A small California company, Balmuccino, LLC, was provided an excellent opportunity to pitch its coffee-flavored lip balm to the Seattle coffee giant Starbucks. Who made the connection? According to the complaint, none other than Pennsylvania Senate Candidate Mehmet Oz. Unfortunately, Balmuccino has alleged in a complaint filed in the Western District of Washington that Starbucks stole their idea after the meeting and independently developed a “S’mores Frappuccino”-themed lip gloss. Balmuccino’s complaint alleges claims of trade secret misappropriation and breach of an implied Non-Disclosure Agreement.
One of Balmuccino’s managing members, Samantha Lemole, reached out to Dr. Oz, her brother-in-law, to connect with Starbucks’ former CEO Howard Shultz. Lemole and other executives from Balmuccino eventually met with Starbucks for a pitch meeting. They asked Starbucks to sign a Non-Disclosure Agreement (NDA) at that meeting. Starbucks allegedly deflected any attempt, stating that the relationship between Dr. Oz and Shultz was enough to trust one another.
Balmuccino says they later regretted that decision.
Balmuccino provided names of their manufacturers, concepts, product line information, the creation process for their lip balms, and the identity of material suppliers. They also claim that Starbucks kept the pitch deck used by Balmuccino.
According to Balmuccino’s pleading, about a year after the meeting, they discovered that Starbucks had reached out to one of the Balmuccino suppliers and asked to create prototypes of Starbucks lip balm. Allegedly, the specification sent to the supplier was identical to those provided by Balmuccino at the previous meeting. As a result, in 2019, Starbucks launched its “S’mores Frappuccino Sip Kit,” including four liquid lipsticks and glosses.
This is a potentially cautionary tale about the importance of executed NDAs for any start-up company making pitches to potential partners and investors. Moreover, the Defend Trade Secret Act (DTSA) requires that an alleged trade secret be a secret. Thus, courts have found that plaintiffs bringing such a claim must have taken reasonable steps to maintain the secrecy of their alleged trade secrets. An NDA is a valuable tool in setting forth proof of the information being a secret.
If you’re starting a business or planning on pitching to investors or partners for your business, contact the attorneys at Houston Harbaugh today to adequately protect yourself.