Quarterly Business Magazine

L'Oreal Owes Olaplex $91 Million for Stealing Trade Secrets

Posted :
Tuesday, August 13, 2019

L’Oreal SA must pay a California-based startup $91.4 million for stealing its trade secrets, breaching a contract and infringing two patents related to a popular system that protects hair during bleaching treatments, a federal jury decided Monday.

The jury, in Wilmington, Delaware, also found that L’Oreal’s acts were intentional, leaving the door open for the judge to substantially increase the damages if he chooses.

Olaplex LLC had accused the French giant of stealing the secrets in a meeting in California in 2015, when the companies were in talks for L’Oreal to buy the startup. L’Oreal, during a weeklong trial, said it independently conceived the use of a critical acid in August 2014 and developed its products on its own.

U.S. District Judge Joseph Bataillon ruled in late June that L’Oreal’s products had infringed the two patents at issue. One question the jury had to decide was whether the patents were valid to begin with. Another was whether L’Oreal had stolen the trade secrets. A third was whether it had broken nondisclosure agreements relating to them. The answer to all three was yes.

L’Oreal didn’t immediately respond to an email seeking comment.

Read More: L’Oreal Fights California Startup Over Secret to Protecting Hair

Olaplex has no physical store, employs fewer than 30 people and does little traditional advertising. Yet its core products, launched on the company’s website in June 2014 after a trial by top hair colorists such as Tracey Cunningham, quickly built a following. It says they strengthen and reconnect protein bonds during bleaching.

L’Oreal, whose hair-dyeing innovations go back more than a century, reported more than $30 billion in sales for last year. The product lines in question, which all involve the three-step hair-protection system, are just one part of a division with about $3.7 billion in sales, or 12% of L’Oreal’s 2018 revenue, according to data compiled by Bloomberg. But they are sold under the prestigious Matrix, Redken and L’Oreal Professionnel labels, important to the overall brand’s identity.

By November 2014, one of the largest wholesale salon and beauty-supply distributors in the country, SalonCentric, had put Olaplex on U.S. shelves, propelling it to an early success. SalonCentric is owned by L’Oreal, which noticed the product’s performance and buzz on social media and tried to hire away the two scientists who invented the product, according to Olaplex’s lawsuit.

Outsiders to the industry, the pair had worked out of the requisite California-startup garage, pouring their product from five-gallon buckets into small bottles, and decided to stay put.

The case is Liqwd Inc. v. L’Oreal USA Inc., 17-cv-14, U.S. District Court, District of Delaware (Wilmington).

By Christopher Yasiejko

(Bloomberg)

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