points out would make it a bigger company than Procter & Gamble and about the same size as LVMH if it were a standalone.

• A bit more context, part 2: This is an especially tough time for lululemon, including declining sales and “stray[ing] further away from its yoga-inspired roots to designs similar to general apparel brands like the Gap,” as an analyst note put it recently.

Now, the semi-retired lawyer in me loves this case because It seems like it could be a really fun lawsuit to track.

But Gerben and I agreed that it seems highly likely that we’ll wind up with some kind of settlement here—simply because the litigation risk is simply too high on both sides:

If lululemon were to win in court, Costco might suddenly find itself facing an onslaught from many other brands over Kirkland products. That would be a huge risk for Costco.

And if Costco were to win, it would undermine lululemon’s entire business model — along with potentially many other brands. I doubt lululemon really wants to run that risk.

“Everybody is trying to fly as close to the sun as they can without burning up,” Gerben said. “The question is just how much can you borrow [before] you’re kind of scorched.”

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7 other things worth knowing

• Ghislaine Maxwell, the longtime accomplice of Jeffrey Epstein, urged the Supreme Court on Monday to overturn her sex trafficking conviction as her attorney simultaneously made overtures to President Trump. “I’m allowed to give her” a pardon, Trump said in reply to a reporter's question, but “nobody’s approached me.” Last week, Maxwell sat for a two-day interview with the Justice Department’s No. 2 official, Todd Blanche. (The Hill)

• U.S. immigration officers made false and misleading statements in their reports about several Los Angeles protesters they arrested during the massive demonstrations that rocked the city in June, and prosecutors have since been forced to dismiss [some cases], many of them which relied on officers’ inaccurate reports, court records show. (The Guardian)

• Russian airline Aeroflot was forced to cancel more than 50 round-trip flights on Monday, disrupting travel across the world's biggest country, as two pro-Ukraine hacking groups claimed to have inflicted a crippling cyberattack. The Kremlin said the situation was worrying, and lawmakers described it as a wake-up call for Russia. Prosecutors confirmed the disruption at the national flag carrier was caused by a hack and opened a criminal investigation. (Reuters)

• The first 100% effective HIV prevention drug is approved and going global. (New Atlas)

• Almost 3,900 of NASA's workforce is set to leave the agency thanks to voluntary incentives, with senior staffers among those heading out the door. Employees who accepted early exit offers tended "to be the most senior people with the most knowledge," according to a former NASA official. (The Register)

• Why does a fire truck cost $2 million? (The Hustle)

• The 1970s psychology experiment behind 'Star Wars' special effects: Creating realistic simulations of neighborhoods using miniatures and computer-controlled cameras was the goal of an ambitious experiment designed by two NSF-funded researchers. Their lab's research eventually influenced how special effects are made in some of the most memorable movies and TV shows in history, from the first "Star Wars" movie to "The Mandalorian." (NSF.gov)

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Thanks for reading. Photo by Clay Banks on Unsplash. I wrote about some of this before at Inc.com. See you in the comments.