Some of the biggest news so far this month came by way of the close of the jury trial portion of the Chanel v. What Goes Around Comes Around case; the jury sided with Chanel on all four of its causes of action) and the matter now moving on to proceed before Judge Stanton. The parties are now slated to present evidence related to “equitable remedies, such as disgorgement and injunctive relief” to the judge, with Chanel’s brief coming soon. Against that background, I am turning my attention (to some extent) to another case that is readying for trial: Le Tote v. Urban Outfitters. The parties have been lodging trial briefs, various trial-specific motions (including a motion to instruct the jury on the elements of a trade secret claim by use of a U.S. Patent and Trademark Office video or alternatively permit Le Tote to use the trade secret video as a demonstrative exhibit), proposed jury instructions, etc. as of early this month.
For some background: San Francisco-based fashion rental company Le Tote filed suit in June 2020, accusing Urban Outfitters of gaining 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. The deal never came to be, according to Le Tote, and instead, Urban Outfitters launched Nuuly – a copycat rental service of its own to “compete directly with Le Tote” – using the secret info that it had “stolen” during the parties’ M&A discussions.
> Le Tote’s Causes of Action: Specifically, 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.
In an order in July 2023, Judge Nitza Quiñones Alejandro of the U.S. District Court for the Eastern District of Pennsylvania refused both Le Tote and Urban Outfitters’ motions for summary judgment. The court’s order followed from Urban’s unsuccessful bid for dismissal in August 2020 when it filed a motion to dismiss all claims in Le Tote’s complaint for failure to state a claim. In June 2021, the court denied Urban’s motion to dismiss with respect to all claims except the unjust enrichment claim, which it dismissed due to lack of dispute between the parties.
A running timeline of developments in this case is currently in the works for Enterprise subscribers.
THE BIGGER PICTURE: Competition continues to intensify in the online clothing rental market, which was projected to be valued at $2.28 billion in 2023 and is expected to rise to $6.24 billion by 2033. “The sales of online clothing rentals are expected to grow at a significant CAGR of 10.6 percent during the forecast period,” according to data from Future Market Insights. The market consultancy notes that younger consumers are driving demand in this segment of the market, with millennials “increasingly wearing designer clothing without actually owning it in order to keep up with the ever-changing fashion trends.”
In addition to rising attention to sustainability by younger consumers, Future Market Insights states that “increasing subscription-based model adoption, rising internet penetration rates, and rising disposable income levels are expected to drive the market [for rental] even further.”
A strong contender in this market, Nuuly made headlines in Q3 of this past year when it beat bigger rental rival Rent the Runway to profitability, reporting in November 2023 that its gross profit more than doubled year-over-year to $17 million, and gross margin expanded 322 basis points to 25.5 percent for the three months ending on October 31, 2023. These gains were largely due to an increase in the monthly subscription fee, per Urban. Meanwhile, its operating income reached $300,000 from a $3 million loss a year ago.
Beyond that intriguing elements that come hand-in-hand with the evolution of the fashion rental market, there is also trends in litigation and regulatory developments on the trade secrets front to consider, of course. Greenberg Taurig has a good trade secret-specific year in review that provides an overview of some of the most significant trade secret decisions in the U.S. in 2023 and a quick dive into a proposed FTC rule to ban non-competes between employers and “workers” (broadly defined to include employees, independent contractors, interns, and others).
The case is Le Tote, Inc. v. Urban Outfitters, Inc., 2:20-cv-03009 (E.D.Penn.).