Coty purchased a majority stake in Kylie Cosmetics earlier this year at a valuation of $1.2 billion
Seed Beauty—the company that exclusively manufactures products for Kylie Jenner’s Kylie Cosmetics—has filed a suit against Coty, the majority owner of Kylie Cosmetics, and King Kylie, the LLC behind Kylie Cosmetics, seeking to prevent the misappropriation of trade secrets. The civil suit, filed June 30 in California’s superior court, alleges that Kylie Cosmetics knowingly shared Seed Beauty’s trade secrets and Coty knowingly accepted them.
According to the complaint, Kylie Cosmetics knowingly disclosed Seed’s trade secrets—confidential intellectual property—with Coty, the beauty giant that also owns CoverGirl, Rimmel and Sally Hansen, among other brands. While the highly redacted document doesn’t specify the secrets that Seed doesn’t want shared, they could include information on product formulation, information about the business’ core operations and the structure of its partnerships.
“Coty made a $600 million investment in King Kylie, but it really was a subterfuge to learn Seed's confidential business methodologies,” the suit claims. “Any competitor who acquired such information would be given an unfair competitive advantage.”
Seed alleges that it asked Kylie Cosmetics numerous times over the course of Kylie’s negotiations with Coty, which were rumored to have begun in June 2019, not to share certain parts of the Seed-Kylie Cosmetics agreement. According to the suit, Jenner and her team refused to confirm or deny whether they had shared the information. Jenner sold 51% of Kylie Cosmetics to Coty for $600 million, in a deal that closed in January. Since then, the company has given Coty extensive exposure to Seed’s trade secrets, the suit claims, adding that using such information would be an infringement of their intellectual property rights. The suit also alleges that Seed asked Coty not to ask for, or use, these trade secrets, but Coty similarly refused to assure Seed that it wouldn’t.
Seed is asking the court to permanently bar Kylie Cosmetics from disclosing Seed’s trade secrets, force Coty to promise not to use any information it has already received and prevent Coty from developing any color cosmetics products with Kylie Cosmetics for a period of time that was redacted in the suit.
Representatives for Coty and Kylie Cosmetics did not respond to requests for comment.
The suit comes just days after Seed won a temporary injunction in a similar case against KKW Beauty, owned by Jenner’s half-sister Kim Kardashian West. On June 19, Seed filed a lawsuit against KKW Beauty seeking protection of its trade secrets. The suit was filed on the expectation that Coty was on the verge of buying a stake in KKW Beauty. KKW Beauty filed an opposition to the lawsuit, claiming Seed’s legal action is an “attempt to stifle the success of the Kardashian-Jenner family” and asserting that KKW Beauty did not share trade secrets with Coty. KKW Beauty requested that the court compel arbitration.
“The purported harm to Seed is entirely speculative, unfounded, and already complete,” the objection in the KKW Beauty lawsuit reads. “By contrast, KKW stands to suffer comparatively more significant harm if the Court were to enter the amorphous injunction proposed by Seed."
The temporary order that the court granted, which lasts until August 21, forbids KKW Beauty from sharing with Coty details related to the Seed-KKW relationship, including “the terms of those agreements, information about license use, marketing obligations, product launch and distribution, revenue sharing, intellectual property ownership, specifications, ingredients, formulas, plans and other information about Seed products.” Despite the suit, Coty announced on June 29 that it was purchasing a 20% stake in KKW Beauty for $200 million.
It is likely that Coty and Kylie Cosmetics will have a similar argument against Seed in this case—that its allegations are speculative and that the trade secrets Seed claims Kylie Cosmetics shared are not actually trade secrets.
Jenner has been working with Seed, a one-stop-shop for beauty brands, since 2016, shortly after she launched her line of lip kits. The vertically integrated company took care of logistics, manufacturing, development, storage and distribution, while Jenner focused on marketing the product. By 2018, Kylie Cosmetics was generating over $125 million in revenue but had only five full-time employees. Seed, meanwhile, has over 500 employees working on her line, according to what the Kylie Cosmetics team told Forbes in 2018.
A spinoff of Spatz Laboratories, a family business that manufactured products for global beauty brands, Seed has also partnered with YouTuber Tati Westbrook and has developed its own successful line of trendy color cosmetics called Colourpop. Seed began working with Kim Kardashian West in 2017. The company is known for its efficiency and speed: a product can go from idea to the ecommerce marketplace in weeks, making it the perfect partner for celebrity lines hoping to capitalize on the fast-moving world of Hollywood fame.
According to the suit, Seed goes to great lengths to protect its trade secrets. In addition to strictly limiting access to areas of its factory, it requires all employees to sign non-disclosure agreements and has security personnel monitoring the property.
Coty has struggled in recent years, particularly with ecommerce and reaching younger consumers. Shares of the $8.6 billion (revenues) company have fallen nearly 60% since the beginning of the year. Its market capitalization stands at $3.3 billion. Coty has heralded its investments in Kylie Cosmetics and KKW Beauty as part of its efforts to right the ship. After acquiring a 20% stake in KKW Beauty on June 21, shares briefly increased but are now trading where they were one week ago.
“If we are not successful in our efforts to expand distribution channels, including growing our e-commerce activities, we will not be able to compete effectively," the company wrote in its 2019 annual report.
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