The Olaplex vs. L’Oreal Lawsuit: The Importance of Patent Protection in Mergers and Acquisitions
Last month, we posted a blog about the importance of intellectual property due diligence in mergers and acquisitions. This month, we present a real life case showing the importance of patent protection in these types of company deals and highlight applicable tips for inventors and entrepreneurs.
The Beauty Industry’s Major Legal Battle
L’Oreal is a beauty brand that has been around for decades. As a beauty conglomerate, L’Oreal Group has not only been around for a long time, it owns other well-known beauty brands such as Urban Decay, Maybelline, Essie and CeraVe. Olaplex is a small business turned cult beauty favorite that has no physical store and used to be sold predominately for use by salon professionals. Since the brand quickly gained a loyal following among celebrities, hair stylists, and beauty fanatics, it is now available online and in stores from popular beauty retailers like Sephora.
What makes Olaplex so revolutionary is its products, which are a series of bond strengtheners that contain an ingredient called Bis-aminopropyl diglycol dimaleate, which protects hair from breakage and damage during bleaching, coloring and styling. Though Olaplex holds many patents, the one we’re going to take a closer look at is the patented hair protection maleic acid formula that L’Oreal copied.
So how did this all begin? In 2015, L’Oreal met with Olaplex to talk about acquiring the small startup company. A Non-Disclosure Agreement was signed in order to protect the precious patents and formula from misuse, as Olaplex is widely known for its ‘league of their own’ status in the hair protectant market.
It wasn’t until Olaplex valued their company at $1 billion that L’Oreal backed out of the deal. L’Oreal then decided to release a bond strengthening system called SmartBond that seemed to be a duplicate for Olaplex’s system. When Olaplex found out that they planned to release this product, they contacted L’Oreal about the patent infringement, but L’Oreal denied the claim and released the product anyways. So, Olaplex took them to court and won. In the end, L’Oreal was found guilty of patent infringement, breach of an NDA, and disclosure of trade secrets.
Tips for Inventors and Entrepreneurs
What did Olaplex do correctly in this case that other inventors and entrepreneurs can learn from? Here are three takeaways if you ever find your company in a merger or acquisition.
1. Patent Your Idea(s)
When you have an idea that you think is potentially worth value to the world, if you’re serious about pursuing it as a business endeavor, you should patent it. Patenting your idea won’t always prevent infringment. However, a patent gives you the power to bring legislation against anyone who duplicates your idea. If Olaplex hadn’t jumped to patent their revolutionary discovery, and gained a loyal following, they simply may not have won against beauty conglomerate. That strength in standing gave them a leg up in the battle. Olaplex also patented alternate protecting ingredients that allowed them to prevent competitors from stealing their original formula, which included the maleic acid.
2. Know Your Worth
If you are propositioned as an inventor or entrepreneur for an acquisition of your company or product, it’s very important to know how to properly value what you’ve created. Olaplex knew their worth when they were approached and told L’Oreal that they believed their company was worth $1 billion. It was then that L’Oreal backed out of the talks. Olaplex was right to value their company at that price, as they had made a major discovery and developed a loyal following with no physical store. The best way to determine your product’s worth? It depends on many factors, but it’s important to consider the novelty of your invention, the size of your market, and your potential for growth.
3. Always Protect Yourself Legally
When in conversations with a company that would like to acquire your product or company, it’s crucial to protect yourself legally. Often, the first step is signing a Non-Disclosure Agreement, or NDA. This legally binding document is designed to protect trade secrets and other confidential information from being used against you. In the Olaplex case, the jury found that L’Oreal was intentionally breaching the NDA by creating their SmartBond product and refusing to pull the product when they knew they were in the wrong.
Are you in the middle of making important IP decisions for your company? Whether you’re acquiring another business, considering a merger, or expanding your own patent footprint, you need to get data you can rely on. Here at Global Patent Solutions, we provide reliable, deep research into prior art, landscape overviews, and marektability. Contact us today to enlist a search that can provide valuable information for you and your team.