This (nonprecedential) case, Liqwd, Inc. v. L’Oréal USA, Inc., was handed down last week; opinion by Judge Taranto, joined by Judges Dyk and Reyna. Liqwd and its exclusive licensee Olaplex allege that L’Oréal is directly and indirectly infringing their patent on a method of bleaching hair. The patent recites the application of a mixture comprising a bleaching formulation and a "a second formulation containing an active agent that reduces or repairs damage to the keratin proteins of the hair," specifically maleic acid and its salts; the claim further requires that “the mixture does not contain a hair coloring agent.” The district court denied the motion for preliminary injunction, primarily on the ground that, under the court's construction of the claim term "hair coloring agent," L’Oréal's product doesn't infringe. The Court of Appeals disagrees with the claim construction, however, and thus with the district court's conclusion that the moving parties had not demonstrated a likelihood of success on the issue of infringement. In addition, the Federal Circuit concludes that the district court erred in its analysis of likelihood of success on the issue of indirect infringement:
In rejecting Olaplex’s allegation that L’Oréal indirectly infringed by inducing direct infringement by its customers, specifically salon technicians, the district court stated one reason in addition to the claim-construction rationale for rejecting the direct-infringement allegation. It concluded that Olaplex had “not satisfied the knowledge requirement” for induced infringement because Olaplex failed to “demonstrate that [L’Oréal] knew that [its] customers’ acts [in following the products’ instructions for use] constitute infringement.” . . . That conclusion is faulty. As evidenced by the district court’s use of the past tense “knew,” the court considered only whether Olaplex could prove past knowing inducement. But patent infringement, including active inducement of infringement, is often “an ongoing offense that can continue after litigation has commenced.” . . .
Accordingly, to obtain a preliminary injunction, Olaplex need not demonstrate that it is reasonably likely to succeed in proving that L’Oréal knew, before this suit began, that its instructions for use would induce infringement. Rather, Olaplex must demonstrate, inter alia, that it is reasonably likely to succeed in proving that the instructions for use induce infringement and that L’Oréal knows, at the time a preliminary injunction is to take effect, that the instructions for use will induce infringement. . . . Our claim construction today makes it likely that the knowledge element for inducement of infringement may be satisfied when, on remand, the district court reconsiders entry of a preliminary injunction (pp. 8-10).
In addition, since the district court had tied the "public interest" factor to the erroneous claim construction, that finding had to be vacated too:
. . . the sole rationale given by the district court for that determination was that “the public interest is not served by protecting valid patents as against noninfringing uses.” . . . That finding is entitled to no weight, because it rests on the district court’s erroneous claim-construction and noninfringement analysis (p.10).
On the other hand, however, and possibly working in favor of L’Oréal on remand, the Federal Circuit also disputed the district judge's analysis of the question of validity:
It is the patent holder’s burden, when moving for a preliminary injunction, to establish a likelihood of success on the merits. . . . If the alleged infringer presents a “substantial question” of invalidity, and the patent holder does not establish the likely lack of merit of the invalidity contention, the preliminary injunction should not issue. . . . The burden on the challenger to show a substantial question of invalidity at this stage is lower than what is required to prove invalidity at trial (p.11).
Although the Federal Circuit does not think there is a "substantial question" on L’Oréal's indefiniteness defense, it does believe that the district court should give some more thought to L’Oréal's nonobviousness defense:
L’Oréal argued before the district court that the ’419 patent claims are invalid for obviousness in light of two references: Ogawa and Kim. . . . It stated: “At this stage in the proceedings, the court is not inclined to second guess the assessment of the examiner, who had the Ogawa and Kim references before her, and who we assume had some expertise in interpreting the references and some familiarity with the level of skill in the art.” . . .
We do not read this explanation as giving blanket deference to the PTO, which would be impermissible . . . . But the district court set forth no independent discussion of the merits of the obviousness challenge. We think that such a discussion is needed.
After the district court entered its decision denying a preliminary injunction, the Patent Trial and Appeal Board instituted a Post-Grant Review of claims 1–8 and 10 of the ’419 patent, concluding that those claims are more likely than not unpatentable for obviousness over the combination of Ogawa and two other references . . . . At the same time, the Board noted that there were substantial unresolved questions related to secondary considerations, and so it stressed that its conclusions were being drawn “on the present record and for the purposes of the present decision.” , , ,
We rely on the Board’s opinion here for a limited purpose. Having carefully examined the obviousness issue presented to us in this appeal, we think that the content of the Board’s discussion shows the need for the district court, in the case before us, to present a fuller discussion of the obviousness evidence and arguments than the opinion under review here contains. We do not defer to the Board’s preliminary institution decision or assert agreement with all of the Board’s analysis. We merely find it sufficient to indicate why there may well be a “substantial question” of invalidity here, necessitating more analysis in this case than we now have (pp. 14-16).
Finally, on the issues of irreparable harm and balance of harms, the court engages in an extended discussion of whether the parties compete in a "two-player" market, and (as with the induced infringement issue) notes that changes in circumstances could be an important consideration on remand:
L’Oréal challenges the district court’s finding that Olaplex would suffer irreparable harm in the absence of a preliminary injunction. . . . We see no clear error of fact (or legal error) in the court’s finding. . . . But we do not preclude reconsideration of the issue when the case returns to the district court, by which time the market will have changed since July 2017 in ways of potential relevance to the irreparable-harm question. . . .
We conclude that the district court did not err when it determined that the bond-builder market is a “two-player national market” and that Olaplex would likely suffer irreparable harm from L’Oréal’s “direct competition in [its] primary market.” . . . We need not here consider issues that might arise in a situation in which more firms are in the market but their products are themselves infringing. It suffices to say here that L’Oréal has not shown the district court’s two-player-market finding to be clearly erroneous. Nor has it otherwise shown reversible error in the irreparable-harm finding or in balancing the equities on the present record. As noted, however, the irreparable injury issues may be reconsidered on remand, which could lead to a change in the balancing of the equities.
L’Oréal also argues that the district court erred by concluding that the balance of the equities favored granting the injunction. But L’Oréal makes its argument contingent on its irreparable-harm arguments, stating, “the district court relied principally on the purported harm to Olaplex, which itself is insufficient to warrant injunctive relief.” Appellees’ Br. 56. Because we do not find reversible error in the district court’s finding of irreparable harm to Olaplex, this argument likewise fails (pp. 17-18).
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