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  • Shelly Albaum

What's Up with the Elysium/ChromaDex Federal Litigation? Nothin' much.


There are a several different battlefronts in the Elysium/ChromaDex legal disputes:

  1. Dispositive Motions

  2. Discovery

  3. PTAB Proceeding ("Inter Partes Review"), and

  4. Settlement Discussions

I'll briefly review each one...Nah, what the hell, it's the weekend -- Let's Dig In!

1. Dispositive Motions

Right now, ChromaDex has a pending motion to dismiss Elysium's bogus Patent Misuse claim.

After discovery progresses, we'll likely see some motions for summary judgment to dispose of the remainder of Elysium's non-contract claims.

Motion to Dismiss Patent Misuse

The Mandarins at the federal district court in the Central District of California are, according to ChromaDex's brief on the motion, giving lawyers a bad name by attempting to determine whether disclaiming all conceivable damages resulting from alleged patent misuse is enough to end the dispute, or whether:

(1) Elysium's assertion that its damages are "unresolved" creates some duty on behalf of the Court to kneel before Skadden until Skadden's lawyers say that they are subjectively experiencing the bliss of complete resolution, and

(2) Whether the abstract possibility that the same action that resulted in a patent misuse might ALSO have resulted in some other unrelated and unalleged wrongs allows a litigant to transform a doomed, mooted, bogus patent misuse claim into some undead legal object that can never be killed. (see ChromaDex brief, footnote 1, I am paraphrasing, to be sure)

Litigators understandably enjoy litigating -- Skadden makes a freaking fortune this way -- $2.5B/year according to Forbes -- but two great mysteries before us are (1) Why is the federal district court in no hurry to do their job and resolve this dispute, and (2) Why would Elysium rather fight than either settle the matter or start marketing some OTHER ultra-pure, science-based ingredient that doesn't require them to do business with ChromaDex?

And I mean it when I say Elysium would rather fight than settle. In the Joint Discovery Report filed on August 25th the parties wrote, and I quote,

"ChromaDex has offered to promptly mediate this case. Elysium has indicated that mediation is premature in its view."

The Honorable Judge Cormac J. Carney apparently can somehow read those words without apprehending that Elysium and Skadden might be using the legal system for an untoward purpose, and instead His Honor still apparently believes that it is ChromaDex that might have perpetrated a legally cognizable fraud on Elysium, and not the opposite.

There is a hearing date of October 2, 2017, on Chromadex's motion to dismiss the Patent Misuse claim. It has already been three-and-a-half weeks without a reply from Elysium. So I would expect a reply this coming week, or no later than September 18 (two weeks prior to the hearing date).

But the parties and the court can decide to change the dates so it's hard to predict. When Elysium's reply eventually comes, I will wipe off the grease (and any trace metals, industrial solvents, or other manufacturing residues that may be present) and express my outrage right here.

Summary Judgment Motions

Fraudulent Inducement. The reason that His Honor did not dismiss Elysium's fraud claim outright is because he perceived a possibility that if the right evidence were proffered it would be possible to commit a fraud during contract negotiations by saying, "I absolutely do not and will not agree to a particular contract term; that's not how I do business," if you knew you were bluffing or knew you could be persuaded.

And so we are in Discovery.

Patent Misuse. His Honor also perceived the possibility that if the right evidence were proffered, it would be possible to commit a patent misuse by requiring a patent licensee to agree to the terms upon which your trademarks in the same product could be used.

And so we are in Discovery on that claim, too, as well as the breach of contract claims, and the parties are going to read each other's emails to search for proof of their various claims.

Then we will likely see Summary Judgment motions in which the parties argue that even if the alleged behavior COULD have amounted to a civil wrong, the actual evidence dug up does not show it, or perhaps even shows the opposite.

The Potential for Summary Judgment on Patent Misuse.

The evidentiary problem with the Patent Misuse claim (should it inexplicably survive the pending motion to dismiss) will be that the terms of the Trademark and Royalty Agreement show that the royalty obligation was not in fact exacted in exchange for the trademark license, and thus Elysium cannot prove that ChromaDex (quoting the complaint:) "impermissibly broadened the scope of its patent" by "tying access to its patent rights to a royalty-bearing trademark license." There is no royalty-bearing trademark license.

It is a funny thing about contracts that you can write them however you want. You can have one contract for royalties on the sale of goods as deferred compensation, and you can have an entirely different contract for the terms upon which the trademarks can be used (if they are to be used at all). OR, you can save time, money, and paper -- and seed future litigation -- by creating a single contract that deals with both things, and you might call that single combined contract a "Trademark and Royalty Agreement."

And if you do that, then you risk that the schemers at Skadden will one day propose that the single agreement that combines these two subjects is a "royalty-bearing trademark license" and that the Trademark use might be IN EXCHANGE for the Royalties.

That particular scheme will almost never work, because the contract itself is in evidence, and the court is free to actually read it and to take judicial notice of its terms when the time comes for a 12(b)(6) motion. The fact that royalties are tied to something other than trademark use would be a dead giveaway that the document is not a royalty-bearing trademark license. However, federal judges only rarely read the underlying materials, and some clerks don't know anything about patent law and are easy marks, so here we are in Discovery.

At the Summary Judgment stage, someone may actually read the contract and notice that it does not IN FACT say the thing that it MIGHT IN THEORY have said, and summary judgment will follow.

The Potential for Summary Judgment on Fraudulent Inducement.

Because I was half-way paying attention when Professor Allison Anderson taught me Contracts in my first year at UCLA Law School thirty years ago, I know that there is no conceivable evidence that could establish the illegality of stating during contract negotiations the terms on which you are willing to do business.

Even if those terms are different from what they were yesterday or tomorrow, or if you change your mind five minutes from now, those changes don't establish fraud; they just established that you have changed the terms upon which you are willing to do business, which is one of the great freedoms that America offers but which the Federal District Court for the Central District of California, unique among courts in America, no longer recognizes.

The evidentiary problem with Elysium's fraud claim will be that Elysium was unable to establish the falseness component of their allegation that,

"On December 16, 2013, on a phone call between Jaksch, Marcotulli and Alminana, Jaksch falsely represented that all of ChromaDex’s customers who signed purchase agreements to obtain nicotinamide riboside were also required to sign separate trademark license and royalty agreements, whether they wanted to or intended to use ChromaDex marks or not." (emphasis added)

Notice the wording in the allegation does not contain any kind of easily falsifiable statement, like "We haver never done X." Instead, ChromaDex is alleged to have said, "This is what we require." I predict that Elysium will dig up evidence that the requirements might have varied over time, but they will not establish that the requirement was untrue when it was asserted, and summary judgment will follow.

2. Discovery

So now we are in Discovery. These are most recent documents governing the discovery process -- you can read them here:

Rule 26(f) Conference Report

Scheduling Order of September 1

Pre-trial Procedures Order

The Judge's Order sets these deadlines (not exactly what the parties proposed in their joint report):

  • Discovery Complete: June 14, 2018

  • Pretrial Motions Complete: August 13, 2018

  • Pretrial Conference: September 10, 2018

  • Trial begins September18, 2018

Judge Carney's pre-trial order contains some very tough-sounding boilerplate about how important it is for the parties to settle the case to avoid the expenses of litigation and trial:

The parties must participate in the selected ADR procedure no later than ten weeks before trial. The Court may, on its own motion, order the parties to ADR following the Pre−Trial Conference. Given the high cost of litigation and the enormous commitment of resources that a trial requires, the parties must explore every option for resolving their disputes, short of trial. The failure of any party to comply with the local rules and engage in meaningful settlement discussions may result in the imposition of sanctions against that noncomplying party. (emphasis added)

I cynically suggest that His Honor's greater concern is with the "enormous commitment of resources that a trial requires," which hits the court's budget, as opposed to "the high cost of litigation," which mostly involves the parties' own resources, because the Alternate Dispute Resolution deadline is ten weeks before trial, instead of yesterday.

The Court is free right now to order the parties into ADR, or it is free to accept Elysium's statement in the Rule 26(f) report that mediation is "premature," and refrain from requiring meaning settlement discussions even as the parties rack up severe non-trial litigation expenses.

Unless the parties get into a pretty serious fight over who gets to see what, and drags the Magistrate Judge into it, we aren't going to have much visibility into what's going on. I'll keep an eye on the docket, though, just in case.

3. PTAB -- Steptoe Steps In

On July 17, 2017, Elysium filed an Inter Partes Review complaints before the USPTO's Patent Trial and Appeal Board (PTAB) challenging the validity of Patents 8,383,086 and 8,197,807.

I have been watching this docket, too. On August 7th, Dartmouth filed papers announcing that John Abramic, who is a partner with the law firm Steptoe and Johnson, would be defending the Dartmouth patents. Here's John:

ChromaDex has more at stake than Dartmouth, and so ChromaDex may be the real party in interest, and may be paying for Steptoe, but I don't know that.

Steptoe is a world-class, "white shoe" law firm, and they are particularly strong in intellectual property and patent litigation. Foley Hoag, which is representing Elysium, is obviously a big deal firm, but Steptoe is a very formidable opponent. If I knew nothing about this litigation I would put my money on Steptoe in a heartbeat.

But what I really know nothing about is the nature of Foley's IPR challenge, which I have barely read. I am waiting for Steptoe's substantive response so I can more efficiently make sense of the merits of the competing claims.

On August 16, some Foley attorneys weighed in with their pro hac vice motions (that's when the attorneys request to appear before the PTAB in DC even though they are admitted to practice in Massachusetts), but the PTAB docket for these proceedings has been quiet since then.

And I'm still waiting for Steptoe's substantive response before I dive in.

You can monitor the docket yourself by visiting this website:

https://ptabdataui.uspto.gov/#/documents

and under "Trial Number" enter either:

  • IPR2017-01795, or

  • IPR2017-01796

which correspond respectively to the IPR challenging

  • U.S. Patent 8,383,086 ("the '086 patent'"), and

  • U.S. Patent 8,197,807 ("the '807 patent'")

It's easy to remember because the IPR ending in "6" corresponds to the patent that does NOT end in "6."

When both sides have weighed in, I'll make sense of it, or die trying, and explain what an IPR is, too.

4. Settlement Negotiations

Settlement negotiations could be occurring at any time, and we're not going to know about it. We might know about court-ordered ADR, but none looks imminent. Because Elysium has said that, at least for now, they would rather litigate than mediate, and because Judge Carney set a deadline of July 2018 for court-ordered ADR, and because Elysium has opened up a brand new front before the PTAB, I don't expect to wake up one morning and hear that Elysium and ChromaDex have settled their differences.

On the other hand, if you look really closely at the apparent chaos that is Elysium's litigation strategy, it does raise a question.

Suppose Elysium loses the IPR and the two Dartmouth patents that ChromaDex licensed remain enforceable. Elysium gets nothing.

Now suppose Elysium wins the IPR and invalidates the two Dartmouth patents that ChromaDex has licensed, meaning that the processes are no longer protected and anyone can use them. How does that help Elysium?

Now the whole world can manufacture NR using the formerly protected processes/formulations -- including ChromaDex, including Walmart, TruNature, Walgreen's, and anyone else. Elysium then becomes a premium supplier in a commodity market, which is worth nothing.

So if Elysium gets nothing out of the IPR from winning OR from losing, then what exactly are they tying to accomplish? One possibility is that they are trying to impose enough pain on ChromaDex that they can abort the litigation at the last moment and extract a settlement that gives Elysium a preferred distributor position.

If that is what is going on, then it sounds to me extortionate in the same way that "Give me your money or I'll kill us both" sounds extortionate.

Regardless of whether Elysium has the ability to carry through on that kind of a threat, it would be a remarkably shady kind of business move to be attempted by a company that has rallied the scientific community to stand behind a promise of trustworthiness. The Nobel Laureates currently standing with Elysium include:

Aaron Ciechaover
https://www.elysiumhealth.com/science/aaron-ciechanover
Eric Kandel
https://www.elysiumhealth.com/science/eric-kandel
Jack Szostak
https://www.elysiumhealth.com/science/jack-szostak
Martin Karplus
https://www.elysiumhealth.com/science/martin-karplus
Sir Richard Roberts
https://www.elysiumhealth.com/science/sir-richard-roberts
Thomas Sudhof
https://www.elysiumhealth.com/science/thomas-sudhof
Paul Modrich
https://www.elysiumhealth.com/science/paul-modrich

I suppose that these scientists are not endorsing or advising Elysium on business strategy, but are they aware of it? Pretty smart guys, but are they good enough at math to put together 2+2? Are they good enough spacial learners to connect the dots?

I would love to know how or whether Elysium's advisory panel is briefed on Elysium's evolving business model, or what kind of Nobel-prize-winning advice they have been giving Elysium, which has apparently resulted in no new products in the past two years -- and no upcoming products announced, either.

Is there some point at which the scientific advisory board says, "It looks like you don't need us any more," or -- worse -- "It's not clear that Elysium and Basis is doing anything positive for the supplement industry that ChromaDex and TruNiagen isn't already doing, so maybe we should change horses?"

Another possibility is that Elysium's goal is to weaken ChromaDex financially and then execute a hostile takeover. If that's the strategy, then it seems to not be working, because ChromaDex is flush with cash, is executing a big international distribution plan, and has a rising share price.

I can't think of what else Elysium might be trying to accomplish with its commitment to litigation; explaining that will take a better lawyer than I.

#ElysiumHealth #ChromaDex #CDXC #Litigation

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