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  • Writer's pictureShelly Albaum

Elysium's Sleazy Legal Move

Most of us ChromaDex longs would like to see this litigation resolved so that the participants can go back to doing well by doing good.

ChromaDex certainly shares that view, as its recent actions have demonstrated, but new court documents suggest that Elysium Health ought to change its name to Elysium Litigation.

I haven't blogged much about the ChromaDex litigation for the past month because nothing particularly important has been going on (and I have a day job). But the litigation has not been dormant.

On May 24, ChromaDex answered Elysium's Counterclaims.

On June 7, ChromaDex filed its third amended complaint.

On June 16, Judge Carney created a schedule for his schedule.

On June 21, Elysium answered ChromaDex's Third Amended Complaint

You can read all the documents yourself; they are linked above. I paired the Answers with their underlying Complaints because they only make sense when you read them together.

In case you don't want to read a hundred pages of mostly unimportant legal boilerplate, here are some highlights:

When we last left our heroes, Judge Carney had just brushed aside the California Supreme Court's warning in Robinson Helicopter that “a contract is not a license allowing one party to cheat or defraud another," and improperly dismissed ChomaDex's fraud claim on the ground that ChromaDex's damages were only contract damages, even though ChromaDex alleged false statements resulting in harm beyond mere contract damages.

I predicted that ChromaDex would win if they chose to appeal, but that they probably would not appeal.

ChromaDex did not appeal.

Judge Carney also dismissed ChromaDex's trade secrets claim on that the ground that it wasn't clear whether the information that Elysium allegedly took was a trade secret, but offered ChromaDex the chance to amend their complaint to more clearly assert the trade secret claim.

ChromaDex did not re-assert the trade secret claim.

I expressed frustration that Judge Carney's opinion included legal nonsense, like the bizarre suggestion that a negotiating position can be the basis of a fraud claim, and that trademark use guidelines accompanying a patent license can be patent misuse, or that patent misuse can be adequately alleged without any concern whatsoever about anti-competitive effect or separate markets.

I mean, Elysium's complaint reads as follows: "ChromaDex induced Elysium to sign the Agreement by insisting, falsely, that ChromaDex required all of its customers to sign similar agreements."

If I am in a negotiation, and I say, "We require everyone to sign this agreement," that can be a true statement even if YESTERDAY we did not require that, and TOMORROW we change our mind and no longer require it. Unless Elysium alleged that ChromaDex stated that they had NEVER IN THE PAST not required it, which they did not allege, how on earth does an assertion like that in negotiations get to be fraud?

You can read more about mad Judge Carney's opinion here. Actually, he's not crazy; he just did not bother to read through the authorities cited, and he did not comprehend the essence of the statutes, or grasp the point of the tests that he misapplied.

I was frustrated that Skadden spoon-fed Judge Carney a bunch of legal nonsense, which Judge Carney then shat out into the case law. We can only hope that karma catches up with Skadden when some future opposing party cites the legal nonsense that they produced as authority against them in some future case.

But I thought ChromaDex made the right decision by choosing not to appeal the rulings, and not to re-assert the trade secrets claim, and just let the case be a stupid breach of contract case so they can get paid and be done.

And I was even more impressed when ChromaDex mooted Elysium's bogus patent misuse claim by disclaiming all the rights granted in the allegedly offensive license.

That move absolutely mooted the patent misuse claim because the remedy for patent misuse isn't damages; it is to purge the misuse. So ChromaDex essentially said, we disclaim any rights pursuant to the agreement that you object to. You can read the exact language in ChromaDex's Third Amended Complaint, paragraphs 60-65.

That pretty much ends the discussion. It reduces ChromaDex's eventual recovery by whatever amount of patent license royalty (NOT trademark use fees!) would have been due, but it's likely only 5-10% of the total, so not worth fighting for.

That was a gift horse for Elysium. They had no legal right to require ChromaDex to disclaim that deferred compensation that was due under the Royalty Agreement, but the inadequacy of the legal system made it cheaper to disclaim that money than to set things right.

So you can imagine my shock when I read these words in Elysium's answer to ChromaDex's Third Amended Complaint, paragraph 65:

"Elysium denies that ChromaDex has purged its patent misuse."

Jesus, you can see why people hate lawyers.

What on God's earth does Elysium think they can gain from their patent misuse claim besides not having to pay any of the fees owed pursuant to the alleged misuse?

This is the kind of nasty, litigious behavior that is just the opposite of what the justice system purports to be encouraging. ChromaDex says, You win, you can have your bogus claim and all its fruits. And Elysium's response is, No, we'd rather fight.

I guess maybe Skadden would rather fight. Now Skadden is really courting some karma.

What Elysium thinks it does for a living is becoming ever more mysterious -- Has Elysium become a patent troll without a patent?

So what happens next?

The scheduling order linked to above evidences Judge Carney's prediction that he will on September 1st issue an FRCP 16(b) Scheduling Order establishing dates for completion of discovery, and warning that there won't be a scheduling conference. In the meantime, the parties must indicate whether they prefer to settle via the court's ADR program, or private mediation.

It doesn't feel like Elysium is in any mood to settle. If they wait much longer, the whole dispute may become property of Elysium's Chapter 7 estate. We can only hope so.

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