June 26, 2009, 12:00 AM

Playboy files suit against its e-commerce provider

In the lawsuit, Playboy asks a U.S. District Court in Illinois to prevent eFashion Solutions from ending a contract for e-commerce platform, fulfillment and marketing services until Playboy can find a new vendor. The suit also asks for monetary damages.

Don Davis

Editor in Chief

Playboy Enterprises Inc. isn’t playing games with its e-commerce services provider. After Playboy says it was informed at a dinner meeting June 1 and by a follow-up letter that eFashion Solutions LLC intended to cancel its e-commerce services agreement for breach of contract effective July 1, Playboy has filed suit in the United States District Court for the Northern District of Illinois.

Playboy asked the court to prevent eFashion Solutions from terminating its current contract for various e-commerce platform, fulfillment and marketing services until Playboy could find a new vendor. The suit also asks for unspecified monetary damages. “EFashion’s anticipatory repudiation of the license agreement will irreparably harm Playboy, forcing Playboy to shut down its e-commerce and catalog businesses,” the company says in its court filing.

EFashion Solutions, which also provides third-party services to Apple Bottoms (Ajs Group LLC), Baby Phat (Bp Clothing LLC), Ben Sherman Group Ltd., Dereon, DKNY (The Donna Karan Co. Inc.) and others, hasn’t filed any of its own court papers, but is trying to resolve the dispute. "EFashion does not agree with the allegations set forth in the complaint," says Kurt Olender, an attorney with OlenderFeldman LLP, which is representing eFashion Solutions. "Rather than respond to the allegations at this point, eFashion Solutions will be focusing on working with Playboy to determine if there is a mutually beneficial resolution."

In its complaint, Playboy, No. 203 in the Internet Retailer Top 500 Guide, says eFashion Solutions CEO Edward Foy informed Playboy executive vice president Scott Stephen at dinner and by follow-up letter that eFashion Solutions was terminating the agreement because of breach of contract.

In its court papers, Playboy doesn’t spell out which specific terms eFashion Solutions says Playboy violated. But Playboy also alleges that eFashion Solutions didn’t live up to various contractual obligations even after certain terms of the original January 2008 license agreement were renegotiated in October. Under the original contract Playboy was to be compensated a total of $13.7 million, including a minimum royalty fee of $1.25 million for 2008. The minimum royalty was later renegotiated to $750,000, which Playboy says eFashion Solutions still hasn’t paid.

Playboy filed its initial court papers on June 17, but is still waiting for a preliminary hearing. Trouble with its e-commerce services provider comes at a time when Playboy is also dealing with declining e-commerce revenue. Playboy, which sells online at ShoptheBunny.com and PlayboyStore.com, reported web sales of $9.3 million for the first quarter of 2009 ended March 31, a 39% decline from $15.2 million in the prior year quarter. Overall sales for Q1 2009 were $61.6 million, down $16.9 million, or 22%, from $78.5 million year over year.

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