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  • Shelly Albaum

Discovery Dispute #2 in California


ChromaDex has filed another motion to compel production in California. The parties joint filing related to the motion is 118 pages, not counting exhibits. You can read it here:

Second Motion to Compel Discovery

Discovery matters are heard by the magistrate judge, not the district judge, so this motion is before Hon. Douglas McCormick, instead of Hon. Cormac Carney.

Judge McCormick granted ChromaDex's last request to compel, which you can read about here.

Most of the text in this giant joint motion is made up of the production requests themselves -- and the history of the parties' disputes with respect to each one.

But the parties' introductory statements and legal arguments are a little less dry.

I detect a shift in Elysium's story.

Here is what ChromaDex says, basically on message:

This case is about Elysium’s campaign to steal property and trade secrets from ChromaDex. Elysium’s motive? To drive ChromaDex from the anti-aging supplement market in which the two companies compete.

Elysium is a former customer of ChromaDex’s that once used patented ChromaDex ingredients to make its consumer product. But Elysium wanted more. It carried out a plan to order an enormous amount of ChromaDex ingredients at once, stockpiled them to sustain its business, refused to pay the $3 million it owed for those shipments in order to harm ChromaDex financially, and used the money it refused to pay (plus the profits from the sale of its product made with the stockpiled ingredients) to surreptitiously develop competing sources of ingredients using ChromaDex’s confidential and proprietary information. ChromaDex therefore has asserted causes of action for breach of contract and trade secret misappropriation against Elysium. By this Motion, ChromaDex seeks documents relevant to both its claims and defenses to Elysium’s claims.

First, because Elysium cannot explain away its contract violations, it has instead sought to offset what it owes to ChromaDex through allegations about the quality and purity of the ingredients that ChromaDex provided (but which Elysium sold to consumers at full price)...

Second, Elysium also has no explanation for its misappropriation of ChromaDex trade secrets and other documents, and instead seeks to hide its misconduct through discovery delays and gamesmanship, which include violating this Court’s December 20, 2017 Order compelling it to produce documents (“December 20 Order”)...

Now compare Elysium's side of the story:

ChromaDex and Elysium are now competitors. This case, however, relates to the time when ChromaDex was Elysium’s supplier of nicotinamide riboside (“NR”), a relationship characterized by ChromaDex’s pattern of incessant dishonesty...

One might reasonably question why an ingredient supplier would treat its best customer so contemptuously. The answer is now clear.

While ChromaDex was supplying NR to Elysium, it began also to supply NR to a company formed by one of its directors and its chief scientific advisor. ChromaDex later purchased this company and currently operates it as a subsidiary to sell its own product, Tru Niagen, in competition with Elysium’s product, Basis. When formed, this company intended to market an NR-containing supplement to consumers. Its founders—a former movie producer and an academic—had no competence to market NR effectively. Nor had ChromaDex itself found any success in marketing direct to consumers. ChromaDex thus used Elysium, which was remarkably successful in explaining the benefits of NR to potential customers, to develop a market for NR as a dietary supplement.

Once Elysium created a viable market, ChromaDex terminated its supply contract with Elysium in an attempt to force Elysium from the market and usurp for itself the benefits of Elysium’s substantial efforts to build that market. This litigation represents nothing more than a cynical attempt to further that scheme...

What's interesting to me about Elysium's new story here is not that I think it might not be true -- although I am not at all sure it happened like that: ChromaDex was making a lot of money from Elysium, and I haven't seen any evidence that if Elysium had continued to pay its bills ChromaDex would not have renewed the distribution agreement. It seems to me MORE likely that Tru Niagen was a response to Elysium's misbehavior, rather than a cause.

But suppose I am wrong about that, and Elysium is exactly right, and ChromaDex never intended to renew the three-year distribution agreement, and instead ChromaDex's plan was to use Elysium to create a viable market, then terminate the supply contract, force Elysium from the market, and usurp for itself the benefits of Elysium's substantial efforts to build that market, and transfer Elysium's customers to a former movie produce and an academic who had no competence to market NR effectively. Let's assume that that was the brilliant plan.

There is nothing illegal about that. Elysium bargained for and got a three-year license with no right to renew. None of Elysium's complaints about product purity and improper pricing have anything whatsoever to do with the fact that ChromaDex had a legal right to terminate the supply agreement for any reason it wanted or for no reason at all with 90 days notice prior to the end of the three-year period. You can read the agreement itself. It says that:

So I don't get all the complaining about movie producers usurping the market -- even if true, it's not actionable, and not relevant to the current dispute. Elysium's attorneys are smarter than I am, and they spend more time thinking about this than I do, so they know that.

As for the legal arguments regarding document production (starting at page 54 of the joint filing), ChromaDex says it is not the one making the burdensome discovery requests:

...While ChromaDex’s Requests reach into the hundreds, that number pales in comparison to Elysium’s burdensome and overbroad requests, which have been served in seven distinct sets and now number 436.

In general, ChromaDex complains that:

Elysium’s refusals to produce the requested documents are not justified. Elysium has not met the burden of showing that any of the requested discovery is not relevant or proportional to the needs of the case. The documents ChromaDex has requested are relevant because they concern issues central to the parties’ claims and defenses. Elysium has also failed to substantiate its proportionality objections. Despite specific inquiries from ChromaDex regarding Elysium’s purported burden for producing the requested material, Elysium has—at the time ChromaDex’s portion of this joint stipulation was served on Elysium—provided no specific grounds detailing any burden whatsoever. (Id. ¶ 17.) ChromaDex even provided suggested search terms for Elysium to apply to the material in its database, but Elysium has refused to respond as to whether it has attempted to apply those search terms or the amount of documents responsive to those search terms, let alone provide an explanation of how that number would make providing the documents not proportional to the needs of the case here. (Id. ¶ 8.) Elysium has thus failed to make a specific proportionality objection as to any of the Requests. Carr, 312 F.R.D. 459, 468 (N.D. Tex. 2015).

Later, on page 103, ChromaDex offers another interesting specific example of unjustified objections based on burdensomeness:

...Elysium fails to explain what “extreme burden” is associated with producing the samples of product. Nor could it. Samples of the product can be shipped via regular shipping without any special arrangements, and that is hardly an “extreme burden...”

In general, Elysium complains that:

ChromaDex is engaged in an impermissible fishing expedition and its Motion to Compel should be denied for three main reasons: (1) the discovery sought is not relevant, (2) the discovery sought is cumulative and duplicative of discovery requests in response to which Elysium has already produced relevant documents, and (3) the discovery sought is not proportional to the needs of the case....

By demanding the production of materials relating to Elysium’s receipt, treatment of, and use of documents relevant only to the now nonexistent conversion claim, ChromaDex seeks to effectively double the amount of discovery Elysium has produced in response to ChromaDex’s requests that relate to the viable claims alleged in ChromaDex’s Fourth Amended Complaint (the “FAC”). Moreover, requests relating to the dismissed conversion claim call for the production of documents relating to aspects of Elysium’s business and operations that otherwise have no relationship to this litigation...

That paragraph about the conversion claim gets a lot of attention. I think Elysium's argument is that the conversion claim was dismissed, so there can't be discovery related to the alleged stolen documents, and ChromaDex's argument is that the conversion claim itself was preempted by the California Uniform Trade Secrets Act, but the underlying wrongs are still part of the case, only being asserted as trade secret theft instead of document theft, so the absence of the conversion claims doesn't make the stolen documents less relevant to the litigation.

When I get around to writing about the PTAB oral argument, and I am NOT going to make a prediction as to which way it will come out, but on this discovery dispute, it seems to me that ChromaDex again has the stronger argument.

JUICY DETAILS

I learned in law school that judges frequently put the most interesting insights into the footnotes, and that appears to be true for this joint stipulation, too. Here are a few fascinating points buried in the footnotes:

FOOTNOTE 3: ChromaDex recently discovered an eighth additional document that Elysium misappropriated: ChromaDex’s NIAGEN Investigator’s Brochure. (Rios Decl. ¶ 16.) That confidential document was incorporated verbatim into Elysium’s “Basis Investigator’s Brochure,” labeled as Elysium’s property, and then distributed to third parties. (Id.) Given Elysium’s continued efforts to avoid its discovery obligations, there may be yet more documents that Elysium has stolen from ChromaDex that have yet to come to light.

FOOTNOTE 4: ChromaDex reserves all of its rights to seek sanctions against Elysium for its violation of the Court’s December 20 Order.

Text text associated with footnote 4 complains that the Court ordered Elysium to produce all responsive documents by January 10th, but hundreds of documents were produced on April 2, and some as recently as August 28th. "Elysium withheld the most damaging of those documents for three months" (emphasis in original)

FOOTNOTE 8: ChromaDex has learned that both Morris and Dellinger have deleted all relevant text messages and emails located in their personal email accounts. (Id.) ChromaDex has demanded the personal cell phones and computers used to access personal email accounts for both Morris and Dellinger in order to conduct a forensic examination to determine if those text messages are recoverable, and—as of the service of its portion of the joint stipulation on Elysium—is awaiting Elysium’s response to those requests.

FOOTNOTE 13: After the close of business on October 19, 2018, while the parties were in the process of exchanging their portions of this Joint Stipulation, counsel for ChromaDex sent counsel for Elysium a request to meet and confer regarding ChromaDex’s intention to bring a Motion for Leave to File a Fifth Amended Complaint. ChromaDex seeks, among other items, to add claims against Morris. As of the time Elysium served its portion of the Joint Stipulation, the parties had yet to discuss ChromaDex’s request, but the draft Fifth Amended Complaint appears to be another attempt to make an end-run around the dismissal, with prejudice, of ChromaDex’s claim for conversion. If ChromaDex does obtain leave to file this complaint, it will substantially alter the course of discovery and may well moot many of the issues briefed here. (emphasis added)

FOOTNOTE 20: Elysium agreed to produce all COAs for its alternate source of NR but has failed to produce all the COAs. (Rios Decl. ¶ 26.)

In Footnote 22, Elysium responds to ChromaDex's Footnote 20:

FOOTNOTE 22: ChromaDex also asserts that “Elysium agreed to produce all COAs for its alternate source of NR but has failed to produce all the COAs.” (See supra, at n.20.) ChromaDex has never informed Elysium which COAs ChromaDex believes are missing. If it does so, Elysium will search for and produce any such “missing” COAs relating to its alternate source of NR.

Three additional points:

First, ChromaDex has requested an attorney fee award for the costs of preparing this motion, which costs look to be substantial!

Second, there are redactions in this filing. We'll see if those survive, or if these requests to seal are denied like last time.

Third, Magistrate Judge McCormick observed last time that, "The parties ask the Court to wade into the murky depths of patent misuse doctrine," and Judge McCormick found a way to not do so: "These allegations alone are sufficient to make the information ChromaDex seeks about Elysium’s other sources of NR relevant to Elysium’s patent misuse claim. And because the patent misuse claim makes these documents relevant, the Court need not grapple with the parties’ other arguments." This motion to compel offers the Magistrate Judge a much larger swamp to explore. We'll see how he responds.

#CDXC #ChromaDex #ElysiumHealth #Litigation

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