Counterfeit Wine Below the Radar: The Case of Tesco

Britain’s Sun recently reported that supermarket giant Tesco sold two bottles of counterfeit Louis Jadot Pouilly-Fuissé, distributed by Hatch Mansfield, to a customer named Danny McGowan of Clacton, Essex, who described the fake bottle as having a label that “looked photocopied.” Apparently, the bottle was on sale for ?5, down from a usual ?14.49. (As of this writing, the Pouilly-Fuissé was on the price list at the Tesco website for ?12.99.)

The Sun article, which was sent my way by the illustrious wine-counterfeiting scholar/economist Günter Schamel (whose work I’ve previously discussed), has the amusing title “You Plonkers” and an equally amusing photo of a nonplussed McGowan.

The most unusual thing about this story is that while there has been much discussion of counterfeit wine in the high-end rare and fine wine market-Jefferson bottles and first-growth Bordeaux and such-there hasn’t been nearly as much talk about counterfeiting in the low-to-midrange wine market.

In that market, the trick might be a lot easier to get away with, for at least three reasons: first of all, evidence from psychology and neuroscience indicates that the end consumers of inexpensive or midpriced wines probably aren’t paying as much attention to the wine’s sensory qualities as they would if it were expensive. Second of all, consumers’ quality expectations are clearly lower when they pay less, so they’re less likely to complain even if the wine doesn’t meet those expectations. Third, and perhaps most importantly, there’s little incentive for any individual to sue for fraud. Unlike, say, wine collector Bill Koch, who alleges millions of dollars in counterfeit damages related to his collection alone-and thus has incentive to sue on his own behalf-even the theoretical smattering of consumers that are more or less certain the wine is counterfeit probably can’t be bothered to raise a big stink over a potential refund (barring punitive damages) of ?5 per bottle.

This last phenomenon is the same sort of collective action dilemma that mobile phone companies, credit-card companies, and the like have been trading on for years: they upcharge customers a few cents here and there-rounding the length of a dropped call up to the nearest minute, for instance, or playing with the spread on exchange rates on foreign transactions-but it’s below the radar screen of anyone but the most obsessively litigious or penny-pinching customer. It adds up to a lot of money for the company, but not enough is taken from any individual to incite a lawsuit. It’s thus a highly effective form of fraud.

When there are enough instances of such a scam, plaintiff firms sometimes come after the perpetrators with class-action suits, because contingency fees allow the firms to collect a percentage of the entire settlement even when the payout to any individual member of the class is small. The amalgamated damages then function as incentives for the plaintiff firms that look more like Koch’s and less like McGowan’s, even as many of the plaintiffs themselves probably don’t even go to the trouble to deposit their miniscule winnings (have you ever received one of those 40-cent settlement checks in the mail?).

It might seem, then, that the optimal opportunity for fraud is where (1) the damages to each individual are relatively low; (2) the number of instances is fewer than would make the case worth a plaintiff firm’s time; and yet (3) the business is large enough to make good money for the counterfeiter.

If low-end wine counterfeiting fits into this magical middle ground, then it’s here, perhaps, that sensationalist tabloids like the Sun can serve a critical role in the information marketplace and substitute for the plaintiff firm in solving this collective action problem. The tabloid punishes the supermarket chain with a public shaming while also rewarding the whistleblower with fifteen minutes of fame, which may not be worth millions, but whose cocktail-party value, plus perhaps a few pounds for the story, creates enough incentive for a consumer somewhere to tell all. If the story catches on, the extra ad impressions justify the tabloid’s effort. And all of this happens at little cost compared with that of preparing a fraud suit.

Unless, that is, you figure in the Sun’s liability risk if the facts turn out not to be true. This can be a serious matter in Britain, whose libel laws are so friendly to plaintiffs that the jurisdiction is said to attract so-called “libel tourists” from other countries. At least in Britain, then, this sort of middle-ground fraud might have to be particularly brazen and verifiable to be reported in a tabloid. (This one was probably reviewed by the Sun‘s legal staff before publication and certified as such, in keeping with the age-old adage that the lawyers get paid no matter what.)

On its face, the Jadot fraud does look unusually brazen, from the apparently not-very-believable label to the fact that, according to McGowan, the wine tasted like Liebfraumilch-an off-dry German wine-when it was supposed to be white Burgundy. Even wine novices are pretty good at differentiating sugar levels, and passing off a sweet wine as dry-if that is indeed what happened here-would be an unusually challenging feat to attempt. But in the world of wine counterfeiting these days, maybe brazenness is no drawback, and the challenge is the game.

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  1. Ian Kemmish says:

    I’m no lawyer, but I”m not sure we have class-action lawsuits over here. At least, if we do, they seem to be a lot harder to bring than they are in the US.

    However, our consumer watchdogs do have the capacity to file “super complaints” in cases like these. If these complaints are upheld, then the end result is usually a large fine paid to the public purse, and a public compensation scheme, which may or may not get underwritten by the fines. The victims only have to prove an interest once the compensation scheme is going, not before the case is heard. There’s a compensation scheme for mis-sold credit card payment protection insurance going on at the moment.

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  2. Tzimiskes says:

    I’d think it would be the firm and not the consumer that would have a strong interest here. While I have a few favorites I drink regularly, I do often try new wines for a different experience and to vary my purchases a bit. If I purchase a bottle of counterfeit wine and think that is what the wine normally tastes like, well the firm runs the risk of losing a long term paying customer. I’d also probably quickly substitute to a different wine if I got a bottle or two that seemed off. It seems to me that the risk to the firm with this kind of counterfeiting is sufficient to provide incentives to deter it, even if the consumer incentives are different.

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  3. A Kelly says:

    In that vein, I was extremely surprised last night to notice, in a large UES wine shop, how many bottles of “copycat” wine were on sale, not far from the “original” bottles. For example a bottle of rose from Provence, with an identical bottle style and extremely similar label design to the Ott rose just a few feet away. I was especially surprised to see this among so many French wines (I would have thought the label design would be protected under some copyright). Perhaps this is fairly common practice, in any case the people in charge of arranging the display in that shop were quite ‘brazen’ in placing the ‘copies’ so close to the originals.

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  4. Nosybear says:

    The entire counterfeiting of wine is possible because, in blind taste tests, the hypersensitive palates of those oenophiles were unable to tell the difference between a grand cru and grand crud. Put another way, winning a wine festival has no correlation with winning a second.

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  5. e mistry says:

    I stopped reading the moment I read it was from the Sun.
    I’m guessing any opinion on the matter was given by the page 3 model…

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  6. Tucker says:

    Well in these types of cases (and the higher end cases) carrying counterfeit wine would still be contrary to the interests of the seller because it can damage consumer relationships. A consumer who realizes that they have been duped with counterfeit wine will probably not continue to frequent that store. For a supermarket in particular ensuring the relative predictability of the product is what consumers demand.

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  7. 164 says:

    No need to counterfit this one also at Tesco, it might cost more:

    http://www.dailymail.co.uk/news/article-1293235/Tesco-1-11-wine-bottle-sparks-outrage.html

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  8. Mrs Middle of Manchester says:

    The UK has a form of ‘class action’ suit called a Group Litigation Order. These can be found on the HMCS website. They are rarer than in America and involve cases such as the miners.

    Equally, punitive damages are
    a: far rarer in the UK
    b: where awarded, far lower,
    c: judges, not juries, decide the amount as (with some very small exceptions, we don’t have jury trials on civil issues)

    Finally, lawyers in the UK cannot take a cut of any amount of damages award (unlike the US). Instead, under a ‘no win, no fee’ agreement, the winners costs are paid by the losing side with an ‘uplift’ added that calculated the risk.

    The absence of punitive damages, combined with the fact that an award of high punitive damages does not do anything to the amount the lawyer takes home means that there are lower incentives for consumers and lawyers alike to litigate these types of cases.

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