Image: Le Tote

Le Tote, a “pioneer” in the rental fashion space, claims that executives from Urban Outfitters induced it into providing them with a sweeping amount of confidential information about the workings of its business under the guise of a potential acquisition, only to up-and-abandon the M&A discussion and launch a copycat rental service of its own to “compete directly with Le Tote,” using the very information it had expressly agreed not to steal from Le Tote. Now the parties are set to be locked in the latest in a rising number of recent trade secret misappropriation battles

According to the complaint that it filed in a Pennsylvania federal court on Monday, Le Tote claims that in March 2018, executives from Urban began engaging in in-depth discussions with individuals from Le Tote about the latter’s unique business. At the core of its rental-by-mail fashion venture are “proprietary in-house tools” that enable Le Tote to run its business, which the company says that it spent years of “trial-and-error and substantial resources” to develop, and which consist of “technological infrastructure and logistical functions [that are] different from those used by traditional fashion retailers.”

Based on Urban’s representations “that it wished to pursue an acquisition of Le Tote” and in furtherance of such acquisition talks, Le Tote alleges that it provided such confidential and proprietary information to Urban on the condition that the company sign a non-disclosure agreement, in which “Urban agreed not to use Le Tote’s proprietary information for any purpose other than evaluating a transaction with Le Tote” for a period of two years. 

Counsel for the rental company, which as of August 2019 also owns famed department store chain Lord & Taylor, argues that Urban also “represented to Le Tote that it lacked the knowledge and expertise to enter the rental subscription business independently and could not do so without acquiring a company like Le Tote.” 

With such formalities in place to protect its company information, and “operating under the Urban-induced belief that it was demonstrating its value to the Urban portfolio rather than unwittingly grooming its competitor,” Le Tote says that it “proceeded to provide Urban with detailed proprietary information about its infrastructure, reverse logistics, and warehouse systems and algorithms, as well as market research and insights that have proved essential to the successful operation of a fashion rental subscription business.” 

Le Tote claims that information about the workings of its business is particularly valuable given that “the fashion subscription service is a nascent industry, and suitable warehouse management systems and style recommendation tools are not commercially available for purchase and must be custom developed,” meaning that “aspiring entrants to this market face significant barriers to entry in costs and lead time to develop these systems and tools.”

Two months into the parties’ discussions, things were seemingly going well … until they were not. On the heels of Urban’s reps “eagerly absorb[ing] Le Tote’s proprietary information” over the course of two months, including “increasingly detailed future plans and analyses as the deal approached consummation,” all while assuring Le Tote that Urban CEO Richard Hayne “shares our excitement and absolutely wants us to move forward” with the deal, Le Tote claims that “Urban abruptly abandoned the transaction in May 2018, citing a failure to obtain the approval of Urban’s Board of Directors.” 

“The news came as a complete surprise to Le Tote,” as “prior to this conversation, no one at Urban had indicated to Le Tote that Urban had any reservations about the transaction, nor had anyone at Urban challenged any of the assumptions or projections underlying Le Tote’s valuation of its business.” 

Le Tote would ultimately prove to be even more shocked when – within a month – Urban began to set up “its own competing fashion rental subscription business, Nuuly … [using] the unique infrastructure and algorithms that made [Le Tote] successful,” and led by some of the very same people that were engaged in the acquisition discussions. Le Tote claims that these executives “did not ‘forget’ the proprietary information [they gleaned from it], nor could they have disregarded Le Tote’s proprietary information in [establishing] Nuuly,” which formally launched less than a year later in May 2019. 

With Urban admittedly lacking “the expertise to build such a business themselves,” there is no way it “could have then done so — and so quickly — without using the proprietary information that they learned from Le Tote, the company claims, asserting that Urban has “profited, benefitted, and been unjustly enriched by avoiding significant costs and development time to launch Nuuly in the time-frame that it did.” 

With that in mind, Le Tote claims that Urban has engaged in violations of the Federal Defend Trade Secrets Act and the Pennsylvania Uniform Trade Secrets Act in connection with its alleged misappropriation of Le Tote’s “business, engineering and technical information, including plans, formulas, compilations, techniques, processes, procedures, and programs, [which] constitute trade secrets.” Urban is also allegedly on the hook for breach of contract, unfair competition, and unjust enrichment, and Le Tote is seeking injunctive relief, “compensatory, punitive, and statutory damages,” and attorney’s fees. 

The case comes amid an enduring trade secret fight between L’Oreal and haircare startup Olaplex, in which Olaplex claims that the beauty giant stole its valuable and proprietary business information, including the formulas for its staple haircare products, during potential acquisition discussions. Still yet, Le Tote filed suit just days after Seed Beauty, the company responsible for helping to launch Kylie Cosmetics and other DTC beauty brands, filed suit against Kim Kardashian’s KKW brand in order to prevent the company from sharing trade secret information with Coty in connection with an allegedly impending acquisition. 

*The case is Le Tote, Inc. v. Urban Outfitters, Inc., 2:20-cv-03009 (E.D.Penn.).