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  • Shelly Albaum

Elysium Amends Its Counterclaims


[In which Skadden continues its daring journey

into the world of novel legal theories]

You can read the Amended Counterclaims here.

Elysium today re-filed its counterclaims fixing formal errors and adding detail,

but the gist of their argument is the same. ChromaDex has two weeks to

re-file its Amended Complaint. The hearing is pushed back a week into April.

The expected formal changes include things like: Elysium now alleges that ChromaDex's assertion that everyone was required to license trademarks was false when uttered, and not just false, in support of which they offer evidence that it was false before it was uttered, which is almost the same but not quite.

Elysium's most daring moments are when it claims that a patent holder cannot set the terms for its license, and that Resveratrol and Pterostilbene are "substantially similar" under the contract (which would mean that nobody beside Elysium could combine Niagen + PteroPure OR Niagen + Resveratrol).

You can wait for COOLEY to demolish most of these again, but I'll take a whack at the easy ones:

Why Aren't Resveratrol and Pterostilbene "substantially similar"?

Here is Elysium's argument:

ChromaDex’s own website refers to pterostilbene as “closely related to resveratrol,” an “analog of resveratrol,” and a “derivative of resveratrol.” And, in an April 27, 2010 press release, ChromaDex called pterostilbene a “next generation resveratrol.”

To me, Elysium has with this sentence defeated its own position. Those phrases, "Closely related," "a derivative of," and "an analog of" could be be used to describe honey and sugar. But despite their chemical similarity nobody thinks these two substances are interchangeable for health food buyers. "Next generation" is even worse, because the whole point of a "next generation product" is that it provides a step-up in quality and represents a compelling reason to upgrade. That's the common meaning, anyway.

But speaking of common sense, Resveratrol is plagued in the market by bad press based on derogatory studies showing that oral consumption does not work; Pterostilbene does not have that problem, and in fact is believed to be better absorbed. That's substantially different.

So to use Elysium's language, Resveratrol and Pterostilbene are substantially similar in the same way that night and day are substantially similar -- one is derived from the other, they are closely related, one is an analog of the other, and one is a next-generation version of the other. I call Elysium's argument "Frivolous."

Why Can ChromaDex Condition Its Patent License on Trademark Use?

I am not bright enough to make sense of Elysium's argument here. Elysium throws around crazy language like this:

"ChromaDex has committed patent misuse and engaged in unfair competition by leveraging its market power in the supply of nicotinamide riboside to impose conditions on its customers that impermissibly broaden the scope of the patent grant with anticompetitive effect."

Patents are legal monopolies, not illegal monopolies. That's how intellectual property works. It would make no sense to talk about Disney having "market power" in the image and trademark of "Mickey Mouse," and being able to charge too much for a Mickey Mouse watch and impose onerous terms on those who want to wear one. Disney does, in fact, do that, and it's perfectly legal.

In order for Elysium's market power argument to make any sense, ChromaDex would have to, like, require that licensees also buy their office water or copier paper from ChromaDex. I would be shocked if any Court told Disney that it could license Mickey Mouse figures, but it could not require those images to be called "Mickey" or could conceal the Disney affiliation. I find Elysium's assertions here equally shocking.

Elysium keeps pressing that they do not want or need the IP, which strikes me as irrelevant if it's not an illegal tie, which it isn't. Elysium also claims that the trademark license improperly extends the patent after its expiration. That seems to me equally vacuous; once the patent expires, Elysium can make its own Nicotinamide Riboside. So what's the problem? The harm to competition comes from the US Patent Laws, and it's a feature, not a bug. (Again, Skadden, smh)

I wonder, also, whether Elysium is right that they do not rely on or benefit from the ChromaDex trademarks? I would wager that plenty of consumers (not just me) check to make sure that Elysium's NR in fact was properly sourced from ChromaDex and is authentic/reliable. Elysium's website does not make that connection -- and maybe it never did (I wonder about historical SEO, though).

But even if Elysium does not, every other website does, so consumers get the benefit of the ChromaDex IP even if Elysium feigns disinterest. For example, even high profile articles that are specifically about Elysium Basis, like this Wired Magazine article from last year, make the connection very directly:

[ChromaDex] named the product Niagen. You can buy it from several different consumer brands online, including Elysium.

Skadden didn't ever offer me a job, so maybe their next brief will show us why by listing a bunch of authorities that demonstrate that it is impermissible to require a patent licensee to also license (or even use) the trademark for the patented item.

Summary

Overall, it still seems to me that Elysium has a tough row to hoe. Their fraud and patent claims are dicey, and showing actual reliance won't come easy. We don't even know whether materiality is established in the alleged contract breaches -- all contracts are breached in small ways, and we don't know much from Elysium besides "At Least One" supplier seems to have gotten a lower price. But we don't know how much lower, for how much volume, or whether there was some extenuating circumstance.

I do not doubt that the parties both owe each other money -- it's a simple breach of contract -- the kind of thing that could be resolved with provisions to prevent a recurrence.

APPENDIX

Original Elysium Counterclaims:

1. Breach of NR Supply Agreement

2. Breach of Covenant of Good Faith & Fair Dealing

3. Breach of Contract PT Supply Agreement

4. Fraudulent Inducement - Royalties

5. Patent Misuse

6. California Unfair Business Practices

AMENDED Elysium Counterclaims

1. Breach of NR Supply Agreement

2. Breach of Covenant of Good Faith & Fair Dealing

3. Fraudulent Inducement - Royalties

4. Patent Misuse

5. California Unfair Business Practice

Apparently Elysium decided that the PT claim falls within the exclusivity provision of the NR Supply Agreement, not the PT Supply Agreement, but the underlying allegations are similar.

#ChromaDex #ElysiumBasis #NicotinamideRiboside #Litigation

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