PHILADELPHIA – A New York fashion rental company claims Urban Outfitters backed away from merger talks between the two groups and then violated a non-disclosure agreement by stealing the plaintiff’s proprietary concept for a women’s clothing rental business for itself.
Le Tote, Inc. of New York City filed suit in the U.S. District Court for the Eastern District of Pennsylvania on June 22 versus Urban Outfitters, Inc., of Philadelphia.
Founded in 2012, Le Tote, operates a clothing rental service for women through a subscription-based model. Subscribers are permitted to wear the clothing they order, return it and/or exchange it for other items. If a given subscriber would like to keep the article of clothing they ordered, they can do so by paying half of the standard retail price.
For its service, Le Tote provides its 330,000 members across 48 states a pair of monthly subscription plans: A “Classic” plan for $59 per month or the “Maternity” plan for $79 per month.
In March 2018, Urban approached Le Tote with interest in learning more about its business and, according to the lawsuit, “candidly acknowledged [its] inability to enter the rental subscription market on its own, precisely because Urban lacked the experience, systems, infrastructure, and technical knowledge involved in operating a fashion rental subscription service.”
That led to Urban evincing an interest in acquiring Le Tote and merger talks between the two companies soon began. As a condition of the discussions, Le Tote required Urban to sign a mutual non-disclosure agreement, guaranteeing that Urban would not appropriate or misuse Le Tote’s proprietary information.
Urban agreed.
After the non-disclosure agreement was signed, Le Tote says it extensively detailed the inner workings of its business to Urban, sharing confidential proprietary information which had taken years to acquire; namely, information pertaining to exactly how its business was built and operated, such as presentations on its products, technology, logistics and scaling of its subscription service.
At that point, Urban executives reiterated that it did not have the corporate infrastructure necessary to enter the clothing subscription service marketplace and expressed interest in acquiring Le Tote.
However, on May 4, 2018, Le Tote says Urban notified it that the proposed acquisition was off the table, due to the latter company’s board of directors not granting its approval to the deal.
The suit explains the surprise of that decision was seconded by Urban launching its own subscription service for women’s clothing, named Nuuly, one year later. As a direct competitor to Le Tote, Nuuly utilized Urban’s merchandise – along with Le Tote’s confidential proprietary information and trade secrets – to achieve the same objective and solicit the same customer base as Le Tote did with its own service.
“Based on the facts and circumstances surrounding Urban’s discussions with Le Tote and its subsequent launch of Nuuly, it is obvious that Urban has misappropriated and misused Le Tote’s Proprietary Information in launching and operating Nuuly,” the suit states.
“Having learned from Le Tote how to build and operate an efficient infrastructure and how to successfully incorporate customer feedback to maximize customer satisfaction and profitability, Urban’s executives did not ‘forget’ this Proprietary Information, nor could they have disregarded Le Tote’s Proprietary Information in launching Nuuly.”
For counts of violating the Defend Trade Secrets Act, the Pennsylvania Uniform Trade Secrets Act, breach of contract, unfair competition and unjust enrichment, the plaintiff is seeking injunctive relief against Urban’s use of the proprietary information; compensatory, punitive, and statutory damages, including but not limited to restitution and/or disgorgement, in an amount to be determined at trial; attorney’s fees, pre-judgment and post-judgment interest; such other and further relief as the Court deems just and proper, plus a trial by jury.
The plaintiff is represented by David L. Braverman of Braverman Kaskey, in Philadelphia.
The defendant has not yet secured legal counsel.
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-03009
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com