Intellectual Property

3 Lessons From A David v. Goliath IP Victory

A reminder to would-be infringers that there are consequences to disrespecting the rights of smaller innovators.

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When it comes to discussion of interesting IP cases, The Fashion Law blog is hard to top. Rarely do I visit the blog without finding at least one recent article well worth the time to read. Last week, I saw an article on the $100mm+ verdict in Liqwd Inc. v. L’Oreal USA Inc., 1:17-cv-00014 (D. Del.), one of the biggest IP verdicts of the year so far. I will commend you to the article for the factual background of the case, as well as the case docket for more details on the verdict. For purposes of this column, however, I want to focus on what we can learn from Olaplex’s “David v. Goliath win (as characterized by the Fashion Law)” over cosmetics giant L’Oreal. Yes, the decision will be appealed and the case can settle at anytime. In the meantime, it is good for us to think about how Olaplex navigated its way to a huge jury verdict, and what lessons other IP “David’s” can learn going forward from Olaplex’s experience.

First, the decision illustrates the importance of monitoring companies that were once counterparties to a non-disclosure agreement. Such agreements are commonplace where actual or prospective IP issues are discussed between companies. Post-discussion monitoring, however, can lean towards the sporadic. Which can lead to missed opportunities, or at least delay, in bringing viable claims for breach when such claims arise. It is a good practice, therefore, for at least someone at the client (or at the law firm that handled drafting of the NDA) to set a reminder to monitor any counterparties for any breaches down the road. Best to keep in mind that any such breach may take some time to develop — sometimes years later — further putting a premium on someone (whether the client or lawyer) taking responsibility for this important task. 

It is important to keep in mind that the difficulty of monitoring NDA compliance can vary widely. Olaplex, for example, had a relatively easy time noticing L’Oreal’s breach. It met with L’Oreal in May 2015 and saw talks break off relatively quickly, followed by L’Oreal allegedly breaching the NDA by releasing copycat products less than a year later. (As the verdict shows, despite L’Oreal’s protestations, the jury found found in Olaplex’s favor.) Keep in mind that a single product line company like Olaplex will have an easier time policing breaches than a company with a more varied lineup of product offerings. On the flip side, if the disclosed technology relates to only one function or feature of a competitor’s product, it may be harder to police NDA breaches without careful monitoring. Either way, it is well worth it for companies and their lawyers to recommit to checking up with companies that have been a counterparty to an NDA. For Olaplex, demonstrating the NDA breach was worth over $20mm in the jury’s verdict, just as much as L’Oreal’s damages for trade secret misappropriation — and breach of contract is usually easier to prove than IP claims, to boot.

Second, Olaplex’s win should remind us of the value of “layering” IP claims, especially when a case has compelling facts that also have jury appeal. Here, Olaplex was able to successfully integrate its claims for trade secret misappropriation, breach of contract, and patent infringement into a cohesive whole at trial — benefiting from a larger overall verdict as a result. In particular, the marrying of a breach of contract claim into the narrative of L’Oreal acting badly was likely a powerful addition to the IP infringement claims. Trials are morality plays — the more substantiated claims of improper behavior by a defendant, the more likely a jury is to administer a comprehensive punishment. “Davids” like Olaplex would always do well to consider including as many different types of claims as possible when confronting a larger adversary. You never know which claims are going to resonate with a jury, for one. And considering how difficult it is to win on even simple IP claims, if you can find a more general non-IP claim to layer in, all the better.

Third, this case is a poster child for the value of seeking patent protection as early as possible in a company’s life cycle. Here, Olaplex was able to parlay its unpublished patent application into entering an NDA with L’Oreal, leading to the chain of events culminating in the jury verdict. Had Olaplex not had an application on file, it is reasonable to assume that L’Oreal may have balked at entering into an NDA before discussions — common practice among large corporations, which often leverage their size into demanding either no NDA (or one-sided NDA terms) before talking to startups. Olaplex’s patent application helped shift that balance of power at the critical early moment of the company’s first contact with L’Oreal. Furthermore, Olaplex’s commitment to seeing that application and others to patent issuance helped give rise to its future patent infringement claim — a claim that led to significant portion of the verdict it received at trial. At bottom, investing in IP is critical for would-be “Davids,” irrespective of how difficult the patent environment is reported as being at any given point in time.

Ultimately, verdicts like the one in Liqwd are potent reminders of the power of IP rights to give a fighting chance to upstart innovators forced to take on a larger adversary in a court of law. It also reminds would-be infringers, especially willful ones, that there are consequences to disrespecting the rights of smaller innovators. Whether this verdict stands up on appeal is an open question. But it has already provided some strategies for litigation success that erstwhile IP “Davids” can think about, while hoping that their own IP victories remain in slingshot range.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

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Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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