Multilevel Marketing Company Alleges Sufficient Reasonable Efforts Despite Released Trade Secret Documents to Thousands
Last week, the Western District of Washington concluded that a multi-level beauty marketing firm had sufficiently alleged that it had made reasonable efforts to maintain the secrecy of its training materials, as well as network salespeople and contact lists, despite the sellers using their personal Facebook accounts, and despite making training materials available to a Facebook group with thousands of members. Accordingly, the court denied defendants’ motion to dismiss regarding defendants’ alleged misappropriation of trade secrets in violation of the Trade Secrets Defense Act.
The plaintiff, Tori Belle Cosmetics LLC (“Belle Cosmetics”), sells its cosmetics and false eyelashes through a network of sellers, allowing each seller to earn a portion of the revenue generated by the sellers they recruit to join their sales network i.e. a multi-level marketing business. The defendants are five former Belle Cosmetics network salespeople, who the plaintiff claims helped design and launch a competing product line for a company called Juvanae LLC. Belle Cosmetics alleges that its trade secrets include, among otherslists containing contact details of customers and sellers in the network, including in the form of contacts on social networks, and training materials in the form of videos, photos, informational messages, webinars and other educational materials that he makes available to thousands of sellers in his network through a Facebook Group called “Team Lash Out”.
The defendants first argued that the network of sellers and customer lists on Facebook belonged to them, because they had ownership rights to their Facebook profiles, and that because each defendant’s Facebook friends could see the rest of their network of friends, these lists were not confidential. The court disagreed. The court noted that while Facebook’s more revealing settings may allow Facebook friends to see a friend’s name and profile picture, Belle Cosmetics alleged that it was seeking to protect the listing from its network of sellers. and additional information such as their respective phone numbers. and addresses that are not otherwise available to a user’s Facebook friends. The court therefore concluded that Belle Cosmetics sufficiently alleged that the list of sellers and customers of the network was sufficient to constitute confidential information.
Defendants then argued that Belle Cosmetics had not made a claim of misappropriation of trade secrecy to the extent that Belle Cosmetics had not alleged that it had made reasonable efforts to protect the secrecy of its training materials. In particular, the defendants argued that because Belle Cosmetics had made the information available to thousands of network sellers on Facebook, “the world’s largest social media website”, that information was by definition non-confidential and could not be a trade secret. The court rejected this argument, noting that Facebook allows users to control exactly who can see the information they post, and that they can choose to post the information to a private group allowing admission only to a select group of users. ‘people. The court also noted that previous courts had investigated the particular privacy selections used and the types of communications made, before deciding whether a party had failed to exercise reasonable steps. The court therefore concluded that, taking as true Belle Cosmetics’ allegations that it had representatives of the company serving as administrators of the Facebook group who granted access to training materials only to sellers of the Belle Cosmetics network, plaintiff alleged sufficient exercise of reasonable care to maintain secrecy of its claimed trade secrets.
It will be an interesting case to follow, especially what the court considers “reasonable efforts” with respect to documents posted in a Facebook group. For example, it will be interesting to see how the court assesses contractual requirements in contracts between Belle Cosmetics and vendors imposing an obligation on them to keep training materials secret and not to use or disclose the materials, and the sufficiency of those Contract Terms. These are of course basic requirements to qualify as a trade secret. It will also be interesting to see whether the court evaluates the process by which administrators of the Belle Cosmetics Facebook group verified that all new users requesting access to the alleged confidential training materials were Belle Cosmetics network sellers. Or whether the court should determine how many users included in Facebook were not sellers of the network before the confidentiality of the claimed trade secrets was destroyed. Stay tuned.
The court’s opinion in Tori Belle Cosmetics LLC vs Dating# C21-0066RSL (WD Wash. Mar. 7, 2022) can be found here.