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Liqwd, Inc. v. L'Oreal USA, Inc.

United States District Court, D. Delaware

July 6, 2017

LIQWD, INC. and OLAPLEX LLC, Plaintiffs,
v.
L'OREAL USA, INC., L'OREAL USA PRODUCTS, INC, L'OREAL USA S/D, INC., L'OREAL, S.A., and REDKEN 5th AVENUE NYC, L.L.C., Defendants.

          MEMORANDUM ORDER

         At Wilmington this 6th day of July, 2017, having reviewed the papers submitted in connection with plaintiffs' motion for a preliminary injunction (D.I. 14), the court issues its decision as follows:

         1. Introduction.

         On January 5, 2017, plaintiffs Liqwd, Inc. ("Liqwd") and Olaplex, LLC ("Olaplex") (collectively "plaintiffs") filed a complaint against defendants L'Oreal USA, Inc. ("L'Oreal"), L'Oreal USA Products, Inc, L'Oreal USA S/D, Inc., and Redken 5th Avenue NYC L.L.C. (collectively "defendants"), alleging infringement of U.S. Patent No. 9, 498, 419 ("the '419 patent"), misappropriation of trade secrets under 18 U.S.C. § 1836 and Delaware law, breach of contract, unjust enrichment, and breach of the implied covenant of good faith and fair dealing. (D.I. 2) Plaintiffs amended their complaint on March 20, 2017 to include L'Oreal S.A. as a defendant. (D.I. 53) Presently before the court is plaintiffs' motion for a preliminary injunction, [1] which was argued on June 8, 2017. (D.I. 14) This court has jurisdiction under 28 U.S.C. §§ 1331 and 1338.

         2. Background.

         Liqwd is the assignee of the'419 patent. (D.I. 53 at ¶ 27;'419 patent, cover page) Olaplex is the "exclusive licensee of the '419 patent with full rights of enforcement and recovery, including the right to pursue recovery of royalties and damages for infringement of the '419 patent." (D.I. 53 at ¶ 27) The '419 patent, entitled "Keratin treatment formulations and methods, " was filed on March 31, 2016 and was issued on November 22, 2016.[2] ('419 patent, cover page) The '419 patent claims "a method for bleaching hair" employing specific concentrations of maleic acid "or salts thereof" in a "mixture [that] does not contain a hair coloring agent." ('419 patent, 25:41-26:5 (claim 1))

         3. In 2014, Olaplex successfully launched hair styling products in the newly-created "bond builder" market category. (D.I. 53 at ¶¶ 30, 33) Olaplex revenues quickly grew to the tens of millions of dollars. (D.I. 60 at 4) Beginning in January 2015, various L'Oreal representatives and Olaplex CEO Dean Christal ("Christal") discussed the potential for L'Oreal to purchase Olaplex. (Id. at ¶¶ 41-45) In March 2015, a L'Oreal representative attempted to recruit Craig J. Hawker, PhD ("Dr. Hawker") and Eric D. Pressly, PhD ("Dr. Pressly"), the inventors of the '419 patent. (Id. at¶4O) In May 2015, Olaplex and L'Oreal executed a non-disclosure agreement ("NDA"). (Id. at ¶ 47) In May and June 2015, pursuant to the NDA with L'Oreal, Christal and Dr. Pressly disclosed Olaplex's financial information, pending but unpublished patent applications licensed to Olaplex, and detailed technical information about Olaplex's products. (Id. at ¶¶ 48-59) A L'Oreal representative met with Christal in September 2015 and informed him that "L'Oreal was no longer interested in acquiring Olaplex." (Id. at ¶ 60)

         4. Subsequently, L'Oreal USA introduced three products that compete directly with Olaplex in the U.S. market. These products include: Matrix Bond Ultim8 Step 1 Amplifier, Redken pH-Bonder#1 Bond Protecting Additive, and L'Oreal Professional Smartbond Step 1 Additive (the "accused products"). (D.I. 60 at 5) Plaintiffs contend that defendants' use of the accused products directly infringes claims 1 and 10 of the '419 patent. (D.I. 53 at ¶ 109) Moreover, plaintiffs assert that defendants, through product literature, instructions, in-person training sessions, and training videos, induce others to infringe claims 1 and 10 of the '419 patent. (D.I. 53 at¶ 110)

         5. Motion for preliminary injunction - standard of review. As explained by the United States Court of Appeals for the Third Circuit,

[preliminary injunctive relief is an "extraordinary remedy, which should be granted only in limited circumstances."... "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.". . . The "failure to establish any element. . . renders a preliminary injunction inappropriate.". . . The movant bears the burden of showing that these four factors weigh in favor of granting the injunction.

Ferring Pharms., Inc. v. Watson Pharmaceuticals, Inc., 765 F.3d 205, 210 (3d Cir. 2014) (citations omitted). "[T]he decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and . . . such discretion must be exercised consistent with traditional principles of equity." eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 394 (2006).

         6. Likelihood of success on the merits.

         Plaintiffs argue that a preliminary injunction is appropriate, because plaintiffs are likely to succeed in their claim of infringement of claim 1 of the '419 patent. (D.I. 15 at 8) Moreover, plaintiffs aver that defendants are "unlikely to prove" invalidity. (Id.) Plaintiffs contend that defendants directly infringe claim 1 of the '419 patent and induce their customers to infringe. (D.I. 53 at ¶ 109-110) The parties' infringement dispute centers on the "hair coloring agent" term found in claim 1. ('419 patent, 26:4-5) Defendants argue that plaintiffs have not shown direct infringement or inducement. (D.I. 60 at 20, 24)

         7. Direct infringement-"hair coloring agent."

         Claim 1 of the'419 patent recites:

A method for bleaching hair comprising:
(a) mixing a formulation comprising an active agent with a bleaching formulation, wherein the active agent has the formula:
(Image Omitted)
or salts ...

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