On June 19, 2020, Kim Kardashian West’s (“Kardashian West”) company KKW Beauty, LLC (“KKW”) was sued in California Superior Court by its business partners Seed Beauty (“Seed”) alleging trade secret infringement. According to the complaint, the action was brought after KKW engaged in business discussions with Seed’s competitor, to “prevent irreparable harm … arising from the imminent and material threat of KKW’s misappropriation of highly sensitive and confidential trade secret information … to one of Seed’s largest competitors, Coty.” Seed Beauty, LLC and MM Cosmetics, LLC v. KKW Beauty, LLC, 20VECV00684 (Cal.Sup.)(June 2020). The complaint can be accessed here.
Seed is an incubator for beauty and cosmetic brands. Its business model focuses on taking new brands and bringing them to market using, what it calls, its “unique business model,” which has “skyrocketed young start-up brands to beauty and cosmetics sensations over a period of only a few years.” According to the complaint, Seed was in part responsible for the tremendous success of Kylie Cosmetics, the cosmetic brand launched by Kardashian West’s half-sister and beauty billionaire, Kylie Jenner (“Jenner”) under the company name King Kylie, LLC (“King Kylie”). In 2019, Jenner’s company reached billion-dollar valuation after Seed’s competitor, Coty, purchased a 51% interest in Kylie Cosmetics for $600 million. With the success of Kylie Cosmetics, Kardashian West allegedly approached Seed to do the same for her KKW brand, which sprouted (no pun intended) the business relationship between Seed and KKW.
Seed considers its business model and contracts to be trade secrets of the company which are “carefully maintained” and “not shared with competitors.” Seed alleges its vertical integration capabilities, the structure of its partnerships, and the negotiated deal terms in its contracts, are all “highly sensitive, confidential and trade secret information” which differentiates its business model from competitors. In view of its prior successes, Seed had an interest in ensuring that its competitors (such as Coty) did not get insight into Seed’s business model and agreements.
Around the time of Coty’s 2019 equity purchase in Kylie Cosmetics, Seed had voiced concerns about trade secrets held in its business contracts, notifying Kylie Cosmetics that the contracts between them were not to be disclosed during negotiations with Coty. More recently, in early June 2020, Coty publicly disclosed a possible collaboration with Kardashian West’s KKW beauty company. Upon learning of this, Seed brought this complaint requesting a temporary restraining order (TRO) and permanent injunction (among other relief) to prevent the disclosure of its alleged trade secret information, including those contained in its business contracts during negotiations between KKW and Coty.
On June 26, 2020, the Court granted a TRO in Seed’s favor prohibiting KKW from disclosing any details relating to the Seed-KKW business relationship to Coty. With its TRO win in hand, Seed next filed a separate lawsuit against King Kylie, LLC and Coty on June 30, 2020 alleging trade secret misappropriation, among other claims, from the prior collaboration between King Kylie and Coty. Seed Beauty LLC and Beta Beauty LLC, v. Coty, Inc., HFC Prestige Products, Inc., King Kylie, LLC, 20VECV00721 (Cal. Sup.)(June 2020).
It has yet to be determined how these cases will ultimately unfold and whether Seed’s trade secret IP will ultimately quash the Coty-KKW deal. However, this contentious fact pattern demonstrates how companies can use trade secret protection to enforce their rights in company know-how. This type of protection is often overlooked when a company is evaluating its intellectual property portfolio, typically comprised of trademarks, copyrights or patents. A trade secret is a type of intellectual property consisting of business “information” (e.g. a formula, method, technique, or process) held in confidence, that confers an economic advantage to the holder over competitors who do not have access to that information. Courts can help enforce trade secrets by preventing or enjoining the “misappropriation” of that trade secret.
Here, Seed is asserting that its business structure, including agreement terms, are its trade secret, and that it confers to Seed an advantage over competitors like Coty. Seed has asked the court to allow Seed to protect this trade secret and prevent its misappropriation by Coty. When asserting ownership of a trade secret, the claimant must demonstrate that it has taken reasonable steps to keep the trade secret a secret. Some ways businesses can do this include using NDAs and confidentiality agreements, disclosing protected information cautiously on an as-needed basis, employing both physical and digital security, using access privileges (locks, passwords, etc.), training personnel to maintain the secret, taking corrective measures, and regularly auditing and improving policies. There is no “one-size-fits-all” approach to trade secret protection, and businesses should strategize carefully with their lawyers on how to best protect their valuable trade secrets.
This case also serves as a reminder that companies seeking to acquire other businesses should consider the risk of trade secret misappropriation claims brought by third parties. These may arise when conducting due diligence on targets for potential acquisition. This is especially true when the target had a prior relationship with competitors of the acquiring company, as was the case between Seed and Coty. As highlighted by this case, the prior deal partner or stake holder could attempt to use its proprietary trade secrets as a tool to disrupt your business acquisition.
Editor: Catherine Holland