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Saturday, Jun 10, 2023

Haircare Business Sets Rival Straight

In business litigation, an $8.1 million judgment doesn’t often merit attention. But when a small Canoga Park company was awarded that amount last month from beauty industry giant Sally Beauty Holdings Inc., it raised eyebrows. A jury in U.S. District Court in Los Angeles sided with claims by Mixed Chicks LLC that Sally had copied its hair care products and infringed on its trademark by making a line called Mixed Silk that came in nearly identical packaging. While the judgment amounted to only a fraction of Sally’s annual revenue, industry experts say it likely will give large personal product companies pause before they create copycat versions of successful products made by smaller companies. “This is a wakeup call to companies in this industry. It underscores the dangers of getting too close to appearing similar to market innovators,” said Deborah Lodge, a trademark attorney who was not involved in the case and advises the Professional Beauty Association, an national trade group headquartered in Scottsdale, Ariz. Mixed Chicks, founded in 2003, has found success with its vegan products aimed at curly haired African American women and children and those of mixed race. Products include shampoos, conditioners, hair silk and straightening serum. Sally, a publicly traded company based in Denton, Texas, is a distributor of thousands of beauty products. The company introduced its Mixed Silk line in 2010, prompting Mixed Chicks to file its lawsuit in March 2011. Industry experts say the lawsuit does not mean that large companies won’t make products to compete with innovative offerings, but they will have to ensure the products distinguish themselves in packaging and marketing. Kenneth Parker, an attorney with the Irvine firm Haynes and Boone LLP who represented Mixed Chicks, believes the case is particularly beneficial to small companies, which can be bullied by larger ones in the industry. “Sally Beauty behaves more cautiously with the large companies, like L’Oreal,” said Parker. “It isn’t as cautious with small companies that it doesn’t think can defend themselves.” Sally Beauty and its attorneys declined comment for this story. Defending brand Mixed Chicks was founded by Kim Etheredge and Wendi Levy selling products out of Levy’s garage. The products capitalized on the multi-ethnic market segment, one of the fastest growing in the industry. In 2008, actress Halle Berry named the product as one of her beauty must-haves in an interview with “In Style” magazine; a few other celebrity consumers also endorsed it, and the brand’s profile – and sales – escalated. By 2010, Mixed Chicks had moved into a Canoga Park warehouse and was generating $5 million a year in revenue, primarily from salons and boutique retailers. The success attracted the attention of Sally Beauty, a cosmetics and hair products manufacturer and distributor that earned $233 million in net income last fiscal year on sales of $3.5 billion. Sally Beauty, which operates more than 4,000 stores in the United States and 10 foreign countries, wanted to pick up Mixed Chick’s line for distribution, but the deal didn’t happen. “We were very excited at first. But we decided at that time we were too small and that Sally’s requirements were too much for us,” Levy said. “They could sell the product at a steep discount if they wanted to. They could order 60,000 units and then decide they didn’t want them and ship them back. We couldn’t just keep that sort of product in my garage.” Then, in late 2010, Mixed Chicks noticed that Sally stores were carrying the copycat Mixed Silk line. Worse, the line was undercutting them on price. For example, Sally was selling its version of the shampoo for $14, while Mixed Chicks went for $22. Even people intimately familiar with Mixed Chicks products were confusing it with Mixed Silk. “My friends were walking up to me and congratulating me on having our product in Sally,” Levy recalled. “I couldn’t live like that. It was just the worst.” So Mixed Chicks went to court. Giving pause The case was filed in March 2011, and was heard by a jury in a 10-day trial in October. Parker, the attorney for Mixed Chicks, said his client offered to drop the suit for just the costs of attorneys’ fees and the promise that marketing and appearance of the knock-off would change significantly, but Sally declined the offer. The jury reached its verdict in favor of Mixed Chicks in just six hours. Rather than face additional liability for attorneys’ fees, Sally agreed to forfeit its right to appeal, stop selling the infringing products and settle with Mixed Chicks for an additional $500,000, bringing the settlement total to $8.6 million. Melanie Williams, a professor of business law at California State University, Northridge who specializes in intellectual property, said it’s rare for trademark litigation to make it to trial as the cases are often settled out of court. “Trademark cases are hard to prove. There are many companies who have trademarks registered and have failed to prove that there was a violation,” she said. Since the fight began, Mixed Chicks has inked a distribution deal with Target Inc., putting the company’s products in more than 2,500 stores nationwide. With the settlement, Levy and Etheredge said they will look for a permanent home for the company, which currently rents its Valley location. “I hope it makes the big businesses think twice before they step on the little guys,” Levy said.

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