First came the $1 billion valuation and then came the lawsuit. Just days after Rent the Runway achieved unicorn status thanks to a $125 million investment led by Franklin Templeton and Bain Capital, the 10-year old fashion rental company was slapped with a strongly-worded lawsuit by a younger rival, FashionPass, accusing it of devising a scheme of “monopolistic and anti-competitive conduct” to illegally maintain its position as top dog in the rental sphere and “drive FashionPass out of the market” entirely.
According to a complaint filed with the Superior Court of California in Los Angeles on Tuesday, FashionPass asserts that since its founding in 2016, it has “achieved strong and steady growth and has become a showcase retailer in the fashion rental business.” Due to “the considerable growth and success of its business,” FashionPass claims that it caught the attention of Rent the Runway (“RTR”), which has since “embarked upon a wrongful, anti-competitive scheme and conspiracy to eliminate competition from FashionPass, rather than fairly competing in the marketplace.”
The fashion rental business model is dependent upon a rental company’s ability to purchase wholesale merchandise from brands, which it can then rent to consumers. Knowing this first hand, Los Angeles-based FashionPass claims that RTR relied on its “superior market power and financial capabilities” to employ “coercive tactics to pressure the manufacturers with which FashionPass conducts business, to refuse to sell merchandise to FashionPass.”
To be exact, the budding rental company asserts that “in or around October and November 2018, and continuing thereafter to the present date,” RTR informed at least 20 brands that were actively selling to it and to FashionPass that if they did not “grant ‘an exclusive right to buy’ to RTR … it would not purchase any merchandise from those manufacturers” going forward.
A retailer or rent company seeking exclusivity in its relationships with brands, alone, is not an illegal act. However, FashionPass goes on to assert that RTR required that the brands at play here, including Saylor, Blank NYC, AGOLDE, Citizens of Humanity, Cleobella, and Sanctuary, also “refuse to sell merchandise to FashionPass,” which is how the alleged conduct begins to veer towards potential monopolization and unfair dealings.
Right around that same time, FashionPass claims that despite “regularly buying” clothing from the aforementioned brands, and maintaining contracts with many (if not all) of them, representatives for all of the brands rejected its “requests to purchase merchandise.” The reason they gave? They “had granted RTR an exclusive right to purchase merchandise.” Such behavior indicates to FashionPass that each of the brands had, in fact, “acceded to RTR’s coercive threats, and agreed (a) to designate RTR as their ‘exclusive’ customer in the Fashion Rental Business, and (b) to refuse to sell merchandise to FashionPass.”
Such an “intentional, willful, malicious, oppressive, fraudulent, and conscious and despicable disregard of FashionPass’s known rights” by RTR is “a conspiracy against trade” in direct violation of California’s Cartwright Act, which rather sweepingly prohibits sale terms that prohibit dealing with a competitor where the effect would be to substantially lessen competition or tend to create a monopoly, per FashionPas. More than that, it gives rise to claims of unfair competition, intentional interference with contract, andintentional interference with prospective economic advantage, and has resulted in injury and damages to FashionPass in excess of $3.2 million.
Now, FashionPass – which, a day after its suit was filed was coined by industry site Vox “a Rent the Runway-style subscription service for fast fashion,” and “like Rent the Runway but for influencers” – faces an arguably uphill battle in establishing that RTR was not merely seeking to create a benefit for itself by entering into exclusive partnerships with these brands but was actively seeking to create a monopoly to damage its competitors. And beyond that, in showing that the market, is in fact, harmed.
All the while, it is difficult not to see how the imbalance of power between RTR and FashionPass, which the latter points out in its complaint, will play out in the case, itself. The practical effects of the financial prowess that is RTR goes beyond its ability to influence the terms of its relationships with brands; it also means that the unicorn will be able to devote a sizable chunk of resources to litigation, far more than its much smaller and less-funded competitor can.
A rep for RTR says the company does “not comment on ongoing litigation.”
*The case is FashionPass Inc. v. Rent the Runway, Inc., 19STCV10151 (Cal.Sup).