Case study

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Case 2

Mixed Chicks Should a Small Company Battle a Large Competitor in Court over Trademark Infringement?

Best friends Kim Etheridge and Wendi Levy are of mixed race and for years struggled to find the right hair treatments to tame their unruly curls. “When you are multicultural, you have a blend of hair,” explains Etheridge, but, she adds, the hair products on the market do not address that fact. Instead, the companies that make them merely target various ethnic groups with products that are not tailored to the particular characteristics of their hair. In 2003, Etheridge and Levy decided that they could create better hair care products for the growing multicultural market and began working with a chemist to create them. Their first product was a conditioner designed specifically to work on their type of hair. Within a year, the duo had created a shampoo and launched a business, Mixed Chicks, from Wendi’s garage to sell their hair care products through salons and beauty supply stores nationwide. Five years later, their small company’s sales accelerated when star Halle Berry endorsed Mixed Chicks products in an inter- view that appeared in three national magazines.

A short time later, Etheridge and Levy were working the Mixed Chicks booth at a trade show when a representa- tive from a large national beauty supply company with more than 3,000 stores and $3 billion in annual sales stopped and expressed interest in their products. Although the entrepre- neurs initially were excited about the prospects of selling Mixed Chicks products to a large national chain, they de- cided not to pursue the opportunity when they learned about the retail chain’s strict return and liberal discount policies. Neither would be good for their small company.

About a year later, Etheridge received an e-mail from a retail customer telling her that the same large national chain had created its own line of products aimed at mixed-race women. Not only was the product line’s name, Mixed Silk, similar to the name that Etheridge and Levy were using for their products, but the bottles the large company was using also had the same shape as Mixed Chicks’ bottles. The only significant difference between the products was the price; the large retailer was selling Mixed Silk products for about $8, compared to $14 to $20 for Mixed Chicks products.

Alarmed, Etheridge and Levy purchased samples of the copycat products and began testing them. They were unim- pressed. When Etheridge went into one of the chain’s stores, she asked an employee about the Mixed Silk products on display near the register. “It’s a generic version of Mixed Chicks,” explained the clerk. “Virtually the same thing.” Over the next several weeks, the entrepreneurs heard from several

of their retailers who told them that more customers were balking at purchasing Mixed Chicks products because they had discovered Mixed Silk products, which cost far less.

Etheridge and Levy were furious, and their first reac- tion was to file a lawsuit against the large retail chain for trademark infringement. Over the next two months, they re- searched the problem and consulted with several attorneys. They considered sending a “cease-and-desist” letter, demand- ing that the chain stop selling Mixed Silk products. Although the letter might work, the strategy carries a significant risk: If the chain stopped selling Mixed Silk products and then chal- lenged Etheridge and Levy in court and won, their small com- pany would have to compensate the large chain for its lost revenue. However, if Mixed Chicks filed a lawsuit for trade- mark infringement and won, the retail chain would be forced to take its Mixed Silk products off the market, and Mixed Chicks would collect damages for lost sales. Filing a trade- mark infringement suit would be costly, perhaps $250,000 to $500,000 in legal fees per year for, quite possibly, many years. The young entrepreneurs also knew that filing a law- suit would distract them from managing their growing busi- ness, which was now generating annual sales of $7 million. Yet they were concerned that not taking legal action could be more expensive in the long run, perhaps even costing them their entire business. Finally, could they live with themselves if they did not stand up against a larger, more powerful com- petitor when they knew they were right?

Questions

1. Why is securing proper intellectual property protection such as trademarks, patents, and copyrights important for entrepreneurs?

2. Analyze the advantages and the disadvantages of fil- ing a trademark infringement lawsuit against the large chain selling Mixed Silk products? Conduct the same analysis for not filing the lawsuit.

3. What course of action do you recommend that Ether- idge and Levy take? Explain.

4. Can you recommend ways that Etheridge and Levy might be able to use the significant difference in the size of their company and the national retail chain to their advantage, especially for marketing their company?

Sources: Adapted from Jennifer Alsever, “Case Study: The Rival: Enormous. Its Product Disturbingly Similar. The Question: To Sue or Not to Sue?,” Inc., February 2012, pp. 81–83; “Have a Curly Hair Conundrum? The Girls at Mixed Chicks Can Solve It,” A Bulls Eye View, June 6, 2012, http://abullseyeview.com/interview-mixed-chicks-kim-etheredge-wendi- levy; and Janell Hazelwood, “8 Trailblazing Women Then and Now,” Black Enterprise, March 31, 2011, http://www.blackenterprise.com/ small-business/8-trailblazing-women-then-and-now/3.

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