NEW YORK — Armed with an infusion of cash and the addition of top management talent, Nicholas Perricone, M.D., is embarking on a bold expansion plan for his cosmeceutical skin care business and putting a fresh face on his prospects — except for one small wrinkle.
The recruitment of Shashi Batra as Perricone’s new president has left a legal dispute in its wake with his former employer, The Estée Lauder Cos. At issue is a 12-month noncompete agreement that was included in the contract Batra signed with Lauder, and the New York beauty giant is insisting he comply. The standoff has resulted in a bicoastal legal showdown, with each side filing lawsuits against the other and pitting a state court against a federal court.
Batra, who is based in San Francisco, joined Lauder in January 2004 as general manager of the Rodan & Fields dermatological skin care brand and subsequently added Darphin USA, a French pharmacy-oriented skin care brand, to his responsibilities.
According to documents filed by both sides, Batra informed Lauder on March 7 that he was resigning, effective last Friday. That’s where the agreement between the two sides ends, however.
According to Batra’s filing, he told Lauder that he intended to work for N.V. Perricone in its San Francisco office, and said he was told not to resign and that he would be barred from working for Perricone under the noncompete clause for four months. The document then states that he “proceeded with the termination of his employment,” effective last Friday.
In its filing, Lauder states the company “attempted to negotiate a resolution of the noncompete obligations with Mr. Batra and encouraged him to take a few days to reconsider his position.” The document then states that Batra agreed and indicated he would discuss the matter further in the Lauder office on Monday. Instead, he filed a lawsuit against Lauder in San Francisco County Superior Court on that day in an effort to have the noncompete clause judged “void and unenforceable” under California state law. Lauder contends in its filing that Batra, with Perricone, used “the time Estée Lauder had provided to Mr. Batra to try to preempt and frustrate any attempt [Lauder] might make to enforce its legal rights.”
Lauder answered with its own action Wednesday against Batra in U.S. District Court for the Southern District of New York. Lauder’s contention is that the noncompete agreement is governed by New York state law. According to court documents, the company also contends that by going to work for a direct competitor, “his conduct constitutes a misappropriation of trade secrets” under the nondisclosure confidentiality clause of his contract. The company is seeking preliminary and permanent injunctions upholding the noncompete agreement and barring Batra from working for Perricone for the duration of the noncompete period. The company is also seeking compensatory damages and the recovery of its legal costs.
On Thursday, U.S. District Judge Robert Sweet scheduled a hearing for March 22 in New York on Lauder’s request for a preliminary injunction, according to court documents.
Although Perricone appeared to take a conciliatory stance during a telephone interview from Paris on Wednesday, the Lauder camp appears resolved. “We are taking every aggressive legal step to enforce this noncompete [provision],” said a Lauder spokeswoman.
This show of determination is somewhat unusual — it could not be recalled the last time Lauder brought a lawsuit on a personnel issue. High-level executives often switch jobs, from one competitor to another in the cosmetics industry, and even the most contested disputes are negotiated. A number of top executives have moved from L’Oréal to Lauder, for instance, and in September 2003, Pamela Baxter left Lauder to become president and chief executive officer of LVMH Moët Hennessy Louis Vuitton Perfumes and Cosmetics North America. Since then, however, the mood appears to have changed markedly. The Lauder spokeswoman added Thursday, “This is a signal that we are taking noncompetes very seriously and we are going to enforce them.”
The legal battle over the noncompete erupted just as Perricone was poised to shift the development of his company, N.V. Perricone M.D. Cosmeceuticals, into high gear. Functioning both as ceo and president, Perricone had pioneered a scientifically based lifestyle approach into a leadership position in the fast-growing dermatological skin arena. Industry sources estimate Perricone’s volume exceeds $50 million.
In announcing the appointment of Batra as president, Perricone said in a statement, “This is the first of many initiatives that will prepare the brand for growth toward the $200 million mark within the next few years.” A specific time frame was not stipulated, but industry sources estimate Perricone aims to hit $100 million in sales in two years and reach the $200 million mark in four years.
The statement added that Perricone expects to make “substantial investments in product development and marketing across all channels.” In order to fuel the planned growth, Perricone said a San Francisco investment firm, TSG Consumer, had invested “a great deal of cash” in the company. He declined to specify how much had been invested or the size of TSG’s resultant ownership stake.
Perricone remains ceo, and Batra reports to him. The founder said he is turning over the day-to-day operation of the business to his new president — “the administrative stuff is not for me” — so he can concentrate on research and working with the public. “Turn me loose in the lab and then let me educate,” he said. “That’s what I do best.” Indeed, Perricone has generated consumer awareness through his books and TV lectures on PBS.
Batra also was hired for his considerable expertise in retailing, which is at the cornerstone of the planned expansion. “Shashi is knowledgeable, level-headed and competent,” Perricone said, adding that “Shashi helped make Perricone number one at Sephora.”
Prior to joining Lauder, Batra was one of the key retail executives who helped establish Sephora in the U.S. He joined the beauty retailer in 1998 and rose to senior vice president of merchandising for Sephora USA. Before joining Sephora, Batra held a number of other retail roles, including cosmetics buyer for Saks Fifth Avenue and department manager of cosmetics at Macy’s East. At Saks, he worked with Steve Bock in building the retailer into a beauty powerhouse.
At Perricone, plans are to expand the business first in Europe. The skin care brand already has some distribution in the U.K. and Italy. The company now is on the threshold of rolling out in France, with distribution slated for 160 doors in Sephora. Germany is next. Perricone and Batra indicated that Latin America and perhaps Asia would be targeted next year. Batra said he sees Asia as the “biggest opportunity” for Perricone’s core skin care business.
The company is preparing to launch a new round of products, including a men’s skin care line and two sun products. Perricone said he’s thinking about opening a store on the West Coast, somewhere in the Los Angeles area. His first store opened on New York’s Madison Avenue last April, with a mission of primarily educating the customer in the Perricone method while selling products. He said sales have exceeded expectations.
When asked why he wanted to work with Perricone, Batra pointed to Perricone’s two dozen scientific patents — a huge number for a business of that size — and praised his achievements in shaping a philosophy that he delivered in a number of channels. Batra objected to describing Perricone as merely a dermatologist, adding that he is a research expert and “a leader in the category and a pioneer in promoting skin care.”
Asked what impact he sees the legal battle having on his expansion plans, Perricone replied, “I don’t feel it will have any impact whatsoever.” He then seemed to reach out, with the comment that maybe one day Perricone would join forces with Lauder. “I am building a brand of the future for Lauder,” he said, adding that, “It’s a shame. I have nothing but affection for [chairman] Leonard Lauder and great admiration. I follow him as a role model.”