The US District Court for the Western District of Washington recently concluded that a multi-level marketing beauty company had sufficiently alleged that it exercised reasonable efforts to maintain the secrecy of its training materials, network salespeople and contact lists.(1) This was despite the salespeople using their personal Facebook accounts, and despite making the training materials available to a Facebook group comprising thousands of members. Accordingly, the Court denied the defendants' motion to dismiss with respect to the defendants' alleged trade secret misappropriation in violation of the Defend Trade Secrets Act.
The plaintiff, Tori Belle Cosmetics LLC (Belle Cosmetics), sells its cosmetics and false eyelashes through a network of salespeople, allowing each salesperson to earn a portion of any revenue generated by any salespeople they recruit to join their sales network (ie, a multi-level marketing business). The defendants were five former network salespeople of Belle Cosmetics who, the plaintiff alleged, had helped design and launch a competing product line for a company called Juvanae LLC. Belle Cosmetics alleged its trade secrets included, among other things, lists containing the contact information of customers and network salespeople including in the form of social media contacts. The trade secrets also included training materials in the form of videos, photos, informational posts, webinars and other instructional materials that it makes available to thousands of its network salespeople through a Facebook group called "Team Lash Out".
The defendants first argued that they owned the network of salespeople and customer lists on Facebook as they had ownership interests in their Facebook profiles. They also argued that because each defendant's Facebook friends could see the rest of their friend network, these lists were not confidential. The Court disagreed. The Court noted that that while the most revealing settings on Facebook may allow Facebook friends to see a friend's name and profile picture, Belle Cosmetics alleged that it had sought to protect the list of its network of salespeople and additional information such as their respective phone numbers and addresses not otherwise available to a user's Facebook friends. The Court therefore concluded that Belle Cosmetics had sufficiently alleged that the list of network salespeople and customers was sufficient to constitute confidential information.
The defendants next argued that Belle Cosmetics had failed to state a claim for trade secret misappropriation as Belle Cosmetics had failed to allege that it exercised 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 salespeople on Facebook, "the world's largest social media website", the information was, by definition, non-confidential and could not be a trade secret. The Court dismissed this argument, noting that Facebook permits users to control exactly who may view any information they post and users may choose to post the information to a private group allowing admission to only a select group of individuals. The Court also noted that previous courts had inquired into the privacy selections used, and the types of communications made, before deciding whether a party failed to exercise reasonable measures. The Court therefore concluded that, taking as true Belle Cosmetics' allegations that it had corporate representatives serving as Facebook group administrators who only granted access to the training materials to Belle Cosmetics network salespeople, the plaintiff had sufficiently alleged the exercise of reasonable measures to maintain the secrecy of its asserted trade secrets.
This will be an interesting case to follow regarding what the Court considers "reasonable efforts" with regard to materials posted in a Facebook group. For example, it will be interesting to see how the Court assesses the contractual requirements in the contracts between Belle Cosmetics and the salespeople where the company imposes upon the salespeople the obligation to keep the training materials secret and not to use or disclose the materials, and the sufficiency of such contractual terms. These are, of course, foundational requirements of trade secrets. It will also be interesting to see whether the Court assesses the process by which Belle Cosmetics Facebook group administrators verified any new users requesting access to the alleged confidential training materials, and whether they were all Belle Cosmetics network salespeople. The Court may have to determine how many users in the Facebook group were not network salespeople before the confidentiality of the asserted trade secrets is destroyed.
For further information on this topic please contact Gabriel Ramsey at Crowell & Moring LLP by telephone (+1 202 624 2500) or email ([email protected]). The Crowell & Moring LLP website can be accessed at www.crowell.com.
(1) The Court's opinion in Tori Belle Cosmetics LLC v Meet, No. C21-0066RSL (WD Wash 7 March 2022) can be found here.