A Hairy Situation: What Olaplex v. L’Oreal Taught Us About Trade Secret Strategy in the Beauty Industry

[1]

In May of 2021, the Federal Circuit ruled against plaintiff Olaplex in a suit claiming misappropriation of trade secrets and breach of contract, striking down the $66 million judgment against defendant L’Oreal.[2] This suit was filed after L’Oreal sold products containing Olaplex’s patent-pending hair bleaching technology, which were allegedly disclosed during confidential acquisition negotiations.[3] However, the court held that L’Oreal did not misappropriate Olaplex’s trade secrets.[4]

So, what happened?

Olaplex came into the market in 2014 with its revolutionary bond-building hair care products, quickly earning it praise from the likes of Kim Kardashian and Jennifer Lopez, generating revenues of tens of millions of dollars.[5] Beginning in early 2015, beauty giant L’Oreal began talks with Olaplex leadership about a potential acquisition of Olaplex.[6] Throughout May and June of 2015, pursuant to purchase negotiations and a non-disclosure agreement, Olaplex shared with L’Oreal financial information, technical information about its products, and the then-pending, but unpublished, patent application for its new method of hair bleaching.[7] Olaplex successfully patented this hair bleaching method in 2016, which involved using maleic acid during the bleaching process, said to help repair hair damage.[8] L’Oreal ultimately decided against the acquisition of Olaplex. However, following the end of the negotiations, L’Oreal released its own competing products using maleic acid during hair bleaching: Matrix Bond Ultim8 Step 1 Amplifier, Redken pH-Bonder #1 Bond Protecting Additive, and L'Oréal Professionnel Smartbond Step 1 Additive.[9] 

Olaplex filed suit against L’Oreal in Delaware district court in early 2017, alleging patent infringement, breach of contract, and misappropriation of trade secrets.[10] A jury found for Olaplex in 2019 on all claims, and the court ordered L’Oreal to pay over $66 million in damages, which L’Oreal appealed.[11] 

Trade Secrets

Trade secrets are protected by the federal Defend Trade Secret Act (“DTSA”).[12] The DTSA defines a trade secret as information that the owner has taken reasonable means to keep secret, derives independent economic value, actual or potential, from being kept secret, is not readily ascertainable by proper means, and others who cannot easily access it would obtain economic value from its disclosure or use.[13] Information protected as a trade secret can include formulas, patterns, methods, processes, and more.[14] A trade secret must be just that: secret.[15] It cannot be public knowledge or general knowledge that may be possessed by someone in the industry.[16] Misappropriation of a trade secret occurs when another discloses or uses the trade secret without consent.[17]

Information in patents or patent applications cannot, inherently, be a trade secret because patents must disclose in their application how to use the invention in order to receive patent protection.[18] Courts have held that even filing an application for a patent extinguishes any trade secret rights, because information in patent applications is readily ascertainable through proper means, failing a key element to be considered a trade secret.[19]

Filed in the District of Delaware, the plaintiff Olaplex invoked both the federal DTSA and the Delaware Uniform Trade Secret Act (“DUTSA”).[20] In many states, including Delaware, there is no significant difference between the state trade secret protections and the DTSA, and they are treated as equivalent.[21] 

The Outcome

Olaplex claimed that the information contained in the unpublished patent, the use of maleic acid during hair bleaching, was a trade secret that L’Oreal misappropriated.[22] However, maleic acid was known in the industry as a pH adjuster in a method of hair bleaching before Olaplex invented its new use of maleic acid during bleaching. In fact, L’Oreal had been using maleic acid as a pH adjuster before the acquisition negotiations and information exchange with Olaplex.[23] Additionally, L’Oreal provided evidence of at least three patents published before the time of the alleged trade secret misappropriation that utilized maleic acid during hair bleaching.[24] Further, Olaplex had applied for a patent for its maleic acid bleaching process before the alleged misappropriation occurred.[25] 

Not only did Olaplex’s method of maleic acid use during hair bleaching exist in prior art before the alleged misappropriation, but Olaplex also destroyed any potential for trade secret protection when it applied to patent it, as patent applications are made public.[26] Olaplex failed to prove that using maleic acid during hair bleaching was not readily ascertainable or generally known.[27] Therefore, the court found insufficient evidence to support the jury’s verdict that using maleic acid during bleaching was a trade secret.[28]

As for Olaplex’s other claim, the parties agreed that if the trade secret claim could not survive, then neither could the breach of contract claim.[29] Both the trade secret claim and the breach of contract claim focus on the same information given to L’Oreal during the May 2015 acquisition meetings, and thus, the non-disclosure agreement protecting confidential information would not protect information that was generally available to the public, or in other words, was not a trade secret.[30] 

However, for the patent infringement claim, the Federal Circuit ordered a new trial.[31] Shortly after, Olaplex and L’Oreal reached a settlement on this claim, and the action was dismissed with prejudice.[32] 

Was it Worth It?

Olaplex v. L’Oreal demonstrates key strategic differences and incongruencies between patents and trade secrets.[33] Simply put, information cannot be both patented and protected as a trade secret.[34] In fact, information that is eligible for patent protection may not be secret at all, as seen in this case, and further, patenting the information inherently takes away any secrecy.[35] Ultimately, both Olaplex and L’Oreal put significant resources towards this lengthy legal battle, which lasted over four years, on top of the costs Olaplex spent to patent its product.[36] 

The details of the settlement agreement were confidential, so it is unclear if Olaplex was able to recoup the costs of litigation or the costs of potential lost revenue.[37] L’Oreal’s maleic acid bleaching products are still available for purchase today.[38]

Olaplex v. L’Oreal suggests that trade secrets must be strategically and wholistically integrated into a company's intellectual property protection portfolio as early as possible.[39] Olaplex was new to the beauty scene, the David to L’Oreal’s Goliath, when they began acquisition talks in 2015.[40] This, perhaps, is the key takeaway of the case: young beauty brands should have their intellectual property strategy worked out well in advance of any acquisition conversations, and should proceed with caution, or prepare for court, if mixing trade secrets, patents, and acquisitions.[41] Like getting your hair bleached, this fight between Olaplex and L’Oreal was messy, painful, and expensive, and nobody is claiming that is a secret.

References

[1] Photo by Maksim Chernishev, Young Woman Hairdresser Dying Hair at Beauty Salon. Professional Hair Roots Coloring, Unsplash (Apr. 2, 2021), https://unsplash.com/photos/woman-in-black-shirt-lying-on-white-textile-PaEFID0r2yo.

[2] See Olaplex, Inc. v. L’Oreal USA., Inc., 855 F. App’x 701, 702–03 (Fed. Cir. 2021).

[3] See Olaplex, 855 F. App’x at 702.

[4] See id.

[5] See Liqwd, Inc. v. L’Oreal USA, Inc., 2017 WL 2881351, at *3 (D. Del., July 6, 2017); see also Joe Schwarcz, The Right Chemistry: Quest to Repair Damaged Hair Led to David vs. Goliath Battle, Montreal Gazette, (July 14, 2023), https://montrealgazette.com/opinion/columnists/the-right-chemistry-quest-to-repair-damaged-hair-led-to-david-vs-goliath-battle. 

[6] See Liqwd, Inc., 2017 WL 2881351 at *3.

[7] See id.

[8] See id at *2; see also Tiffany Hu, Fed. Circ. Overturns Olaplex's $66M Win In Fight With L'Oreal, Law360, (May 6, 2021), https://www.law360.com/articles/1382177.

[9] See Liqwd, 2017 WL 2881351, at *4.

[10] See Hu, supra note 8.

[11] See Olaplex, 855 F. App’x at 702–03.  

[12] See 18 U.S.C. § 1839(3) (2018).

[13] See § 1839(3).

[14] See § 1839(3).

[15] See Olaplex, 855 F. App’x at 706. 

[16] See id. 

[17] See id.

[18] See id. at 707.

[19] See id. Additionally, patent applications are typically published 18 months after filing an application. See 35 U.S.C. § 122(b)(1).

[20] See id. at 705 n.2.

[21] See id.  

[22] See id. at 706.

[23] See id.  

[24] See id. at 707.

[25] See id. at 707–08.

[26] See id.

[27] See id.

[28] See id. at 708.

[29] See id. at 705.

[30] See id.

[31] See Craig Clough, L'Oreal, Olaplex Settle After Fed. Circ. Nixes $66M IP Verdict, Law360, (May 19, 2021), https://www.law360.com/articles/1386567/l-oreal-olaplex-settle-after-fed-circ-nixes-66m-ip-verdict. 

[32] See id.

[33] See Olaplex, 855 F. App’x at 705–07. 

[34] See id. at 707.

[35] See id. at 707–08.

[36] See Hu, supra note 8.

[37] See Clough, supra note 33.

[38] See Jackie Summers, The Most Important Discovery to Protect Your Hair and Hair Color- Everything You Need to Know About Hair Bonders, Matrix, (Feb. 10, 2023), https://www.matrix.com/blog/the-most-important-discovery-to-protect-your-hair-and-hair-color.

[39] See generally Olaplex, 855 F. App’x at 705–07. 

[40] See Schwarcz, supra note 5.

[41] See generally Olaplex, 855 F. App’x at 705–07.