Image: Limited

Sycamore Partners has won the auction for the e-commerce business and intellectual property of bankrupt the U.S. women’s apparel retailer, The Limited, with a bid of $26.8 million, according to a Reuters report. The New York-based investment firm, which holds ownership stakes in Nine West and Belk, and previously in Jones New York and Stuart Weitzman, outbid clothing firm Sunrise Brands LLC. The deal, itself, has not yet been finalized, as the sale must still be approved by a U.S. bankruptcy court judge. The Limited filed for bankruptcy last month, and the auction comes on the heels of the mall retailer closing all of its 250 brick-and-mortar stores earlier this year, along with the e-commerce aspects of its website.

The Value of Post-Bankruptcy Intellectual Property

The slew of recent bankruptcy auctions underscore the interest that the e-commerce business and intellectual property of even bankrupt retailers can attract, and the value that they can garner. This can be said of The Limited, as well as the recent American Apparel and Nasty Gal bankruptcy deals. Outside parties – including Amazon in the case of American Apparel, if the reports are true – vied for the companies’ intellectual property assets, namely, their still very valuable trademarks (and associated branding, from which most fashion brands garner their appeal with consumers, after all). Also in the mix: Trade secret information, such as consumer and supplier lists, marketing techniques, and other proprietary intel.

While the companies’ well-known trademarks and any various copyrights and patent rights are obvious and often discussed assets in connection with bankruptcy proceedings, the role of trade secrets is often overlooked, at least by the media.

For the uninitiated, trade secrets – a type of intellectual property – are defined as any confidential business information that provides an enterprise with a competitive edge. They typically take the form of manufacturing processes, formulas, computer algorithms, and industrial designs, and also encompass business strategies and customer lists, the latter couple of which heavily affect the workings of the fashion industry.

Trade Secrets: A Big Draw

Trade secret information amounts to highly valuable assets for brands, as indicated by the wars that these companies tend to wage when top employees attempt to jump ship to rival brands and take such information with them. You may recall the multi-million-dollar lawsuit that Nike filed in 2014 against three of its former senior shoe designers, accusing them of stealing its trade secrets and joining rival, adidas. Specifically, the Oregon-based sportswear giant alleged that its former employees, Denis Dekovic, Marc Dolce and Mark Miner, violated their non-compete agreements by stealing years’ worth of trade secret information (including confidential design and business documents, including drawings for unreleased shoes made for one of Nike’s sponsored athletes) and taking that info to adidas, where they were allegedly setting up a copycat of Nike’s existing design studio.

That same year, Louis Vuitton filed a trade secret misappropriation lawsuit against Joon Ma, who served as its Vice President of Canada and Bermuda until she resigned in April 2014 and jumped ship to Coach, allegedly taking confidential Louis Vuitton North America (“LVNA”) information with her. In its suit, Louis Vuitton claimed, “Prior to leaving LVNA for Coach, Ma transferred confidential LVNA information from her LVNA laptop computer to several external storage devices, and then deleted files and emails from her LVNA computer and email account in an effort to cover her tracks.”

While much has not been made of the draw of trade secrets in the recent round of bankruptcies, they should not be overlooked in any instance. Such info stands to play a significant role in the case of Nasty Gal and Boohoo, for example, particularly because Boohoo is a European brand looking to expand in the U.S., where Nasty Gal maintains its largest consumer pool. As indicated by a separate legal proceeding under the umbrella of Nasty Gal’s bankruptcy proceeding, Boohoo’s “offer for Nasty Gal’s intellectual property and customer databases, made last month after the retailer filed for Chapter 11 bankruptcy in November, will be subject to other bids at an auction on Feb. 7.”

As such, at least part of the deal between the two retailers centers on Nasty Gal’s valuable customer databases, which very clearly fall within the bounds of trade secret law. These likely consist of consumers’ names, addresses, shopping preferences, purchase history, and other individual-specific information, which can prove immensely valuable for a brand targeting the U.S. millennial and Gen Z market, as Boohoo is. This is just one example.

Since trade secrets are not publicly identified or registered with a government agency – unlike copyrights, trademarks, and patents – and their creation and continued existence depend upon secrecy, they are often overlooked but they are an essential part of any intellectual property portfolio and these recent bankruptcy transactions shed light on this. Their inherent value is, after all, proving a much bigger draw than the real estate associated with any of these bankrupt companies, which no bidder seems to want any part of, giving rise to the IP-specific asset auctions.