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  • Shelly Albaum

Elysium-ChromaDex Opposition Briefs*


I'm late again; Elysium and ChromaDex filed their opposition briefs on Monday, right AFTER I last checked. So here they are:

ChromaDex's opposition to Elysium's motions to dismiss

Elysium's opposition to ChromaDex's motions to dismiss

With all the paper going back and forth it can be confusing, so in case you don't do this for a living or you are just joining us...

Before seeing the opposition briefs, my guess was that both of the motions to dismiss had likely done lethal damage to their respective targets, except for I suggested that there was a moderate chance that ChromaDex's fraudulent deception claim might make it to discovery, whereas I thought there was practically no chance at all that any of Elysium's fraud claims making it to discovery. I predicted that that would leave Elysium in a dicey position, with litigation costs looking like a significant percent of any settlement, and not much leverage. So let's look at the opposition briefs and see what, if anything, changes.

I should start by noting that if you are hiring Skadden and Cooley to handle your case, you are paying top dollar to get the very best results possible, and both of these briefs are top-notch, a real pleasure to read.

And they do change the picture, substantially.

FRAUD CLAIM

In defense of its fraud claim, ChromaDex explains that non-performance under the contract is different from lying to elicit specific behaviors from your business partner and then not performing. And ChromaDex is right -- what Elysium did after they discovered the alleged breach was a great deal more than mere non-performance.

You can read yourself about the details of the economic loss rule, ChromaDex's actual reliance and damages, and how all of Elysium's proposed authorities can be distinguished. But my new conclusion is that the fraud claim is very likely to survive a motion to dismiss. Why? ChromaDex did in fact describe behavior that was fraudulent, different from breach of contract.

TRADE SECRETS CLAIM

The interesting new argument that is emerging here (at least I did not catch it before) is the suggestion that Elysium may have been considering manufacturing NR by itself if ChromaDex refused to supply more. That is significant because it points to an important potential trade secret. It's kind of wacky, because it would be stupid and illegal, but then maybe that's just the kind of play that Elysium can't resist? Also, it would explain why Elysium would want to poach ChromaDex employees, which has never been clear to me.

Also of interest is ChromaDex's claim that Elysium has misstated the pleading standard governing trade secret claims. Certainly Elysium has a tough row to hoe when it suggests that the definition of a "trade secret" should be narrowly interpreted, or that Elysium did not request the information they received.

If the recruiting of two key employees was smoke, the fire suggested by ChromaDex is Elysium's alleged interest in figuring out how to gain an alternate supply of Basis. If that story is plausible, then I'd say that ChromaDex has alleged enough.

It is noted that Cooley has managed in this section of the brief to hit the legal equivalent of a grand slam home run, citing a prior opinion of the judge in this case denying a motion similar to its opponent's motion. You live for that.

"See Teva Pharm. USA, 2013 WL 12134185, at *3 (Carney, J.) (denying motion to dismiss where alleged trade secrets “consist[ed] of ‘[t]he progress and results of ongoing pre-clinical and clinical trials . . . ,’ ‘the timing of product launches,’ and pricing for [plaintiff’s] products”)..."

Then ChromaDex plows through extensive authority in support of its position repeatedly arguing that Elysium has misstated the legal standard. One is left with the distinct impression that Elysium has perpetrated an exquisite bit of sophistry in its brief -- or, as ChromaDex describes it at one point,

"By articulating a non-existent, straw-man, burden of proof and a non-existent element of a claim, Elysium attempts to confuse the Court into requiring ChromaDex to comply with a more stringent standard than required."

So I guess that these trade secret claims might fly, too. The elements are pled, the standards are met, and the circumstances give rise to specific, reasonable suspicions that warrant discovery.

So let's look at Elysium's defense of its own fraud claims, which I have previously concluded were highly improbable.

FRAUD

Elysium makes decent arguments on Falsity (they at least pled it), but I think this is going to come down to Reliance. Elysium is arguing that had it known that ChromaDex did in fact do deals without trademark provisions then Elysium would have negotiated the deal differently.

The reason I think this does not work, and why the cited cases are inapposite, is because what Elysium is really pleading is that if Elysium had known that ChromaDex sometimes did deals without trademark provisions then CHROMADEX would have caved on that issue.

But speculations about ChromaDex's behavior cannot show Elysium's reliance. This issue was in ChromaDex's control. ChromaDex might have used the false statement to screw up their own courage to take a hard negotiating position, but again that would be ChromaDex's reliance, not Elysium's. ChromaDex said it was not going to budge on that issue, and its reasons for taking that stand don't matter.

Now separate from this, ChromaDex suggests that Elysium actually needed the Trademark and Royalty agreement in order to engineer deferred payments on the sale of Basis, and that there was no payment due for Trademark because it was a permissive arrangement. Those still strike me as important facts, and Elysium has not rebutted them, except to suggest that if they were true then ChromaDex might be in violation of ANOTHER contract with a third party, which maybe is true.

To me, this comes down largely to negotiating positions, and ChromaDex was making statements about its own intentions. Is it fraudulent to misrepresent the amount of one's settlement authority or the highest price a client is willing to pay for a property? If Skadden says so, I guess it is.

PATENT MISUSE

I still can make no sense of Elysium's patent misuse claim. Elysium cites lots of authority that declaratory judgment actions may be appropriate in the case of Patent Misuse, but that hardly matters when the Patent Misuse doctrine does not apply, as here. Senza-Gel was a good find for Elysium, but contrary to Elysium's view I think that the whole point of tying the patent to a machine used to execute one step in the patented process was that the machine could have its own market with similar competing machines made by other providers. That's completely different.

UNFAIR COMPETITION.

Now it's Elysium's turn to cite a Judge Carney opinion, but because this section of the brief seems to me to mischaracterize ChromaDex's argument, it's not as good a moment. The fact that any illegal business practice can serve as a UCL predicate doesn't mean you don't still have to identify one - especially one that isn't bootstrapped from another mistaken argument.

CONCLUSION

So now I think ChromaDex's tort claims are likely to survive, and Elysium's still probably will not (although Elysium has at least bolstered its case). Everyone seems to believe that this case will settle after the hearing on April 24th. I expect that ChromaDex will be in a very strong position.

* This post has been updated to reflect the correct terminology in the sequence of litigation -- Motion to Dismiss, Opposition to Motion, Reply to Opposition.

#Litigation #ChromaDex #ElysiumBasis

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