How Trade Secret Misappropriation Plays Out in the Real World: L’Oreal and Olaplex

By Teghan O'Connell

What is a Trade Secret

A trade secret is a piece of knowledge which derives value from the fact that other people (competitors) don’t know the contents thereof. Congress defines a trade secret by two factors. 1) The information must derive economic value from not being known or “readily ascertainable” by other persons and 2) includes information the owner must keep secret using measures which are reasonable under the circumstances. If a “trade secret” is common knowledge within a company, it cannot receive protection as a trade secret anymore (at least, it is much more difficult to prove misappropriation in court). Trade secrets often consist of information which could be protected by a patent, but the owner opts to keep the information as a trade secret instead. The reason one might choose to use trade secrets instead of a patent is the necessary disclosure and the time-constrained protection that comes with patent registration. [1]

Differences in Length of Protection

When one receives a patent, the application is available to the public. Utility patents expire after 20 years and design patents expire after 15 years, and anyone can use your invention without your consent. If you choose to protect your innovation with a trade secret, there is potentially no time limit to how long the protection can last [2] (for example, the Coca-Cola recipe has been a trade secret since 1886). [3] The only requirement to maintain a trade secret is that you actively use the secret as part of your business, and the secret is not just being kept for the sake of inhibiting competitors.

There are a number of laws (both state and federal) which protect the use and privacy of trade secrets. Federally, the Unified Trade Secrets Act (1979) protects against the misappropriation of trade secrets. Misappropriation is defined as the improper acquisition, disclosure, or use of trade secrets. The UTSA has been adopted (in some way) by every state except New York, which governs through common law and has a stricter definition of what a trade secret is (6 factors to define, instead of 2).[4] The Defend Trade Secrets Act (2016) created a new civil right of action for trade secret misappropriation under federal law. The DTSA does not replace the UTSA, it creates parallel rights for plaintiffs in civil cases. [5]

An example of the punishment for trade secret misappropriation in real life is Olaplex v. L’Oreal. [6] In August of 2019, the first decision was released in the case of Olaplex v. L’Oreal. The issue started in 2015. At the time, Olaplex had created a novel protective additive for chemical treatments preventing hair damage caused by coloring and styling. Olaplex’s parent company Liqwd owned two patents in this field. In 2015, L’Oreal began negotiations to acquire Olaplex and Liqwid. As a process of these negotiations, the parties entered an NDA and Olaplex subsequently shared details regarding an unpublished maleic acid patent application along with other sensitive information. Olaplex alleges in the lawsuit that L’Oreal introduced three products which included the content of Olaplex’s patents. When the case was decided in the District Court for the District of Delaware, $92.3 million in damages was awarded to Olaplex.[7] Olaplex was also able to ban L’Oreal’s sale of the 9 products in question during the proceedings. [8]

However, on May 6th, 2021, the Court of Appeals found that L’Oreal should not have been found guilty of trade secret misappropriation and information violation by a reasonable jury. [9] The Court of Appeals remanded the case to the Delaware district court while reversing, affirming, vacating, and dismissing in part. [10]

References

[1] What Are Trade Secrets?, Congress.Gov (accessed May 1, 2025), https://www.congress.gov/crs_external_products/IF/HTML/IF12315.web.html

[2] What Are Trade Secrets?, Congress.Gov (accessed May 1, 2025), https://www.congress.gov/crs_external_products/IF/HTML/IF12315.web.html

[3] Coca-Cola's Secret Formula: The Story of Merchandise 7X, History Oasis (Accessed May 1, 2025), https://www.historyoasis.com/post/coca-cola-secret-formula

[4] Association of Corporate Counsel, Trade Secrets: Legal Framework and Best Practices for Enforcement, Association of Corporate Counsel (Nov. 2020), https://www.acc.com/sites/default/files/resources/upload/Trade%20Secrets%20-%20US%20-%20ACC%20Guide%2012.15.2020.pdf

[5] What Are Trade Secrets?, Congress.Gov (accessed May 1, 2025), https://www.congress.gov/crs_external_products/IF/HTML/IF12315.web.html

[6] OLAPLEX, INC. v. L'OREAL USA, INC. , No. 20-1382 (Fed. Cir. 2021)

[7] Ryan Marshall, From the Salon Chait to Court: L’Oreal Found Liable for Trade Secret Theft and Patent Infringement, The National Law Review (Sept. 3, 2019), https://natlawreview.com/article/salon-chair-to-court-l-or-al-found-liable-trade-secret-theft-and-patent-infringement

[8] Jury Awards Olaplex $91.3 Million in Damages for L’Oreal’s Intellectual Property Violations, Winston & Strawn, LLP (Sept. 5, 2019), https://www.winston.com/en/blogs-and-podcasts/privacy-law-corner/jury-awards-olaplex-dollar913-million-in-damages-for-loreals-intellectual-property-violations

[9] Julia Wray, L’Oreal dodges Olaplex final court ruling payout, Cosmetics Business (May 10, 2021), https://cosmeticsbusiness.com/l-or-al-dodges-olaplex-final-court-ruling-payout--176484

[10] OLAPLEX, INC. v. L'OREAL USA, INC. , No. 20-1382 (Fed. Cir. 2021), (accessed May 1st), https://law.justia.com/cases/federal/appellate-courts/cafc/20-1382/20-1382-2021-05-06.html