Estée Lauder files a lawsuit against Walmart, alleging the sale of counterfeit products

Estee Lauder File a lawsuit against Walmart in federal court in California over allegations that the major retailer sold counterfeit beauty products on its website and did not do enough to ensure that only authorized, authentic merchandise was offered to consumers.

Estee 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 Estee Lauder brands, but determined they were counterfeit, according to the lawsuit filed Monday.

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

It’s not clear when Estee Lauder purchased and tested the products, but the lawsuit comes several months after CNBC published an investigation into counterfeit beauty products and fraud on Walmart.com.

Two of the counterfeit products mentioned in the CNBC investigation — Estee Lauder Advanced Night Repair Serum and Clinique Smart Clinical Repair Wrinkle Correcting Eye Cream — were also named in Estee Lauder’s lawsuit. It’s not clear if the products mentioned in the lawsuit are the same counterfeit products that CNBC introduced to Estee Lauder.

Estee 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 for its suit shoppers. The legacy beauty company called Walmart’s behavior “extreme, outrageous, fraudulent… despicable and harmful.”

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.

Furthermore, “a person shopping on Walmart.com could 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 says.

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

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

“This is easily evident in view [counterfeits] Their sale was permitted on the Defendants’ website despite their stated careful selection process as to who they selected as their seller/marketplace partner. Accordingly, the Defendants knew or had reason to know that the vendors with whom they engaged and “regularly reviewed”[ed]”They were selling products that violated the Estée Lauder Marks.”

Walmart’s online marketplace has become a key part of its strategy to grow profits faster from 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 cap last week, putting it in an exclusive club made up almost entirely of technology companies.

However, a CNBC investigation revealed that this strategy came with risks. Offering counterfeit, potentially dangerous products to shoppers through third-party marketplace sellers exposes Walmart to liability and could erode customer trust in the core of its brand.

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

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

The legislation has been widely supported by brands, 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 it, two U.S. Senate aides, who spoke on the condition of anonymity because the discussions were private, previously told CNBC.