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

United States District Court, D. Delaware

June 25, 2019

LIQWD, INC. and OLAPLEX LLC, Plaintiffs,
v.
L'ORÉAL USA, INC., L'ORÉAL USA PRODUCTS, INC., L'ORÉAL USA S/D, INC., and REDKENS 5TH AVENUE, NYC, L.L.C., Defendants.

          MEMORANDUM AND ORDER

          JOSEPH F. BATAILLON SENIOR UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on the following motions for summary judgment:

1. Motion for summary judgment of non-patent issues filed by Liqwd, Inc. and Olaplex LLC, D.I. 682;
2. Motion for summary judgment as to plaintiffs' claims for misappropriation of trade secrets and breach of contract filed by L'Oréal, D.I. 703;
3. Motion for summary judgment of invalidity filed by L'Oréal, D.I. 710;
4. Motion for summary judgment of non-infringement filed by L'Oréal, D.I. 712;
5. Motion for summary judgment on patent issues filed by Liqwd, D.I. 717. Defendants also object, D.I. 803, and plaintiffs object D.I. 802, to the Report and Recommendation of the magistrate judge, D.I. 791, denying plaintiffs' motion to dismiss, D.I. 665.

         I. BACKGROUND

         In this patent infringement action filed by plaintiffs Liqwd, Inc. and Olaplex LLC (together, "Olaplex" or “plaintiffs” or “Liqwd”) against defendants L'Oréal USA, Inc., L'Oréal USA Products, Inc., L'Oréal USA S/D, Inc., and Redken 5th Avenue NYC, LLC (collectively, "L'Oréal" or “defendants”), Olaplex alleges infringement of United States Patent Nos. 9, 498, 419 ("the '419 patent") and 9, 668, 954 ("the '954 patent"). D.I. 262 at ¶¶ 90-138.

         As outlined by the plaintiffs:

The ‘419 Patent (D.I. 636-1, Ex. A) and ‘954 Patent (D.I. 636-1, Ex. B) (collectively, the “Asserted Patents”) are generally directed to methods for bleaching hair. The common specification explains that harsh chemicals used during traditional bleaching treatments damage and break hair bonds. D.I. 636-1, Ex. A at 1:31-2:10. Bleaching treatments typically include two components: powder lightener (i.e., bleach powder) and developer (i.e., peroxide). Id. at 23:15-18, 49-54. These chemicals remove color by attacking natural and artificial pigments in the hair. Id. at 16:48-50. The inventors of the Asserted Patents discovered that certain active agents (e.g., maleic acid or salts thereof) mixed with bleaching treatments will prevent and repair damage to the hair. Id. at 2:65-3:35.

D.I. 726 at 2.[1]

Further, Olaplex has accused L'Oréal of directly and indirectly infringing the Asserted Patents through its own use and the sale with instructions for using L'Oréal's three-step system accused products in an infringing manner: the Matrix Bond Ultim8 (“Ultim8”), Redken pH-Bonder (“pHBonder”), and L'Oréal Professionnel Smartbond (“Smartbond”) three-step systems (collectively, the “Accused Products”). D.I. 636 ¶¶ 60-61. Each of these products has three treatment steps, including (1) a step 1 product that is used during in-salon hair bleaching treatments, (2) a step 2 product for use shortly after bleaching treatments, and (3) a step 3 product for at-home maintenance between chemical services. D.I. 650 (L'Oréal Answer) ¶¶ 61-68. All the Accused Products list maleic acid as an ingredient and are marketed by L'Oréal for use as a bond builder in connection with chemical treatments for hair that involve a bleaching step.

D.I. 726 at 3-4. The ‘419 Patent was issued by the United States Patent and Trademark Office on November 22, 2016. The ‘954 Patent was issued by the United States Patent and Trademark Office on June 6, 2017.

         As stated by the plaintiffs:

83. The ‘419 Patent issued from a patent application that was assigned Serial No. 15/087, 415 by the U.S. Patent & Trademark Office (USPTO). A series of anonymous submissions were made to the USPTO on August 25, 2016, August 29, 2016, September 14, 2016, and September 23, 2016, which alleged the pending claims could not be allowed.
84. On information and belief, L'Oréal made one or more of those third-party submissions to USPTO in hopes of stopping issuance of the ‘419 patent.
85. Those third-party submissions were not successful. After the independent patent examiner carefully considered each third-party submission, the ‘419 patent issued.

D.I. 636 at 24.

         As stated by the magistrate judge,

On November 22, 2016, the United States Patent and Trademark Office (the "USPTO") issued United States Patent No. 9, 498, 419 (''the '419 patent"), entitled "Keratin Treatment Formulations and Methods." The '419 patent was filed on March 31, 2016 on a fast track, and claims priority to United States Provisional Application No. 61/994, 709, which was filed on May 16, 2014. The '419 patent is a continuation of parent Application No. 14/713, 885, which was filed on May 15, 2015, published on November 19, 2015, and issued as U.S. Patent No. 9, 326, 926 on May 3, 2016. The '419 patent lists as inventors Eric D. Pressly and Craig J. Hawker ("the inventors"), and identifies Liqwd, Inc. as the assignee. The '419 patent describes "[f]ormulations, kits, and methods for rebuilding the disulfide bonds in keratin" to be applied in conjunction with a hair coloring treatment. (' 419 patent, Abstract)

D.I. 791 at 1-2.

         On January 13, 2017, L'Oréal filed a petition for post-grant review ("PGR") challenging the patentability of all asserted claims of the '419 patent. D.I. 354 at 4. On June 27, 2018, the PTAB issued a final written decision finding all asserted claims of the '419 patent unpatentable. D.I. 339, Ex. A. Olaplex appealed the final written decision to the Federal Circuit. D.I. 373. The appeal remains pending.

         “United States Patent No. 9, 668, 954 ("the '954 patent") (together with the '419 patent, the "patents-in-suit") was filed on January 25, 2017 and issued on June 6, 2017. On April 26, 2017, the USPTO issued a notice of allowance for the claims in the '954 patent. D.I. 143, Ex. B. The '954 patent is a continuation of United States Patent Application No. 15/290, 593, which is a continuation of the '419 patent. The '954 patent has the same title, inventors, and specification as the '419 patent. The active agent element of claim 1 of the '954 patent requires application of a bleaching mixture containing an active agent of maleic acid to the hair. '954 patent, col. 25:58-67 D.I. 186 at 3; D.I. 791 at 3.

         “In late January and early February 2018, L'Oréal filed three PGR petitions challenging the patentability of all claims of the '954 patent (D.I. 354 at 5). On August 10, 2018, the PTAB instituted PGR proceedings on one of the petitions and denied institution on the remaining two PGR petitions (D.I. 366, Exs. A-C). A final written decision on the instituted petition regarding the '954 patent is anticipated in August 2019 (D.I. 385 at 6-13). D.I. 791 at 3.

         In October of 2016 Liquid assigned exclusive license rights to the ‘518[2] patent to Olaplex so they could jointly enforce the patent rights. In a litigation in the United Kingdom, representations were allegedly made by plaintiffs that the products do not include ionically bound reactive moieties. D.I. 650 ¶¶ 227-40. L'Oréal contends that the Olaplex products do not fall within the scope of the ‘518 patent despite the fact that they are marked. D.I. 650 ¶ 239-40.

         Prior to the launching of its three products, defendants contend that Dean Christal, Olaplex's co-founder, began a media campaign for the three products, stating they could rebuild broken disulfide bonds. L'Oréal contends Mr. Christal created false burner social media accounts to promote the products and attack the competitors. L'Oréal also contends Christal offered to pay industry insiders to make claims about the products while concealing their affiliation with Olaplex.

         L'Oréal says it did its own testing in 2014 and discovered the maleic in plaintiffs' products. Then in January of 2015, the parties discussed acquisition of Olaplex. The parties signed a nondisclosure agreement (“NDA”). L'Oréal approached plaintiffs about the possibility of a purchase of the company. The plaintiffs disclosed secret and confidential information about these patents. L'Oréal walked away without making an offer. Thereafter, L'Oréal developed the Accused Products. In November of 2015 plaintiffs filed an action in California against L'Oréal for infringement of the ‘419 patent and for false advertising. Defendants responded arguing that Olaplex publicized the filing of the lawsuit to news outlets, revealing confidential information. That lawsuit was dismissed and this one filed.

         II. STANDARD OF REVIEW

         A. Summary Judgment

         "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n.10 (1986). A party asserting that a fact cannot be-or, alternatively, is-genuinely disputed must support the assertion either by citing to "particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for the purposes of the motion only), admissions, interrogatory answers, or other materials," or by "showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c)(1)(A) & (B). If the moving party has carried its burden, the nonmovant must then "come forward with specific facts showing that there is a genuine issue for trial." Matsushita, 475 U.S. at 587 (internal quotation marks omitted). The court will "draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000).

         To defeat a motion for summary judgment, the non-moving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586-87. Although the "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment," a factual dispute is genuine where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50 (internal citations omitted); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (stating entry of summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial").

         B. Infringement

         A patent is infringed when a person "without authority makes, uses, offers to sell, or sells any patented invention, within the United States ... during the term of the patent." 35 U.S.C. § 271(a). A two-step analysis is employed in making an infringement determination. See Markman v. Westview Instruments, Inc., 52 F.3d 967, 976 (Fed. Cir. 1995). First, the court must construe the asserted claims to ascertain their meaning and scope. See id.Construction of the claims is a question of law subject to de novo review. See Cybor Corp. v. FAS Techs., 138 F.3d 1448, 1454 (Fed. Cir. 1998). The trier of fact must then compare the properly construed claims with the accused infringing product. See Markman, 52 F.3d at 976. This second step is a question of fact. See Bai v. L & L Wings, Inc., 160 F.3d 1350, 1353 (Fed. Cir. 1998).

         "Direct infringement requires a party to perform each and every step or element of a claimed method or product." BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373, 1378 (Fed. Cir. 2007), overruled on other grounds by Akamai Technologies v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012). "If any claim limitation is absent from the accused device, there is no literal infringement as a matter of law." Bayer AG v. Elan Pharm. Research Corp., 212 F.3d 1241, 1247 (Fed. Cir. 2000). If an accused product does not infringe an independent claim, it also does not infringe any claim depending thereon. See Wahpeton Canvas Co. v. Frontier, Inc., 870 F.2d 1546, 1553 n.9 (Fed. Cir. 1989). However, "[o]ne may infringe an independent claim and not infringe a claim dependent on that claim." Monsanto Co. v. Syngenta Seeds, Inc., 503 F.3d 1352, 1359 (Fed. Cir. 2007) (quoting Wahpeton Canvas, 870 F.2d at 1552) (internal quotations omitted). A product that does not literally infringe a patent claim may still infringe under the doctrine of equivalents if the differences between an individual limitation of the claimed invention and an element of the accused product are insubstantial. See Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 24 (1997). The patent owner has the burden of proving infringement and must meet its burden by a preponderance of the evidence. See SmithKline Diagnostics, Inc. v. Helena Lab. Corp., 859 F.2d 878, 889 (Fed. Cir. 1988) (citations omitted).

         When an accused infringer moves for summary judgment of non-infringement, such relief may be granted only if one or more limitations of the claim in question does not read on an element of the accused product, either literally or under the doctrine of equivalents. See Chimie v. PPG Indus., Inc., 402 F.3d 1371, 1376 (Fed. Cir. 2005); see also TechSearch, L.L.C. v. Intel Corp., 286 F.3d 1360, 1369 (Fed. Cir. 2002) ("Summary judgment of non-infringement is ... appropriate where the patent owner's proof is deficient in meeting an essential part of the legal standard for infringement, because such failure will render all other facts immaterial"). Thus, summary judgment of non-infringement can only be granted if, after viewing the facts in the light most favorable to the non-movant, there is no genuine issue as to whether the accused product is covered by the claims (as construed by the court). See Pitney Bowes, Inc. v. Hewlett-Packard Co., 182 F.3d 1298, 1304 (Fed. Cir. 1999).

         "[A] method claim is not directly infringed by the sale of an apparatus even though it is capable of performing only the patented method. The sale of the apparatus is not a sale of the method. A method claim is directly infringed only by one practicing the patented method." Joy Technologies, Inc. v. Flakt, Inc., 6 F.3d 770, 775 (Fed. Cir. 1993). Therefore, "the accused infringer must perform all the steps of the claimed method, either personally or through another acting under his direction or control." Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d 1301, 1307 (Fed. Cir. 2012).

         With respect to apparatus claims, "to infringe a claim that recites capability and not actual operation, an accused device 'need only be capable of operating' in the described mode." Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1204 (Fed. Cir. 2010) (citing Intel Corp. v. U.S. Int'l Trade Comm'n, 946 F.2d 821, 832 (Fed. Cir. 1991). However, if an apparatus claim requires "software [to] be configured in a particular way to infringe," infringement does not occur merely because the apparatus could be used in an infringing fashion. Finjan, 626 F.3d at 1204-05.

         C. Motion to Dismiss

         Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court must accept as true all factual allegations in the complaint and view them in the light most favorable to the plaintiff. Umland v. Planco Fin. Servs., 542 F.3d 59, 64 (3d Cir. 2008). "[C]ourts use the same standard in ruling on a motion to dismiss a counterclaim under Rule 12(b)(6) as they do in assessing a claim in a complaint." Identix Pharms., Inc. v. Gilead Sciences, Inc., C.A. No. 13-1987-LPS-CJB, 2014 WL 4222902, at *5 (D. Del. Aug. 25, 2014) (citing Tyco Fire Prods. LP v. Victaulic Co., 777 F.Supp.2d 893, 898-99 (E.D. Pa. 2011)).

         To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Although detailed factual allegations are not required, the complaint must set forth sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual allegations allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 663; Twombly, 550 U.S. at 555-56.

         When determining whether dismissal is appropriate, the court must take three steps. See Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010). First, the court must identify the elements of the claim. Iqbal, 556 U.S. at 675. Second, the court must identify and reject conclusory allegations. Id. at 678. Third, the court should assume the veracity of the well pleaded factual allegations identified under the first prong of the analysis, and determine whether they are sufficiently alleged to state a claim for relief. Id.; see also Malleus v. George, 641 F .3d 560, 563 (3d Cir. 2011). The third prong presents a context-specific inquiry that "draw[s] on [the court's] experience and common sense." Id. at 663-64; see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). As the Supreme Court instructed in Iqbal, "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to relief."' Iqbal, 556 U.S. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).

         The court's determination is not whether the non-moving party "will ultimately prevail," but whether that party is "entitled to offer evidence to support the claims." United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 302 (3d Cir. 2011). This "does not impose a probability requirement at the pleading stage," but instead "simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of [the necessary element]." Phillips, 515 F.3d at 234 (quoting Twombly, 550 U.S. at 556). The court's analysis is a context specific task requiring the court "to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 663-64.

         III. DISCUSSION

         A. Motion for summary judgment of non-patent issues filed by Liqwd, Inc. and Olaplex LLC, D.I. 682; Report and Recommendation of the magistrate judge, D.I. 791, regarding plaintiffs' motion to dismiss, D.I. 665

         Plaintiffs move for summary judgment on defendants' claims for false advertising, fraud, breach of contract, and false patent marking. The magistrate judge recently addressed these issues, D.I. 791, pursuant to motions to dismiss the counterclaims of L'Oréal, D.I. 665, filed by the plaintiffs.[3] Defendants filed a Counterclaim against Liqwd on January 11, 2019. D.I. 608. The issues in the motion to dismiss deal with the Counterclaim filed by defendants. The parties have objected to the report and recommendation. D.I.'s 802 and 803. Because the issues in each motion are virtually the same, the Court will address these filings together. See D.I 636 ¶¶ 139-167.

         1. Plaintiffs filed a motion to dismiss seven of L'Oréal's eleven counterclaims on February 22, 2019.[4]

         This Court's review of the R&R is governed by 28 U.S.C. § 636(b)(1)(C) and Federal Rule of Civil Procedure 72(b). Pursuant thereto, the district court “shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made” and “may also receive further evidence or recommit the matter to the magistrate judge with instructions.” 28 U.S.C. § 636(b)(1)(C). Similarly, Rule 72(b) requires de novo review of any recommendation that is “dispositive of a claim or defense of a party.” A Report and Recommendation addressing a Rule 12 Motion to Dismiss is subject to de novo review. See Fraunhofer-Gesellschaft Zur Forderung Der Angewantdten Forschung E.V. v. Sirius XM Radio Inc., 2018 WL 4027028, at *1 (D. Del. Aug. 23, 2018) (Bataillon, J) (reviewing de novo a Magistrate's Report & Recommendation addressing a Rule 12(b)(6) motion to dismiss).

         It is important to note that the magistrate judge addressed these issues from the perspective of a motion dismiss, based ...


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