On the heels of alluding to impending litigation involving Kylie Cosmetics in the trade dress secret case it filed against Kim Kardashian’s KKW Beauty late last month, Seed Beauty has named Coty, Inc. and Kylie Jenner’s corporate entity King Kylie LLC in a markedly similar lawsuit. In the newly-initiated legal battle, beauty brand incubator Seed Beauty is seeking judicial intervention to put a stop to Coty’s alleged “theft of [its] pioneering and proprietary digital-first business model that has revolutionized the cosmetics industry,” which it is carrying out via its billion-dollar deals with members of reality television’s most famous family.
According to the heavily-redacted complaint that it filed in a California state court on Tuesday, Southern California-based Seed Beauty alleges that as a result of Coty’s inability to “successfully compete in the new digital cosmetics world through its own innovation,” the legacy beauty conglomerate has enacted a plan “to steal the secret sauce behind Seed,” and has actually “gained unlawful access to Seed’s proprietary strategies for developing and growing cosmetics brands” by way of its recently-hatched deals with Kylie Cosmetics and KKW.
Coty first made headlines in connection with the buzzy Kardashian/Jenner brands in November 2019 when it acquired a 51 percent stake in Kylie Jenner’s Kylie Cosmetics – which was developed in partnership with Seed in 2014 – for a whopping $600 million. Then, late last month, the American multinational beauty company revealed that would take a 20 percent ownership interest in Jenner’s half-sister Kim Kardashian’s KKW Beauty brand, whose products are similarly created and produced by Seed, for $200 million.
The issue at play in connection with both of those deals, according to Seed’s complaint: As the party tasked with “formulating, making, packaging, and shipping all of Kylie’s products,” as well as those of KKW Beauty, Seed is the owner of an array of proprietary and confidential information that is essential to the working of its “unique business model.” However, while it maintains exclusive rights in such information, Seed claims that because both Kylie Cosmetics and KKW have had access to some of the most valuable and secretive elements of its business, that information is at risk of misappropriation in light of their deals with Coty.
Proprietary, Confidential Information
According to Seed’s new lawsuit, the specific, protectable elements of its business – which are redacted in the publicly-accessible version of the complaint – are “not generally known in the beauty industry and could not be learned by others, if at all, without considerable expenditure of time, effort, or expenses.” As such, this information amounts to trade secret info., a type of intellectual property that covers information used in business that gives a company an advantage over competitors who do not know or use it.
These trade secrets – which Kylie Cosmetics and KKW allegedly had access to as a result of their close ties to Seed – are “essential to Seed Beauty’s competitive position in the beauty and cosmetics industry,” the complaint claims. That is why Seed says that it requires its exclusive beauty brand and cosmetic partners to sign off on and abide by “strict confidentiality and non-disclosure obligations.”
In light of Coty’s recent deals with Kylie Cosmetics and KKW, Seed claims that this valuable information is at risk of misappropriation by Coty. Seed asserts that the risk of misappropriation is particularly high due to Coty’s alleged desire to copy its unique business model for its own benefit, and the company’s willingness to “cross the legal line when it decided to rebuild itself by stealing every aspect of Seed’s pioneering business model” by way of the aforementioned acquisitions.
Kylie Cosmetics’ alleged “refusal to confirm or deny whether it [has] disclosed the Seed Beauty trade secrets or any confidential details to Coty” appears to serve as part of the impetus for Seed’s suit. More than that, though, Seed asserts that Coty’s recent acquisition of a stake in KKW, which resulted in KKW “disclosing [trade secret information] to Coty, without Seed’s consent,” has led it to believe that “similar improper use and disclosure of information was made by [Kylie Cosmetics] to Coty.”
“Recognizing the imminent threat of harm Seed was likely to sustain without injunctive relief,” the same California state court granted Seed’s request for a temporary restraining order in the case that the company filed against KKW late last month. As a result, KKW “and all those acting in concert with it [are legally prohibited] from directly or indirectly disclosing, misappropriating, or facilitating the disclosure or misappropriation of, or sharing in any way any details related to the Seed-KKW Beauty business relationship or arrangement with Coty.”
With its preliminary win in the KKW case in hand, Seed wants the same remedy in connection with King Kylie and Coty.
Setting forth claims of misappropriation of trade secrets in violation of California Uniform Trade Secret Act, breach of contract (against King Kylie), and intentional interference with contract (against Coty), Seed is seeking “a temporary restraining order and preliminary and permanent injunction enjoining Coty from, among other activity, reviewing, discussing, disclosing or misappropriating [its] trade secret” information, as well as monetary damages.
Misappropriation by Acquisition
As we noted in connection with Seed’s case against KKW Beauty, this case similarly presents an important look at how trade secret information becomes an issue in the context of acquisitions. While traditionally under-discussed, trade secret misappropriation by acquisition has received increased attention in recent years in light of headline-making matters, such as the since-settled lawsuit between Alphabet’s Waymo and Uber, a case that centered on Uber’s acquisition of self-driving startup Ottomotto.
It also comes as part of a larger movement that includes a growing amount of trade secret litigation. As global advisory firm Stout noted in a recent report, while companies have relied on trade secret causes of action to protect valuable business assets for decades, “Legal action has expanded over the years and recent trends have set the foundation for a continuing surge in federal trade secret litigation.” As a result of “the digitization of intellectual property and ongoing competition across industries,” as well as an increase in M&A discussions in light of a larger trend towards consolidation, among other macro developments, companies are at elevated risk of trade secret theft, and no small number are responding to such threats and instances of misappropriation by “increasingly engaging in legal proceedings specific to trade secrets.”
The case at hand, as well as the case that Seed filed against KKW Beauty, follows from an ongoing trade secret case involving L’Oreal, in which haircare startup Olaplex accused the personal care titan of stealing an array of its trade secrets in connection with acquisition discussions between the two companies. In something of a similar case, fashion rental company Le Tote is currently suing Urban Outfitters for allegedly stealing its trade secret-protected business model in order to create a rival company under the alleged guise of a potential acquisition.
*The case is Seed Beauty LLC and Beta Beauty LLC, v. Coty, Inc., HFC Prestige Products, Inc., King Kylie, LLC, 20VECV00721 (Cal.Sup.).