CDXC's Opposition to Elysium's Motion to Dismiss in New York
Now we have ChromaDex's Opposition Brief defending its Big Complaint from Elysium's Motion to Dismiss. Read it here:
It's a pleasure to read. Cooley hurls a fireball right out the gate:
Elysium Health, Inc. (“Elysium”) falsely advertises and unscrupulously sells to consumers a product for daily human consumption called “Basis”, which Elysium wrongly claims, among other things, (i) contains ingredients approved and regulated by the U.S. Food and Drug Administration (“FDA”), (ii) has been endorsed by an advisory panel of blue ribbon and Nobel laureate scientists, and (iii) has been proven safe through extensive clinical trials. In reality, the current version of Basis has never been proven safe in clinical trials, contains ingredients that have not been approved by either the FDA or Elysium’s scientific advisors, and is in fact contaminated with a toxic solvent. Elysium’s falsehoods are undeniable: whereas Elysium once sourced its ingredients from ChromaDex, Inc. (“CMDX”)—a company that sells ingredients that have passed numerous safety studies and are approved and regulated by the FDA—Elysium concedes that it no longer has access to CMDX’s ingredients, yet continues to advertise and sell its product as if it does. Nor does Elysium deny that its new Basis, with mystery ingredients, contains toluene or that toluene is toxic. Altogether, those facts—pleaded in CMDX’s complaint and which must be accepted as true for purposes of the present motion—are far beyond sufficient to state claims under the Lanham Act and New York state law prohibiting false advertising and unfair competition.
Next, Cooley raises the temperature:
Elysium’s confusing and jumbled Motion to Dismiss (which reads more as a premature and deeply flawed request for summary judgment rather than a motion under Rule 12(b)(6)) misinterprets and distorts allegations, improperly draws inferences in Elysium’s favor, and attempts to distract the Court by repeatedly referencing Elysium’s claims in a separate lawsuit filed against CMDX regarding CMDX’s Citizen Petition before the FDA. The allegations in the Complaint, however, plainly state actionable claims and the Court should deny Elysium’s motion.
Not every case requires this kind of aggressive language, but with Elysium's consistent and sometimes successful use of Alternate Reality Pleading, I don't see any choice for ChromaDex -- the record has to be set straight.
ChromaDex does a good job establishing that it is the leader in this field:
In 2006, CMDX became aware of the potentially huge benefits of NR to “delay certain effects associated with the aging process” and eventually “developed the first sustainable way to reliably produce NR for testing, observation, and, eventually, human consumption as a dietary supplement.” [ChromaDex...] has since 2013 signed over 120 “Material Transfer Agreements” with research organizations that are further “studying the safety and efficacy of NR” and publishing their results in peer-reviewed scientific journals,
Over the past eleven years, CMDX has successfully performed the “maximum safety and toxicology studies” on NIAGEN® and sought and received from the FDA both a New Dietary Ingredient Notification (“NDIN”) and Generally Recognized as Safe (“GRAS”) designation for the ingredient. In order to obtain the NDIN and prove that NIAGEN® is safe for consumption, CMDX put NIAGEN® through “a comprehensive toxicology program that included Geno toxicity and mutagenicity studies, acute toxicity, a 14-day dose range finding study, subchronic toxicity, and a human study.” CMDX obtained GRAS status for NIAGEN® by “submit[ting] it to a panel of independent experts in toxicology.”
And showing that Elysium is not:
Recently founded in 2014, Elysium is a business that does only one thing: it makes, markets, and sells Basis for direct human consumption...A daily dose of Basis contains two active ingredients— 250 milligrams of NR and 50 milligrams of pterostilbene...From its first sale in 2015 Elysium sourced both NR and pterostilbene exclusively from . However, the agreement governing the supply of those ingredients expired in early 2017 when—following a dispute currently being litigated in another forum—CMDX opted to not renew it. The Basis presently marketed by Elysium thus no longer contains ingredients sourced from CMDX. Elysium’s new ingredients, obtained from an anonymous supplier, have not completed the same extensive safety and toxicology studies as CMDX’s ingredients. Additionally, neither the NR nor the pterostilbene presently used by Elysium is manufactured according to FDA-required cGMP standards, and neither is produced under an NDIN or has been granted GRAS status by the FDA.
I recently created a brief summary of all the litigation between the parties, but you could hardly do better than what Cooley has written in ChromaDex's Opposition Brief:
This action is the most recent of several legal disputes between the parties. First, after Elysium ordered, received, and then refused to pay for an abnormally large order of ingredients from CMDX, CMDX filed suit for breach of its supply agreements with Elysium to collect payment. That case—ChromaDex, Inc. v. Elysium Health, Inc., Case No. SACV 16-02277- CJC(DFMx)—was filed on December 30, 2016, in the Central District of California and is presently in the discovery stage.
Second, in July 2017, Elysium initiated two inter partes reviews (IPRs) before the U.S. Patent Trial and Appeal Board (“PTAB”) to challenge two of CMDX’s patents covering NR. Those IPRs are Elysium v. Trustees of Dartmouth College, IPR2017-01795 (PTAB July 17, 2017) and Elysium v. Trustees of Dartmouth College, IPR2017-01796 (PTAB July 17, 2017)). The PTAB is currently considering whether or not to institute the IPRs.
Third, after CMDX discovered that Basis contains new ingredients and is contaminated with a toxic solvent, it filed a Citizen Petition with the FDA requesting that the agency take action Case 1:17-cv-07394-VEC Document 34 Filed 11/30/17 Page 10 of 31 6 at its discretion to investigate the issue, enjoin sales of Basis pending a final determination of its safety, and seize adulterated product prior to sale to the public. The petition was filed on August 18, 2017 (Docket No. FDA-2017-P-5082) and is currently under FDA consideration.
Fourth, in response to the Citizen Petition, Elysium filed an action before this Court on October 27, 2017 alleging that CMDX has engaged in false advertising, deceptive trade practices, and tortious interference with prospective economic relations. CMDX moved to dismiss the complaint, and the parties have now completed briefing. The Court consolidated that case with the present case and has stayed discovery pending mediation.
False Advertising Claim
ChromaDex says it has stated a claim under the Lanham Act for false "advertising" because Elysium's allegedly false statements about the safety and purity of Basis obviously were referenced in promotional materials, blog articles, and responses to consumer inquiries, so that's "advertising."
ChromaDex says that the statements were "false" advertising because (1) Elysium claims that Basis is FDA approved when it's not, (2) Elysium claims that Basis is the only supplement clinically proven to raise NAD+ levels when it's not, (3) Elysium claims that Mystery Basis is more pure than ChromaDex ingredients, when it's not, and (4) Elysium claims that Mystery Basis is the same as thing that was tested in the clinical study it published, when it's not. Also, ChromaDex in a footnote debunks Elysium's "puffery" claim, which I also rejected in my previous analysis. Here's what I said:
I am going to disagree with Elysium here. Puffery is when you say your product is the "best," because that is highly subjective. When you say your product is the "first," that is a factual assertion easily verifiable, and, in this case, falsifiable.
Here is how real lawyers at Cooley say it:
Elysium suggests such advertising is merely puffery. However, given that Basis originally was comprised only of CMDX ingredients, any statement that Basis was the “first” of anything is undoubtedly and provably false.
I am not claiming special skill here. Any first-year law student would have made the same point. The story here is that Elysium is fielding amateurish legal arguments. There are no amateurs at Skadden, so that kind of weak argument maybe tells us something about the strength of Elysium's litigation position.
That seems enough to state the claim for false advertising, even without considering Elysium's impliedly false statements, but we'll look at a couple "misleading" claims:
Elysium suggests in its motion to dismiss that consumers were not misled into thinking that Basis was approved by the FDA. ChromaDex responds with a stunned look, noting Elysium’s statements that unambiguously attribute testing of the original Basis produced with ChromaDex ingredients to its presently-marketed Mystery version. ChromaDex:
This argument defies belief. Elysium expressly references the FDA and FDA approval process in statements directed at consumers, and Elysium sells only one product: Basis...It is thus quite plausible – and indeed likely - that consumers would construe and mistake Elysium’s statements regarding FDA approval as applying to Basis.
ChromaDex also has no patience for Elysium's defense that consumers would not be misled by Elysium's discussion of an R&D process that in fact did not apply to Elysium's only product, especially since the R&D process is described as being for "all" products including those that are "available for purchase." That could only mean Basis. Similarly, says ChromaDex, the suggestion that Elysium's advisory board does not "endorse a specific product" is too little to overcome the general impression that none of these people would associate their names with an unsafe, much less untested, product.
I wasn't too concerned about Elysium's claim that ChromaDex had failed to allege damages resulting from Elysium's alleged Lanham Act violations, but ChromaDex ties up the argument nicely:
Elysium next incorrectly argues that the Complaint fails to sufficiently plead damages to CMDX...[ChromaDex alleges that TRU NIAGEN™ has] undergone extensive research and testing and has both an NDIN and GRAS status from the FDA, whereas Elysium’s supplement Basis with its new ingredients has none of the same support, yet Elysium represents falsely that it does...The very logical inference from those factual allegations is that consumers would be more likely to choose Basis over TRU NIAGEN™ as a result of Elysium’s misleading advertising, thereby increasing sales of Basis at the expense of CMDX’s sales and causing competitive injury to CMDX...And while Elysium attempts to make hay of the fact that no specific losses have yet been alleged, discovery of Elysium’s ill-gotten revenues during its false advertising campaign is required before CMDX can ascertain just how much it has lost and how much Elysium should be required to disgorge...
You can read yourself ChromaDex's defense of its state law claims, but it seems to me that all of these claims are properly stated, and in fact well-supported. They should get past dispositive motions, and I would expect ChromaDex to prevail on them on the merits, too.
What I am uncertain of is how ChromaDex calculates its way up to $200M in damages, because the BIG THING is the attack on ChromaDex's business itself -- the "nefariously conceived plan" to steal ChromaDex's business and to make ChromaDex "a more accessible takeover target." I get that story in general, but I can't quite find it in these causes of action for false advertising and tortious interference with business relationships.
Is it possible that ChromaDex still has another cause of action in its back pocket, like it might with Patent Infringement, but something much bigger, like Civil RICO or Securities Fraud, and it is waiting for the right time to assert it?
Your correspondent does not know enough to answer this question, but here is one description of how Civil RICO works:
To state a claim, a plaintiff must allege (1) that the defendant received money from a pattern of racketeering activity, (2) invested that money in an enterprise, (3) the enterprise affected interstate commerce, and (4) an injury resulting from the investment of racketeering income distinct from an injury caused by the predicate acts themselves...
The legal definitions of "racketeering" and the other components of the RICO statute are entirely beyond me, and I also know nothing about Securities Fraud, beyond the fact that it is listed as a potential predicate to racketeering. And I have no special knowledge about Elysium's competitive behavior besides what is written in ChromaDex's complaint.
So just to be crystal clear: I am NOT asserting that Elysium has or may have engaged in conduct that would violate RICO or Securities Laws. I have no way of knowing.
But the big damages claim makes me wonder if somebody else has thought more deeply about it.
So we'll be watching to see whether ChromaDex tries to show $200M worth of damages from tortious interference and false advertising, or whether what I have been calling the "Big Complaint" is actually only a prelude to something potentially much bigger.