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L'Oreal fights startup Olaplex over secret to protecting hair

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L'Oreal reported more than US$30 billion in sales for last year. The product lines in question, which all involve the three-step process that protects hair during bleaching treatments, are just one part of a division with about US$3.7 billion in sales, or 12 per cent of L'Oreal's 2018 revenue.

Wilmington, Delaware

L'OREAL made its name with an innovative hair-dyeing technology more than a century ago. Now the world's largest beauty company is facing off in federal court against a California startup with pioneer claims of its own.

The startup, Olaplex LLC, says the French giant stole its trade secrets for a popular, three-step system that protects hair during bleaching treatments, getting hold of them in 2015 when the two were in takeover talks. It wants cash compensation for the alleged theft and damages for L'Oreal's established infringement of two of its patents.

"This is a case of corporate theft, of one of the largest beauty companies in the world seeing something it wanted and taking it for itself," Diane Doolittle, a lawyer for Olaplex, told a jury in Wilmington, Delaware, on Monday in her opening statement, calling the trade secrets "Olaplex's crown jewel". At stake are a fraction of L'Oreal's annual revenue but a high-profile part of its brand - and the lifeblood of the internet upstart, which within six months of its first major distribution deal had 100,000 accounts and millions of dollars in sales, according to the lawsuit Olaplex filed in 2017.

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The dispute even features the classic pair of California nerds toiling away in their garage to take the world by storm: two polymer chemists who developed the system's key ingredient - and whom L'Oreal tried to snatch away from Olaplex in 2015.

L'Oreal must convince the jurors that it developed its competing products on its own and that the patents shouldn't have been issued in the first place. In his opening statement, Dennis Ellis, a lawyer for the company, dismissed Olaplex's allegation that L'Oreal first encountered the trade secrets in a 2015 meeting at a Santa Monica, California, restaurant.

Instead, he said, L'Oreal independently conceived the use of a critical acid in August 2014 and worked from there to develop its products. "Why would you steal what you already know?" Mr Ellis challenged the jury.

The trial is expected to last five days.

L'Oreal reported more than US$30 billion in sales for last year. The product lines in question, which all involve the three-step process, are just one part of a division with about US$3.7 billion in sales, or 12 per cent 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. The company pays tribute on its website to a young chemist working in hair dyes who in 1909 founded the firm that went on to become L'Oreal. Its "DNA" remains "research and innovation in the service of beauty", the site says.

Olaplex has no physical store, employs fewer than 30 people and does little traditional advertising. Yet its core products, launched on the company's own site in June 2014 after a trial by top hair colourists such as Tracey Cunningham, quickly built a following. It is a pioneer in its own right, in the protection of hair against bleach.

"We are essentially a one-ingredient company, a one-product company," Joe Paunovich, a lawyer for Olaplex, said in an interview. That ingredient, bis-aminopropyl diglycol dimaleate, strengthens and reconnects protein bonds during bleaching, according to Olaplex.

By November 2014, one of the largest wholesale salon and beauty-supply distributors in the country, SalonCentric, had put Olaplex on US shelves, propelling it to an early success. SalonCentric is owned by L'Oreal, which noticed its performance and buzz on social media and went after Craig Hawker and Eric Pressly, the two scientists, according to the lawsuit.

Outsiders to the industry, they had worked out of the garage of Mr Pressly's Santa Barbara home, pouring their product from five-gallon buckets into small bottles, and decided to stay put.

L'Oreal, in its answer to the suit, accused Olaplex of using "burner" social media accounts to attack competing brands and praise its own products, claiming it had "largely manufactured and secretly engineered" the social chatter.

In May 2015, at the Santa Monica restaurant, L'Oreal met with Dean Christal, an Olaplex co-founder and chief executive officer, to discuss a possible acquisition of the smaller company. L'Oreal said in court papers that Mr Christal went on to ask for US$1 billion, a figure it called "outrageously high" and "a sham" intended to "plant the seeds for a lawsuit". The overture faded after L'Oreal launched its competing products - but not before the companies had entered into a confidentiality agreement that Olaplex says L'Oreal exploited to develop "slavish 'me too' knockoffs".

US District Judge Joseph Bataillon in Wilmington ruled in late June that L'Oreal's products infringe the two patents at issue. The jury will decide whether the patents are valid and, if so, how much money Olaplex deserves in compensation for the infringement.

Even if it finds them invalid, the jurors must separately decide whether the evidence supports Olaplex's claim that L'Oreal misused the startup's trade secrets and breached non-disclosure agreements that preceded the sharing of that information. BLOOMBERG