Le Tote and Urban Outfitters are preparing to head to trial in a case that pits the two companies against one another over the latter’s alleged misappropriation of trade secrets in order to launch a competing fashion rental company. According to the complaint that Le Tote filed in a Pennsylvania federal court in June 2020, Urban Outfitters gained access to an array of valuable information – including “proprietary in-house tools” and “technological infrastructure and logistical functions” – under the guise of a potential acquisition of the fashion rental platform. The deal never came to be, according to Le Tote, and instead, Urban launched Nuuly – a “copycat” rental service of its own to “compete directly with Le Tote” – using the secret intel that it had “stolen” during the parties’ M&A talks.
Specifically, Le Tote claims that based on Urban’s representations “that it wished to pursue an acquisition” of Le Tote, it provided confidential and proprietary information to Urban after the Philadelphia-based retail group signed a non-disclosure agreement, in which it “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. With that in mind, Le Tote has argued that Urban violated the Federal Defend Trade Secrets Act and the Pennsylvania Uniform Trade Secrets Act, among other things, when it made use of Le Tote’s “business, engineering and technical information, including plans, formulas, compilations, techniques, processes, procedures, and programs, [which] constitute trade secrets” in furtherance of the creation of its own fashion rental company, Nuuly.
The pending case is one of the latest demonstrations of how companies in the retail space are using trade secrets – which broadly consist of formulas, patterns, compilations, programs, devices, methods, techniques and/or processes that provide a company with a competitive advantage – and more specifically, waging trade secret misappropriation claims against rivals.
> Note: The lawsuit at hand follows from other trade secret-centric cases, including one waged by Cartier against Tiffany & Co., in which Cartier accused Tiffany & Co. of stealing confidential company information, including “pricing information and detailed product distribution strategies,” and “internal presentations and guidance regarding [products/product divisions], and marketing and communications,” in order to build out its own High Jewelry collection. There is also the still-pending case that a former Valentino textile supplier is waging against the Italian fashion brand for allegedly co-opting its proprietary stitching techniques and the now-settled cases that Seed Beauty filed against Kim Kardashian’s KKW Beauty, Kylie Jenner’s corporate entity, and cosmetics giant Coty, alleging that information integral to the workings of its “unique business model” was at risk of being misappropriated following Coty’s acquisition of sizable stakes in KKW and Kylie Cosmetics.
Non-Competes, Non-Disclosures & the Role of Trade Secrets
The most interesting aspect of the Le Tote v. Urban trade secret scuffle is the fact that it is playing out amid a shifting landscape for another mechanism that companies use to protect their competitive advantages, namely, non-compete agreements. For decades, companies across industries have used non-compete agreements – which usually come in the form of clauses in individuals’ employment agreements that bar them from working for competitors or starting a competing business for a certain period of time – to lock-in key talent and protect certain advantages that they have built up in their businesses. “For years corporations have been able to threaten litigation against former employees going to a competitor without ever having to defend their trade secrets,” FisherBroyles LLP’s R. Mark Halligan stated in a recent note.
“But that will no longer be the case,” with this once-solid foundation becoming increasingly rocky as lawmakers in the U.S. push back against the applicability of non-competes.
In early 2023, for instance, the Federal Trade Commission (“FTC”), at the insistence of the Biden administration, proposed a rule that would make it illegal for an employer to: (1) enter into or attempt to enter into a noncompete with a worker; (2) maintain a noncompete with a worker; and/or (3) represent to a worker, under certain circumstances, that he/she is subject to a noncompete. The FTC is expected to announce a decision as early as next month over whether to ban non-competes at the federal level. The consumer protection agency’s decision will be significant since nearly 20 percent of U.S. workers are bound by non-compete clauses and 98 percent of private employers require their executives and managers to sign non-competes as a condition of employment, according to U.S. Government Office of Accountability data. At the same time, lawmakers in California and a number of other states have passed legislation to largely prohibit employers from enforcing non-competes.
Against that background, companies likely will need to focus more on protecting the actual elements of their businesses that they want to keep out of the reach of their rivals and less on preventing employees from jumping ship with such valuable knowledge in hand. Or more specifically, companies will be forced to rely more heavily on trade secret protections and things like non-disclosure agreements.
This is where the Le Tote case will prove informative. It will ideally provide some insight into the necessary measures for identifying trade secrets and the requisite level of efforts to keep those secrets … well, secret. These are not unchartered topics, but as Halligan assets, “most companies have never conducted a trade secret audit and have no experience in the litigation aspects of trade secrets law.” As such, insights into key questions – including (but not limited to) what reasonable measures are required to protect trade secrets? What are the steps necessary to manage trade secrets? How should trade secret provisions be drafted in employee and vendor agreements? What are the requirements for the ownership of a trade secret? – will be welcome.
The case is Le Tote, Inc. v. Urban Outfitters, Inc., 2:20-cv-03009 (E.D.Penn.).
Share
