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Urban Outfitters Tries to Put Le Tote’s Trade Secrets Lawsuit to Bed Early

Urban Outfitters, Inc. on Monday filed a motion for summary judgment in a proprietary information lawsuit filed in June of 2020 by now-bankrupt clothing rental company Le Tote.

If the Hon. Nitza I. Quiñones Alejandro of the U.S. District Court in Philadelphia rules in favor of the hometown clothing company, it would suspend the collection of additional exhibits and go directly to the her decision without a trial. Summary judgments usually come within about three months of being granted and usually in favor of the side making the request.

In the original suit, Le Tote—which since October of 2020 has been the holding of New York & Co. owner Saadia Group—accused Philadelphia-based Urban of courting it for purchase, obtaining proprietary information along the way and when declaring it was no longer interested in the sale, created its own clothing as a service (CaaS) brand of its own called Nuuly.

Attorneys for Le Tote, which still rents clothing through the website, argued that the speed and success with which Nuuly launched, proved that Urban Outfitters had taken advantage of the cash-strapped e-commerce brand to acquire its foundational knowledge regarding its inventory management system, its RFID-driven logistics system, its consumer insights, roadmap and scaling, its financial information and modeling information, and—perhaps most pointedly—its algorithms.

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This, plaintiffs argued, was a violation of the non-disclosure agreement entered into by the parties at the start of the courting period, as well as federal laws against stealing trade secrets.

However, in its motion for summary judgment, redacted somewhat to protect the names of other parties in the CaaS world that Urban had met with prior to approaching Le Tote, disclosures from private executive board meetings and Urban Outfitters’ own trade secrets, such as how much it spent launching Nuuly, the defense told a decidedly different tale.

According to Monday’s filing, Urban’s board of directors had made the decision to stop pursuing acquisition of the then-6-year-old Le Tote when the rental platform rejected a $65 million offer on May 4, 2018 and did not make a counter-offer.

Instead, Le Tote went the other direction and decided to acquire failing retailer Lord & Taylor and in November 2019 paid $100 million, $75 million of it in cash upon close and a $25 million secured promissory note, to acquire the oldest operating department store chain in the U.S. dating back to 1826. By the following summer, both were bankrupt and about to become the property of the Saadia Group.

Guests attend the Lord + Taylor and Le Tote holiday pop-up shop launch event on December 11, 2019 in New York City.
(Photo by Monica Schipper/Getty Images for Lord + Taylor)

The Covid-19 pandemic was blamed in an August 2020 message put out by Le Tote.

“Both Le Tote and Lord + Taylor will continue to operate during the chapter 11 process and offer the same superior service and value,” the press release stated.

In its Monday motion, Urban attorneys argue that not only did their clients not steal Le Tote’s trade secrets, including algorithms, those details were publicly available already and, in any case, all intellectual property was the possession of the Saadia Group and not Le Tote as a result of the October 2020 bankruptcy, making all claims, even if they were valid, irrelevant, legally.

Urban Outfitters co-president and COO Frank Conforti testified in depositon that once the decision was made to no longer pursue the purchase of Le Tote, all shared information was immediately destroyed by his company.

“So there was no going back to anything that we–you know, that we had learned,” Conforti testified. “All of those–you know, all that information and materials were gone.”

Urban lawyers also pointed to a deposition exchange with Le Tote chief technology officer Charlie Bowman, who was asked, “Le Tote never shared its code—its software code for WMS with Urban, right?” to which Bowman replied, “no… we did not share the actual code, but we gave them all the data inputs and the name of the—like, of the algorithm that we’re—that we’re using to analyze that, like data.”

Le Tote contended in its lawsuit that less than a year into operation, Nuuly had acquired 27,000 subscribers, an achievement it implies would not possible without illegally applied trade secrets.

In deposition, Urban executives testified that they did no such thing, but rather recalled the experience of growing a new business “from scratch.”

“We started a venture on how we wanted to operate our business from scratch, and literally from every piece, from technology, to product, to, you know, logistics, so forth and so on,” said Urban’s chief techology officer and president of Nuuly David Hayne. “All the information that we had seen from their data room and have learned from them in conversation, we set it to the side, and we started clean.”

Kim Gallagher, director of marketing, recalled, “From my perspective, I was—I felt like I was kind of starting from scratch.”

Urban Outfitters claimed that it applied no algorithm technology at all and went from “scratch” to 27,000 in 10 months by hiring talented, experienced people, including Charles Ickes, the former head of warehouse operations at Rent the Runway, to help develop the logistics plan, and Phil Nanney, a former Gwynnie Bee operations manager to open its distribution center.

The rest of Nuuly’s fast success, Urban credited to a simpler and less intrusive customer experience.

“At launch, Nuuly offered customers the ability to subscribe to access six items of clothing for $88; those items could be kept for one month and, once returned, the customer could order six new items they would receive for the next month,” the motion for summary judgment reads, attributing Gallagher as the source of the information with the following two lines redacted.

The motion goes on to claim that Nuuly set itself apart from Le Tote and others by its decision “not to use on-boarding questions or survey to make recommendations.”

Attorneys representing Le Tote did not immediately respond to Sourcing Journal requests for comment.