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Beauty industry Goliath to pay $8.5M
Mixed Chicks, a small company that makes specialized hair care products for women of mixed race, has won a jury award of more than $8 million in a trademark and trade dress dispute with a multimillion-dollar beauty supply company.
Sally Beauty Supply, the world's largest retailer of professional beauty supplies, agreed last month to pay $8.5 million to Mixed Chicks after a California jury found Sally Beauty had infringed the trademarks of Mixed Chicks's products.
The settlement is actually larger than the amount awarded by the jury, as Sally Beauty offered the extra money to pre-empt the plaintiff's requests for attorney fees and disgorgement of Sally Beauty's profits from the sale of the infringing products.
Mixed Chicks was represented by Kenneth Parker and Alan Wechsler of Irvine, California-based Haynes and Boone. "This is one of the largest trademark verdicts ever in the Central District of California," Parker said, adding that Sally Beauty has also ceased selling its Mixed Silk products, which were the focus of the suit.
David vs. Goliath tales that come up with big wins for non-Goliaths are rare in the world of intellectual property, where the time and cost of litigation is daunting to small businesses and individuals. But Mixed Chicks co-founders Wendi Levy and Kim Etheredge felt that taking on the beauty supply giant was something they had to do. "We were warned the case was not a slam dunk, that it would be expensive and time consuming, and we were told the payoff, if we won, might not be large," Etheredge said. "But it was about the principle for us."
Like most small startups, Etheredge and Levy had worked hard to get their company going. The two women, who are both biracial, stumbled upon their idea for a specialty hair care company when they realized they had both struggled with their curly and often unruly hair most of their lives. They noted that the texture of hair for women of mixed race has particular qualities, and the women complained to each other that to get their hair under control they had to buy shampoos and conditioners in a drugstore's "ethnic" aisle, along with others in the generic hair care aisle. Their need to combine multiple products meant, "we would have to use 10 different products instead of one," Etheredge said.
In 2003 they went to a chemist to figure out what ingredients were effective for their hair types, and a year later they launched Mixed Chicks. They started with a web-based business and soon were selling their products to salons and beauty-supply stores across the country. In 2009, Halle Berry endorsed the Mixed Chicks brand, giving the company a huge boost.
A representative from Sally Beauty Supply approached Etheredge and Levy at a trade show a short time later, and soon after the retail chain proposed an arrangement that would have it stock Mixed Chicks products in its stores. After studying the proposal, however, the women declined the offer, realizing that some of the chain's policiessuch as deep discounting, the need to provide large amounts of inventory, and a requirement that they accept returnswould be risky. "We wanted to make sure we had control of our merchandise and inventory," according to Etheredge.
In early 2011, Sally Beauty rolled out its own product line for multiracial women, which it called Mixed Silk. Levy and Etheredge first learned about it from clients and customers, who were calling and asking why there was a product on the market that looked so much like theirs but went under a different name and was less expensive. Some even thought Levy and Etheredge had introduced a new low-cost product to segment the market.
Etheredge and Levy were shocked. Everything about this new product line appeared to be a knock-off. "The color and size of the bottles were the same, the color of the liquid was the same, the scent and texture of the products were almost identical," said Parker, who formerly was corporate counsel for Callaway Golf Co. Even the advertisements seemed to resemble the Mixed Chicks promos, which feature a photo of Levy and Etheredge.
In addition, the Sally Beauty website contained a search engine in which a consumer could type in a product name to find out whether it was sold by Sally Beauty. It was programmed in such a way that when a consumer typed in "mixed chicks," the only results it returned were the Sally Beauty "mixed silk" product line.
The effect, Parker said, was to deceive and confuse the public. In March 2011, Mixed Chicks sued [PDF], alleging Sally Beauty "intentionally, knowingly, and willfully" infringed the Mixed Chicks trademark and trade dress.
Trademark and trade dress suits often don't go to trial, as the parties typically choose to settle. But Etheredge and Levy weren't satisfied with Sally Beauty's offers, and the large retailer continued to sell the products they were convinced infringed. So after an almost two-year battle, the case went before a jury.
During the nine-day trial, Sally Beauty testified that similarities were coincidental. (Sally Beauty's attorneys, Jonathan Gordon and Casondra Ruga of Alston & Bird, could not be reached for comment.) The jury didn't buy it. After deliberating for six hours, the jury decided that Mixed Chicks had suffered $839,535 in actual damages, and found that Sally Beauty had acted willfully and with malice, oppression, or fraud, resulting in a punitive damages award of $7.27 million.
The disposition of the case was finalized last week. "Others will enter the market, but we're not afraid of competitionas long as it's fair competition," Etheredge said. "We knew we were in the right, and we're happy we can now move forward."
Lisa Shuchman writes for Corporate Counsel, an affiliate of the Daily Report.