What happens when a district court and the PTAB disagree over the validity of a patent?
In a recent district court decision from the District of Delaware, the court granted a preliminary injunction, and ordered the defendant to pull the accused products, even though, a few months earlier, a Final Written Decision by the PTAB in an inter partes review proceeding held all asserted claims of the patent-in-suit unpatentable. What was the court’s reasoning? And what are the implications?
The case is Liqwd, Inc. v. L’Oreal USA, Inc., 1:17-cv-14 (D. Del). The plaintiffs, Liqwd, Inc. and Olaplex, LLC, initially brought suit against L’Oreal for alleged infringement of U.S. Patent No. 9,498,419, as well as claims for breach of contract and misappropriation of trade secrets. Liqwd initially moved for a preliminary injunction in January 2017, which was denied by the Honorable Sue L. Robinson, now-retired.
That denial was vacated and remanded by the Federal Circuit, and the case was reassigned to the Honorable Joseph F. Bataillon, following Judge Robinson’s retirement. In April 2018, following remand from the Federal Circuit, Liqwd renewed it motion for a preliminary injunction. The motion was referred to the Magistrate Judge, the Honorable Sherry R. Fallon.
Meanwhile, while the district court case was pending, defendant L’Oreal had filed a two IPRs against the ‘419 patent. One of those IPRs was instituted, and in June 2018, a Final Written Decision issued finding all challenged claims of the ‘419 unpatentable. (See PGR2017-00012, Paper 102, Jun. 27, 2018). Thus, L’Oreal’s IPR resulted in invalidating the ‘419 patent in June 2018, which was before the Magistrate Judge decided Liqwd’s’ preliminary injunction motion.
At that point, L’Oreal insisted that Liqwd dismiss the case, or at the very least, stay the case pending any anticipated appeals of the ‘419 patent. Liqwd, however, refused to stay or drop the case. L’Oreal also pressed the district court to deny the preliminary injunction motion. L’Oreal’s essential argument was that, in light of the PTAB’s invalidation of the ‘419 patent, there can be no reasonable likelihood that Liqwd will prevail on its infringement claims.
Yet, the court disagreed. In October 2018, the Magistrate Judge issued a report and recommendations granting the preliminary injunction. That decision remains under seal. On April 25, 2019, several months later and pursuant to objections by L’Oreal, the district court affirmed the Magistrate Judge’s recommendations and granted the preliminary injunction. Though Liqwd’s suit asserts claims other than patent infringement, such as breach of contraction and misappropriation of trade secrets, the decision to grant the preliminary injunction appears to be based primarily on Liqwd’s claim for direct and indirect infringement of the ‘419 patent.
The court acknowledged that, before the Magistrate Judge issued the report and recommendations, the PTAB found the patent invalid in an IPR. (There do not appear to be any claims asserted in the district court case that were not challenged in the IPR.) Nevertheless, the court agreed with the Magistrate Judge that Liqwd is likely to prevail on L’Oreal’s challenge to the validity of the ‘419 patent. Specifically, the court agreed with the Magistrate Judge’s findings that the patent was likely non-obvious based upon secondary considerations, such as a long-felt but unmet need, as well as scientific data prior to the ‘419 patent teaching away from the invention.
In short, the district court conducted its own analysis and concluded that L’Oreal’s invalidity challenge would most likely fail. In rejecting the notion that the court must defer to the PTAB’s invalidity finding, the court explained that it was not bound by the PTAB’s findings. It found the PTAB is generally not binding on a district court. The court held when “a PTAB finding is on appeal [it] does not have preclusive effect as to this action unless and until the appeal is resolved.” (Liqwd, Inc. v. L’Oreal USA, Inc., 1:17-cv-14 (D. Del) (Dkt. 785 at 9)(citations omitted).
The district court also cited to a recent Federal Circuit decision holding that the PTAB is not binding precedent on a district court, namely, Tinnus Enterprises, LLC v. Telebrands Corp., 846 F.3d 1190, 1202 n.7 (Fed. Cir. 2017). In Tinnus, the Federal Circuit upheld a preliminary injunction even though the PTAB had, in the interim, issued a Final Written Decision invalidating the patent-in-suit. The Federal Circuit acknowledged the intervening PTAB decision, but concluded that “[t]he PTAB’s decision is not binding on this court . . . .”
Lurking behind this decision appears to be some of the quandaries and frustrations of having two separate courts simultaneously address the validity of a patent. It is not uncommon for IPRs to be filed in parallel with a pending district court case. While sometimes the district court case is stayed pending resolution of the IPR, sometimes they are not. In this case, it appears that L’Oreal attempted to stay the litigation after filing the IPRs, but that request was denied.
Apart from that, the court appears to telegraphing that it expended considerable time and effort assessing Liqwd’s preliminary injunction motion. It was asked to decide a question, and it decided it. In its view, the patent is not invalid. The fact that an administrative agency issued an interim decision that went the other way is not going to sway the court from trashing its hard work, as well as its own personally-devised opinion, regarding the matter.
Nor is this issue moot. Liqwd has already filed an appeal of the IPR decision invalidating the ‘419 patent. That appeal is fully briefed, and awaiting oral argument. Presumably, if the Federal Circuit affirms that the PTAB’s decision, then that decision will be binding on the district court, and that could theoretically compel the district court to vacate its preliminary injunction.
But again, the issue is not moot because, the preliminary injunction has already issued. That means that L’Oreal must comply with that injunction at least until the IPR decision is affirmed, unless it can circumvent it some other way. That alone is presumably not inconsequential to L’Oreal. And that shows how when a district disagrees with the PTAB, the consequences can be more than academic.
Finally, there is the technical issue that the district court’s decision and the PTAB’s decision are not necessarily inconsistent. First, the district court did not definitively decide L’Oreal’s invalidity challenge, but only that it was unlikely to succeed on that challenge. Second, courts invalidate patents under a higher standard (clear-and-convincing) than the standard used by the PTAB (preponderance-of-the-evidence.) Given that the district court was presumably applying a higher standard of proof, it is not necessarily inconsistent that it upheld the validity of the patent whereas the PTAB did not.
Overall, this case thus presents the unique circumstance of what can happen when a district court and PTAB disagree over the validity of a patent.