This week Amy Dunlap filed an amended answer in the lawsuit Mary Kay Inc. has filed against her for alleged violations of her national sales director agreement. The most notable part of the answer and counterclaims is the portion in which Dunlap alleges that Mary Kay violates the Texas Business and Commerce Code by promoting a pyramid scheme.
Nearly a year ago, Mary Kay Cosmetics sued Allison LaMarr, a former national sales director who was accused of violating her contract with the company. Mary Kay Inc. is going after Allison LaMarr for selling products in violation of her contract with the company, and for violating the non-solicitation portion of the contract.
Essentially, she was not allowed to use any names, contact information, or other non-public information to solicit Mary Kay consultants or directors to join other companies or terminate their contracts with Mary Kay.
For a company that supposedly loves its beauty consultants, Mary Kay Cosmetics sure is in the business of suing sales force members. Recently I received a tip that Mary Kay Inc. sued Allison LaMarr and her company Driven, Inc. I promptly went to research the Dallas court records, and found not only the lawsuit against LaMarr, but also a whole slew of lawsuits and related court actions filed by Mary Kay.
Mary Kay Inc. is tracking down people who are selling Mary Kay products on eBay, without regard to whether they have been consultants or not, and is suing them or threatening to sue them. The apparent goal is to stop the sale of Mary Kay products on eBay. The lawsuits that have settled have ended with the defendants agreeing to never sell Mary Kay products again, and never helping anyone sell Mary Kay products.
Recently I received a tip that Mary Kay Inc. had sued Allison LaMarr and her company Driven, Inc. I promptly went to research the Dallas court records, and found not only the suit against Allison, but also a whole slew of lawsuits and related court actions filed by Mary Kay.
The lawsuit was initially filed on August 26, 2011, and many of the allegations made by Mary Kay against LaMarr are similar to those made against former MK NSD Amy Dunlap in the lawsuit Mary Kay Cosmetics filed against her. You will remember that Allison left Mary Kay (she called it “retiring”) after becoming “the fastest ever to NSD” and promptly having her earnings tank.
Allison’s message to everyone when quitting Mary Kay was:
Yesterday we discussed the lawsuit between Mary Kay Cosmetics and former National Sales Director Amy Dunlap. Mary Kay is suing Amy for using information on MK consultants to recruit to Isagenix. Amy is counterclaiming, saying that MK lies to women when it says that you “own your own business.” Unfortunately for Amy, she is guilty of telling women the exact same thing while she was in Mary Kay. She is also counterclaiming, saying that the non-solicitation clause in her NSD agreement should be unenforceable.
In an affidavit in the lawsuit, Amy makes it clear whey she left Mary Kay. She wasn’t making much money:
Late last year, Mary Kay Cosmetics sued former National Sales Director Amy Dunlap. Amy left Mary Kay to join Isagenix with her husband Shane. You may remember that Isagenix is the company for former Mary Kay hotshots to go to, including the likes of Robin Dunda, Hillari Courtney, JoAnn Blackmon, and Christine Peterson.
Amy Dunlap was appointed as Mary Kay NSD on March 1, 2005, and here is the contract she signed when becoming an NSD. Despite being at the top of the Mary Kay pyramid, Amy claims in an affidavit in the lawsuit that she wasn’t making much money:
On July 16, 2010, Mary Kay filed two more lawsuits against product liquidators. These lawsuits follow successful litigation against Touch of Pink Cosmetics, and successfully shutting down other product liquidators. MK is suing Beauty Peddler LLC (owned by Susan Morris) and StrawberryLipstick.com.
In general, what product liquidators do is not illegal or a violation of any of Mary Kay’s rights. Anyone can sell any legal product that they legally own at any time. They’re allowed to tell people what the product is, what the brand name is, and anything that accurately describes the product. So saying the products a liquidator is selling are “Mary Kay” products is just fine.
Here is the latest on the lawsuit Mary Kay Cosmetics brought against Touch of Pink Cosmetics and Amy and Scott Weber. It doesn’t look good. Touch of Pink asked for the court to throw out the jury verdict and/or to order a new trial. Both of those were denied.
The court also ruled that Touch of Pink must pay Mary Kay $1,139,962, which are the company’s pre-tax profits from 2005 through 2008. (For those doing the math, that’s 4 years of business and about $285,000 of profits each year. And for those who care about the numbers, Touch of Pink had $3.8 million in total sales over that same period.)
Times must be tough over at Mary Kay. Instead of focusing on “enriching women's lives” as the company is so fond of saying, they're instead busy running around suing all kinds of people . A couple of weeks ago, Mary Kay filed suit against Yahoo for including advertisements with Mary Kay keywords in their email service.
Frankly, I don't think they're going to get very far with this, since users of Yahoo's email service likely agree to let Yahoo put advertising in the emails via the user agreement. And if you're in Mary Kay and talking about Mary Kay in your emails, it's likely that the advertising you agreed to is going to include Mary Kay items.
But back to the subject at hand…
The lawsuit filed last year against Touch of Pink Cosmetics wasn't the slam-dunk Mary Kay apparently thought it would be. And they still haven't come out winners in that one. But they must press forward and keep suing liquidators. The latest targets of the Mary Kay attack are Karla Balladeres and Pink Face Cosmetics . (Remember how Mary Kay objected to Touch of Pink using the word or color “pink” because it's so closely associated with Mary Kay??? This lawsuit makes no mention of Mary Kay's exclusive right to use pink, but it's interesting anyway.)
The lawsuit says that Karla became a Mary Kay consultant in July 2005, and goes on to quote the beauty consultant agreement at length. Of course, the main points repeated are that the consultant agrees not to sell in retail establishments, to protect the May Kay trademarks, and to get approval from Mary Kay before using the Mary Kay name in any advertising. Karla became a sales director on March 1, 2008, and the lawsuit goes on to quote the sales director agreement .
Here's where it gets good… Karla has been running pinkfacecosmetics.com and has had a store on eBay. Mary Kay found out and terminated her consultant and director agreements, effective July 2, 2009. Mary Kay says Karla contacted them and said this was a case of mistaken identity, so they reinstated her agreements to give her time to clear her name. The lawsuit says:
On information and belief, Ms. Balladares provided intentionally misleading or fraudulent information to Mary Kay to maintain her status as an Independent Beauty Consultant and Independent Sales Director for the purpose of continuing her fraud against Mary Kay. More specifically, Ms. Balladares informed Mary Kay that she had been working with a police detective and that the detective provided her with the identities of two people, one of which allegedly owned Pink Face Cosmetics, and the other allegedly owned a P.O. Box associated with Pink Face Cosmetics. Mary Kay believes this information is untrue, as Mary Kay continues to find information that identifies Ms. Balladares as the owner of Pink Face Cosmetics.
Karla's contracts were ultimately terminated on July 16, 2009. Check out this statement in the lawsuit:
Because she is no longer a Mary Kay independent Beauty Consultatn, Ms. Balladares no longer has the ability to purchase Mary Kay products directly from Mary Kay; nor does she have any contractual right or license to use the Mary Kay marks.
That was very cleverly worded. They're right… she doesn't have a “contractual right” to use the marks, but she still has a legal right to use the name Mary Kay. Someone who legally possess items that are authentic Mary Kay products has the legal right to tell others that the products are “Mary Kay” brand, and using the Mary Kay name in that regard is not trademark infringement (although Mary Kay is trying to make it so that it is).
The lawsuit then goes on to say that Karla recruited people to become beauty consultants so that they could provide products to Pink Face Cosmetics. Are they serious? We all know the economics of this. A consultant purchases a product from Mary Kay for $10, with a sugggested retail price of $20. Pink Face Cosmetics pays $5 for that product, and if they're like other liquidators, they hope to sell the product for $10 on the website. What consultant in their right mind is going to be recruited for the purpose of supplying products to Pink Face? Basic math would tell them they will lose money every time.
Like in the Touch of Pink Cosmetics lawsuit, Karla is being accused of “inducing” women to violate their beauty consultant agreements with Mary Kay.
And the heart of the lawsuit is the use of the Mary Kay name. Mary Kay is saying that Karla is using their name without authorization. Again, if Karla is selling authentic Mary Kay products, the law allows her to identify the name brand. But th lawsuit says:
Defendants' unauthorized use of Mary Kay's trademarks and name has confused or is likely to confuse consumers as to the affiliation, connection, or association of Defendants with Mary Kay, as well as to the origin, sponsorship, or approval of Defendants' goods, services, or commercial activities by Mary Kay. As a result of the confusion that has been or is likely to be engendered by Defendants' activities, May Kay's trademarks and associated valuable goodwill are therefore being irreparably harmed.
Then Mary Kay goes on to make complaints similar to the issues in the Touch of Pink lawsuit. They say Karla was purchasing keyword advertising from Google and other search engines using the words “Mary Kay.” That advertising often shows up on web pages with the words “Sponsored By” inserted by the company selling the advertising. Common sense users of the internet know this means that particular web page is “sponsored” by those paying for the advertising shown, but Mary Kay is trying to stretch this to mean that the advertising showing up is somewhow affiliated with or approved by Mary Kay. (Nice try, but that's just silly.)
And Mary Kay says Pink Face Cosmetics is destroying relationships:
Defendants's misconduct has harmed and continues to harm Mary Kay, its Independent Beauty Consultants, and its trademarks. Specifically, the continued willful and deceitful acts of Defendants have resulted in the loss of business, including the actual loss of valuable business relationships exisitng between Mary Kay and its Independent Beauty Consultants, harm to its reputation and goodwill. On information and belief, the intentional interference by the Defendants with Mary Kay's contractual relationships also has resulted in the loss of sales opprotunities for other Independent Beauty Consultatns. The loss of sales opportunities for its Independent Beauty Consultants is deterimental to Mary Kay and its business model.
So what they're essentially saying is that Pink Face sells cosmetics to customers because their prices are lower than that of beauty consultants. Guess what Mary Kay? That's called competition. And no one is required to sell their products at higher prices just so they don't make a sale instead of a competitor making a sale. Further, Mary Kay can't claim any sort of loss on behalf of the consultants who didn't sell their junk. That loss (if any) would be to the consultant, not to Mary Kay Inc.
But I suppose the company is right in one regard: The business of liquidating Mary Kay products is detrimental to the “business model” because it shows women that:
- The products are overpriced at retail
- The products are difficult to sell at retail
- The market is flooded with Mary Kay products
- The Mary Kay business isn't viable for most consultants
Once those things are made clear to the public, it becomes more difficult to recruit new marks into the scheme. The problem with this is that Mary Kay doesn't have any legal right to stop others from doing things that reveal what a sham the purported “business” of an Independent Beauty Consultant is.
The lawsuit goes on about the trademark issue, and claims that Pink Face Cosmetics isn't entitled to use the Mary Kay name because it's causing confusion and harming their goodwill.
Karla Balladares and Pink Face Cosmetics are being sued for:
- Breach of contract – She violated her consultant and director agreements.
- Fraud – She made false statements to Mary Kay and recruited consultants into Mary Kay to provide products to Pink Face.
- Interference with contract – She induced women to breach their contracts with Mary Kay. (Like in the Touch of Pink lawsuit, I can't see an actual harm to Mary Kay in this. She was purchasing products from consultants that they had purchased from Mary Kay. Therefore Mary Kay already made all the profit on those products that they could. How is reselling those products harmful to Mary Kay?)
- Unfair competition – No explanation is provided for this part.
- Trademark infringement – She is using Mary Kay's goodwill by using the name Mary Kay in the Pink Face business.
- More unfair competition
- More trademark infringement
- Attorneys fees – Mary Kay wants Karla to pay their fees to litigate this matter.
- Unjust enrichment – Mary Kay says she has been “circumventing” Mary Kay's “direct sales model,” and has been receiving commissions and prizes constituting unjust enrichment.
What do we know about this liquidator? The Pink Face Cosmetics website is currently showing the following message:
Pink Face Cosmetics is curently closed for Maintenance. We are working so Hard to continue offering the Best Products and Prices in Market. We are in the process to add new Products.
Thanks for Choosing Us and Please Check Back Later.
But here's what the site looked like just a week ago (click on the image to see it full size):
You'll see a disclaimer on that page which is almost identical to the one Touch of Pink Cosmetics has been using recently:
Pink Face Cosmetics is not endorsed by, affiliated with or approved by Mary Kay Inc. We assist concultants to liquidate their inventory. We offer Mary Kay Products at great discount. Most of our items are discontinued, past shelf life or expired, which is why we can offer you such great prices.
And it would appear that they did a sloppy job of copying from Touch of Pink. Here's what they say about their services:
Touch of Pink Cosmetics offers a liquidation service to former consultants and those who are just looking to reduce their inventory on hand. We are not affiliated with Mary Kay Inc. We buy all section 1 items at 1/2 of wholesale. The products must be new, never been used or tested. Please keep in mind too, if you product is less than 12 months old, you can send them back to Mary Kay Inc for 90% of wholesale. Please email Carolina with any futher questions at firstname.lastname@example.org
Whoops! Might want to take out "Touch of Pink"!
And you'll find this on the “About” page for Pink Face:
Thank you for visiting Pink Face Cosmetics. We carry the Best selling brand of skin care & color cosmetics, Mary Kay, at prices up to 80% off retail . All products are new, without ever being tested or used. All of our products are NEW, and they are not expire, we don’t work with old products, we have the newest selections. All products listed on our website are in stock.If you don't see a product listed, chances are it is out of stock. We add new items on Fridays, so check back often. Please feel free to email us ( email@example.com ) with your product needs and we will do our best to fullfill them or notify you when it is back in stock. We include free samples with every order you place with us. However If you are undecided about a color choice and need a sample, please email us your name, address & the type of sample requested. Also E-mail us if you need any Beauty advise one of our professional can answer your questions. We sell genuine Mary Kay products. This website is not endorsed by or affiliated with Mary Kay Inc. This company was founded by former Mary Kay Consultants who are assisting consultants to liquidate their inventory. Any questions or comments? Phone Number: 305.323.1216 Email: firstname.lastname@example.org Web Store: www.pinkfacecosmetics.com eBay Store: www.stores.ebay.com/pinkfacecos Skype: pinkfacecosmetics
Here's what is currently up on eBay for Pink Face:
Now I'm not condoning what Karla did. If the lawsuit correctly recites the facts, Karla was in volation of her consultant and director contracts. Unfortunately, those contracts are very restrictive and while people are operating under them, they take a risk engaging in any sort of liquidation or side business related to Mary Kay products.
However, I am questioning Mary Kay's repeated filing of lawsuits claiming trademark infringement. They're clearly trying to scare everyone away from liquidating the products. Like I said above, if the truth gets out about what a poor opportunity is for consultants, recruiting becomes more difficult. The liquidators simply illustrate the problem… and I can see why Mary Kay is scared.
The company is going to scare the world into not (lawfully) reselling the products which consultants and directors have so difficult a time selling (thanks to the products being overpriced, of marginal quality, regularly made obsolete by the company, and simply because too much product is being pushed out on the market via the recruiting pyramid scheme)… well they're going to have to file lawsuits that have the potential for big money. Big dollars equals big fear of the corporate giant.
I'll do my best to keep everyone updated on the progress of this lawsuit.
I just spent some time reading the most recent filing in the Mary Kay Inc. v Touch of Pink Cosmetics case. The jury rendered a verdict in favor of Mary Kay, but that verdict has not yet been affirmed or rejected by the judge in the case. Both parties are still filing motions in an attempt to resolve this case.
The latest filing, done on May 22, 2009, has several interesting parts. The complete filing is attached here.
One of the issues is Touch of Pink’s claim that Mary Kay had an “unexcused delay” in this matter. Simply put, they’re saying that Mary Kay never really challenged the business of Touch of Pink Cosmetics until filing the lawsuit in May 2008.