New Jersey cosmetic companies battle over trade secrets

In 2000 Arch PCP bought up the personal care intermediary business belonging to Brooks Industries that was co-owned by the then companypresident Ivar Malmstrom.

After the sale Malmstrom went on to help establish Active Concepts, and in doing so it is alleged that he breached the non-compete obligations in the contract he had signed with Arch Chemicals.

Malmstrom assisted in the creation of Active Concepts by providing funding and participating in the running of the company's business activities.

Arch PCP's allegations led to a $7m pay out following the New Jersey federal Courts March 2004 ruling, which found Malmstrom had breached his contractual obligations, thus infringing on the Arch's registered trademark.

But the latest twist in the battle between the two companies overturns another court ruling regarding the use of Arch's trade marked business operations against Active Concepts.

In the ruling against Arch, dated June 27, an NJ Superior Court Judge declared that Arch did not possess trade secrets, in turn dismissing the earlier ruling against Active Concepts, which was directed at the company's chief visionary officer and six other former Arch employees.

The court heard that when Arch first brought the allegations against Active Concepts in August 2001, subsequent hearings that used testimony from Arch during the course of 2003 did not allow the defendants to attend the hearings.

Further testimonies in 2004 revealed that all information acquired from Brooks had been full disclosed and left unprotected before the Asset transfer from Brooks to Arch.

In fact, during the course of the hearings, Arch employees and representatives of its largest customers, including Revlon, Avon and Estee Lauder, had testified before a jury, at a trial open to the public, disclosing every trade secret it claimed against Active Concepts, except for Brook's product formulas.

In the latest ruling against Arch the New Jersey judge described the testimony for Arch in the previous two lawsuits at being 'divergent', and finally ruled that Arch did not acquire trade secrets from Brooks and had no trade secrets to protect against Active Concepts, Scholz and the other defendants.

Citing evidence by Arch's trade secrets expert David Steinberg as not being based on true facts, the court dismissed all claims that trade secrets had been misappropriated or that Arch had suffered any damages as a result.