ABOUT RIGHT OF ASSEMBLY

Right of Assembly is my personal blog. All opinions are my own. You can read more about me here.

DISCLOSURE

I am a ChromaDex shareholder, and an affiliate marketer. As a result, I will sometimes mention or recommend products that I endorse. I may earn a small commission from qualifying purchases if you were referred directly from this site and completed a purchase. [Thank you!] You can read more about our advertising, privacy, and data collection policies here. 

Cookies

This site uses cookies. Cookies are not required for site functionality. You can read more about how to opt-out of cookies here.

  • Shelly Albaum

OMG - ChromaDex's Opposition Brief on Summary Judgment


I can't believe I waited two days before reading this brief.

I waited because I thought Elysium's arguments for Summary Judgment were weak, and Cooley would mop up the legal issues easily enough. So I thought there wasn't going to be much new in this.

I was wrong.

I was wrong because I got confused between ChromaDex's statement of facts in support of its own summary judgment motion -- which involves bogus patent misuse and breach of contract claims -- and ChromaDex's statement of facts in opposition to Elysium's summary judgment motion -- which involves trade secret and breach of fiduciary duty claims.

Because the claims are different, the relevant facts are different, too.

ChromaDex's statement of facts in this Opposition Brief contains new information, and it is devastating.

This brief is also a reminder that the only bits of evidence that we are seeing dribble out are those specifically relevant to the issues necessary to resolve the pretrial issues. There may be much more evidence waiting in the wings that is only relevant to the disputed claims that will be resolved at trial, and therefore has yet to be brought on stage.

But for now we have before us the clearest statement yet about what actually happened, with citations to the record throughout.

I will reproduce below ChromaDex's statement of facts at length -- do read it. (Or view the original source.)

Then I will address the legal issues more briefly, because the legal questions that I had before are resolved, and Elysium's summary judgment motions will surely be denied.

ChromaDex's Summary of the Case

Introduction

...Defendants’ Motion is, among other things, entirely unsupported by law and premised on their fanciful, self-serving, and (in at least one instance) demonstrably false version of fiercely disputed facts. The Motion should be denied for the following reasons:

First, Defendants’ argument that ChromaDex’s trade secrets claim must be dismissed because evidence of its damages is not apportioned among the trade secrets fails as a matter of law. The law could not be clearer: California “does not require an apportionment of damages” among trade secrets. BladeRoom Grp. Ltd. v. Emerson Elec. Co., 331 F. Supp. 3d 977, 989 (N.D. Cal. 2018). Defendants do not cite a single case where a court dismissed a trade secret claim on apportionment grounds on summary judgment. Nor would such an “apportionment” requirement make logical sense in a case such as this one. The facts show that Defendants brazenly made off with everything they could get their hands on, whether it was a trade secret or confidential information, and commingled it while taking affirmative steps to hide the source of the information and conceal their theft. Defendants deployed the stolen trade secrets and information at different times and in myriad circumstances to suit their needs and to harm ChromaDex. Even if the Court was to require apportionment of damages among trade secrets, Defendants fail to establish the undisputed facts to avoid trial on their theft. And Defendants’ suggestion that the claim is improper because ChromaDex must show damages for theft of trade secrets separate from other claims is both contrived and wrong: ChromaDex may rightfully seek recovery for its harms with different claims.

Second, Defendants deploy the same erroneous “apportionment” argument to seek dismissal of ChromaDex’s claims for numerous breaches of the various confidentiality obligations willingly assumed (and then shamelessly violated) by both Defendants, as well as Morris’s breach of fiduciary duty and Elysium’s aiding and abetting. But Defendants’ numerous different violations of law and contract, all with the same overarching goal of destroying ChromaDex, do not create a legal requirement for ChromaDex to divide its unitary harm among its separate claims. Defendants’ argument here is legally unsound, and they cite no authority supporting the drastic relief—full dismissal of ChromaDex’s claims—that they seek from this Court. ChromaDex presents sufficient evidence for a reasonable juror to find that the damages ChromaDex alleges are supported and were caused by Defendants’ misconduct.

Third, Morris incorrectly argues that he should not be bound by a confidentiality contract he freely signed on July 15, 2016, his last day at ChromaDex. Morris premises his entire argument on easily disprovable lies contained in his sworn declaration. In his fraudulent effort to persuade the Court that he had surrendered all access to ChromaDex confidential material at the time he signed the contract, Morris represents that “[o]n July 15, 2016, I did not have access to email.” (Dkt. 234-1, “Morris Decl.” ¶ 11.) But Morris sent at least two messages from his ChromaDex email account that day (including one at 4:01 PM), both of which ChromaDex produced to Defendants in this litigation. In any event, Morris’s (false) representations highlight that the circumstances surrounding the July 15 agreement are disputed and can only be resolved by a jury.

Fourth, Elysium seeks an affirmative ruling on its counterclaim under the “most favored nations” pricing term in the supply agreement (“the MFN Provision”). But Elysium’s interpretation of the MFN Provision is nonsensical; at best (for Elysium), it is an ambiguous term requiring the jury’s guidance. Summary judgment is therefore inappropriate.

STATEMENT OF FACTS

A. ChromaDex and Elysium

Founded in 1999, ChromaDex has evolved from a testing and standards company into a science-based nutraceutical company devoted to improving the way people age. (Ex. 1 at 17–19; Ex. 2 at 49–51.) ChromaDex’s current business is focused on nicotinamide riboside (“NR”), a novel form of vitamin B3. (See Ex. 3 at 76–77; Ex. 2 at 50–54.) Since July 2012, when ChromaDex licensed key NR patents from Dartmouth College, the company has spent years and tens of millions of dollars to commercialize NR and ensure that it is safe for human consumption. In 2013, ChromaDex began selling small amounts of NR under the brand name NIAGEN®, and in 2014 started to supply NR in commercial quantities to companies marketing direct-to-consumer products. (Ex. 2 at 51.)

One of those companies was Elysium, a Manhattan-based startup founded in 2013 by a venture capitalist (Eric Marcotulli) and a stock broker (Dan Alminana) with no prior experience in the dietary supplement industry. (Ex. 95 at 9:15–23.)2 Elysium first approached ChromaDex seeking a supply of NR in mid-2013 and from that point the parties began intensely negotiating the terms of a supply deal. (See Dkt. 233-1 at 5–6.) On February 3, 2014, the parties reached an agreement that is expressed in two contracts: the NR Supply Agreement and Trademark Royalty and License Agreement. (Ex. 4 at 88 § 7.5; Ex. 5 at 98 § 15.9.) Among other things, the NR Supply Agreement contained the MFN Provision, which (by its plain terms) would only trigger when Elysium “purchase[d] equal volumes or higher volumes than” a third party that ChromaDex “supplied” with NIAGEN at a price lower than Elysium’s. (Ex. 4 at 504.) The NR Supply Agreement contained no right for Elysium to audit ChromaDex’s sales information. (See id.) On June 26, 2014, ChromaDex and Elysium executed an amendment to the agreement in which ChromaDex would supply Elysium with another ingredient, pterostilbene (“PT”). (Ex. 6.) In 2015, Elysium began selling its one and only product, a dietary supplement called Basis, which contains NR and PT. (Ex. 88 at 35:8–15.)

B. Elysium’s Unreasonable Demands on ChromaDex Cause Friction

Over the course of the supply relationship, Elysium frequently complained to ChromaDex about another NR customer: Live Cell Research (“Live Cell”). In July 2015, Morris—who was ChromaDex’s Vice President of Sales and Marketing and the primary account manager for Elysium, (Ex. 88 at 100:3–17; see also Ex. 7)—acted as Elysium’s agent and sent Elysium trade secret information about Live Cell’s sales, including how many bottles of NR product Live Cell sold per month, (Ex. 8). Elysium eagerly received and used these and other trade secrets for its own business purposes; for example, in August 2015, Elysium’s COO (Alminana) texted its CEO (Marcotulli) information about Live Cell’s NR purchases, and they used the purloined information to compare Elysium’s performance to Live Cell’s. (Ex. 9 at 126–27.) Elysium envied Live Cell’s success. (Id. at 127.)

Elysium’s strategy was to eliminate the competition, and it repeatedly sought from ChromaDex the exclusive right to sell NR products in the direct-to-consumer market. (Ex. 10 at 154 (“Exclusivity is really at the core of this partnership . . .”); Ex. 11 at 172.) With myriad other ingredient customers, including established distributors that are well-known in the supplement industry, ChromaDex was unable and unwilling to promise complete exclusivity to Elysium.

On August 30, 2015, Elysium—frustrated that ChromaDex would not give it complete exclusivity—began preparing to “launch[] an all out war on [ChromaDex] management.” (Ex. 9 at 124.) As part of that “all out war,” Elysium sought to surreptitiously learn ChromaDex’s “thoughts on defending [their] patent” in order to best position Elysium to challenge ChromaDex’s intellectual property over NR. (Ex. 12.) Elysium decided, however, to save that “ammo for future rounds.” (Ex. 9 at 125.) At the same time, Elysium was also exploring other sources for NR. Those efforts advanced to the point that, in April 2016, an ingredient manufacturer in China actually produced a sample of NR for Elysium. (Ex. 13; Ex. 14.) The Chinese company was rightly concerned about whether there would be patent issues with manufacturing NR. (See Ex. 16.) That sample was not viable. (Ex. 13; Ex. 14.) Then, Elysium set its sights on another way to get its NR: by usurping ChromaDex’s relationships with its key supplier and patent licensor.

C. Elysium Further Induces and Recruits Morris

By the middle of 2015, Morris was already acting as Elysium’s agent and steadily feeding it ChromaDex trade secrets and confidential information, but Elysium saw an opportunity to use Morris to prosecute its “all out war” on ChromaDex in a more direct way. On March 12, 2016, Alminana dangled before Morris the prospect of an executive position at Elysium. (Ex. 15 at 216; Ex. 88 at 106:17–107:4, 113:5–114:2.) Morris was so excited about the prospect that he texted Marcotulli and Alminana that he would “run all the way to New York.” (Ex. 15 at 216.) Morris signed a non-disclosure agreement with Elysium and spoke with other Elysium employees. (See e.g., Ex. 17, Ex. 18; Ex. 19.) Then, on March 29, 2016—while he was in New York City on ChromaDex business—Morris visited Elysium’s office for a job interview. (Ex. 15 at 216–218.) During his vetting process, Morris continued to secretly send Marcotulli and Alminana highly confidential ChromaDex information from his personal email account, including internal company documents on business, marketing, and even technology licensing opportunities. (See, e.g., Ex. 20; Ex. 21; Ex. 22; Ex. 24.) For example, on April 29, 2016, Marcotulli told Scott Schell—a prospective Chief Medical Officer for Elysium — that Morris could “help [Elysium] get a full exclusive for NR and ptero.” (Ex. 25.) On May 4, 2016, Dr. Schell reported back to Marcotulli that he had talked with Morris “at some length about the product/production processes for NR and Pterostilbene.” (Ex. 17; see also Ex. 18.)

D. Defendants Plot Against ChromaDex for a Stockpile of Ingredients

On May 29, 2016, Morris signaled to Elysium that he was ready to leave ChromaDex; Marcotulli and Alminana, worried that he would depart before they could fully use him as their inside agent against ChromaDex, promptly arranged a phone call with Morris the same day to persuade him to stay for a little while longer. (Ex. 15 at 223.) Morris obeyed, but urged Elysium to “make sure I am out of here first because I do not want to wait any longer – I want to destroy them!” (Id. at 231–232, 249.) Almost immediately after the call, Morris texted Alminana a detailed recital of competitor Live Cell’s NR purchasing history, including dates, volumes, and prices. (Id. at 214.) ChromaDex keeps that information in a confidential Excel file—the “Ingredient Sales Spreadsheet,” (Ex. 26)—which is updated to track the history of all ingredient purchases (by date, amount, and price), as well as internal sales forecasts, for all ChromaDex ingredient customers. About 20 minutes after receiving the Live Cell purchase history from Morris, Alminana requested the exact same information from then-ChromaDex CEO, Frank Jaksch, under the guise of a “fast-paced due diligence process with a massive silicon valley VC.” (Ex. 27.) Jaksch declined to share that confidential customer information. (Id.) Despite Jaksch’s refusal, Elysium persisted, and ordered Morris to also pressure Jaksch internally. (Ex. 15 at 226.) Jaksch never provided that

confidential information to Elysium.

Part of Elysium’s scheme was to order, but never pay for, a large and unprecedented amount of ingredients to serve as a bridge while it sought a new source of NR using stolen ChromaDex research and analytics information. Morris was instrumental to this plot. For example, around this time, Morris revealed to Elysium a closely-held ChromaDex trade secret: the price that it paid for NR to its exclusive contract manufacturer, W.R. Grace & Co. ("Grace"). (Ex. 94 at 96-97; Ex. 28; Ex. 15 at 242.) [REDACTED], Alminana instructed Elysium's then-Supply Chain Manager, Daniel Magida, to prepare an analysis for use in Elysium's negotiations with ChromaDex (Ex. 28, Ex. 29, Ex. 30, Ex. 94 at 96-97.) Magida also calculated the size of the ingredient orders that Elysium would need to last for a year while it put in place an alternative supply of N.R. (Ex. 31.)

Elysium commenced its scheme by placing large orders on June 28, 2016. (Ex. 32.) ChromaDex declined to fulfill those orders because the price Elysium demanded -- $400 per kilogram -- was far below the price Elysium and all other customers were paying, and [REDACTED]. (Ex. 15 at 242.) Elysium then engaged in bad-faith negotiations with ChromaDex using unlawfully obtained insider information and trade secrets all supplied by Morris to obtain the ingredients on credit and at a substantial discount. Morris, acting in Elysium's best interests, encouraged ChromaDex to accept those orders. (Ex. 33.) On a call on June 30, 2016, Elysium provided the final inducement: it promised to purchase equally large quantities of ingredients later in 2016 if ChromaDex would fulfills its large orders now at a discounted price. (Ex. 90 at 328:4-10.) Based in part on Morris's recommendation, and on Elysium's lies, ChromaDex agreed. (Ex. 33.) Elysium thereafter placed its final orders on June 30, 2016 ("the June 30 orders") totaling $2.98 million. (Ex. 34 at 420-423.)

Elysium sought a stockpile of ingredients to bolster its scheme to "get rid of the scumbags holding this magnificent technology" by "get[ting a] Grace deal inked ASAP!") (Ex. 15 at 232.) Elysium knew that when ChromaDex discovered that effort to undermine it exclusive partnership with Grace, ChromaDex would cut off Elysium's NR supply for the foreseeable future. But Elysium's plan had another element: it would wait until it received the final ingredient shipment, then refuse to pay ChromaDex, (id. at 236, 247), and use the resulting financial jeopardy to ChromaDex to convince its key supplier, Grace, and patent licensor, Dartmouth, that they should cut ties with a financially unstable partner (see, e.g., Ex. 35). Again, Morris was central to this plot: he kept his employer, ChromaDex, completely in the dark about the catastrophic financial devastation that he and Elysium were about to unleash on the company (Ex. 345-49). Alminana executed Elysium's plot according to the script: he waited until the final shipment was delivered on August 10, 2016, then the very same day he unjustly accused ChromaDex of breaching provisions of the NR Supply Agreement. (Ex. 15 at 247; Ex. 36; Ex. 37.) To date, Elysium has not paid ChromaDex anything for the June 30 Orders. (Ex. 100 at 333.)

E. Elysium and Morris Plot Against ChromaDex for Control of NR

While the plot to obtain an ingredient stockpile on credit turned like clockwork, Elysium's efforts to damage ChromaDex with Grace and Dartmouth advanced in parallel. For example, on June 21, 2016, Morris, while still a ChromaDex executive, provided Elysium additional ChromaDex sales information to assist its clandestine outreach to Grace. (Ex. 15 at 232.) Alminana agreed, responding: "Time to take control of everything!" (Id.)

Relying in part on Morris's analysis of the Dartmouth patents, Elysium determined that they were valid and enforceable, and therefore decided to purloin them from ChromaDex in order to seize control of this critical intellectual property. Elysium settled on its "game changing" new patent strategy by June 23, 2016, when Marcotulli referenced it in a text to Alminana. (Ex. 9 at 133.) Mere days later, Elysium contacted Dartmouth, and visited the campus in late August 2016, but only after it obtained the stockpile of ingredients from ChromaDex. (Id. at 138-39, Ex. 40 at 472.) Elysium lied to Dartmouth in critical respects in an attempt to destroy the relationship with ChromaDex, including by stating that ChromaDex was insolvent, had serious problems with the U.S. Securities and Exchange Commission, and was in material breach of its licensing agreement with Dartmouth. (See Ex. 35.) Except for the fact that ChromaDex was in financial distress (owing to Elysium's non-payment), none of Elysium's statements to Dartmouth were true, and Elysium knew it. Elysium doubled down on its lies in a series of emails to Dartmouth. (Id.) By September 6, 2016, Elysium exalted in its apparent success, with Marcotulli texting Morris that "Dartmouth is revoking the patent!" (Ex. 40 at 479.)

F. Morris Lies to and Steals from ChromaDex Before Quitting

On June 26 , 2016, Elysium finally offered Morris a job. (Ex. 104.) Morris accepted immediately, but told Marcotulli and Alminana that "it is up to you two" when he would leave ChromaDex. (Ex. 15 at 33.) Thereafter, at the same time he was assisting Elysium to deceive ChromaDex to secure the June 30 Orders, Morris was also stealing countless ChromaDex documents and covering his tracks with yet more dishonesty. Morris was also, at Elysium's behest, "digging around" for information on ChromaDex's relationship with Grace "without raising any red flags." (Id. at 245, 251.) At bottom his stated plan for his employer was still: "I want to destroy them!" (Id. at 249.)

In addition to analyzing ChromaDex's NR patent rights for Elysium while an executive at ChromaDex, Morris was also tasked with finding a new supplier of NR for Elysium in case its efforts to secure a supply with Grace did not work. To that end, Morris researched and created a list of companies with the capability and resources to synthesize nicotinamide riboside chloride ("NRCl"), the physical form of NR. (Ex. 44 at 542.) One of those companies was [REDACTED], the company that today manufactures Elysium's infringing source of NR. (Id.; Wilhelm Dep. Ex. 98:15-16.) Morris sent the list to Elysium on July 14, 2016, from his personal email account. (Ex. 144.) He also attached a document called the NR GRAS ("Generally Recognized As Safe") Dossier, intended by ChromaDex for submission to the U.S. Food and Drug Administration ("FDA"). (Id.) Successfully notifying FDA as to GRAS—which ChromaDex accomplished—is an important hallmark of safety in the dietary supplement industry, and a company must disclose certain information about its manufacturing process to do so. Morris, knowing this, sent ChromaDex’s NIAGEN GRAS Dossier to Elysium and instructed it to use the manufacturing process it contained as a starting point for its new supply. (Id.)

With Elysium’s mission to induce ChromaDex to fulfill the June 30 Orders accomplished, it finally permitted Morris to give notice on July 12, 2016, but he continued to work as an executive at ChromaDex until July 15. (Ex. 15 at 244; Ex. 45; Ex. 46.) At no time did Morris tell anyone at ChromaDex that he was going to work for Elysium to help it take control of the intellectual property covering or supply of NR. (E.g., Robles Decl. ¶ 21; Ex. 46.) Near the end, he expressed misgivings about deceiving ChromaDex and asked Marcotulli and Alminana to allow him to “be truthful” when he resigned. (Ex. 15 at 232; Ex. 47.) But Morris had also pledged “unconditional loyalty” to Marcotulli and Alminana, and thus he followed their command to lie to ChromaDex. (Ex. 47.) When he left on July 15, he freely signed a confidentiality agreement in which he promised that he would return or destroy all ChromaDex documents and information in his possession, (Robles Decl. ¶ 24; Ex. 48), and at 4:01 PM he sent an email from his company email address thanking his ChromaDex colleagues for “the amazing journey,” (Ex. 49).

G. Defendants Use ChromaDex Trade Secrets and Information to Accelerate Elysium’s Alternative Source of NR and to Stay in Business

Morris arrived for his first day of work at Elysium three days later, on July 18, 2016. (Ex. 15 at 60.) From that point on, he and Elysium used all of the ChromaDex information they had stolen, or had gathered under an obligation not to disclose or misuse, to further Elysium’s business and continue to attempt to drive ChromaDex out of business. The story goes as follows:

On his first day, Morris immediately downloaded the ChromaDex Ingredient Sales Spreadsheet to Elysium’s computer system, to a file in the custody of Marcotulli. (Ex. 50.) That Spreadsheet gave Elysium invaluable (and otherwise unavailable) information detailing all fo the NR ingredient orders -- by date, amount, and price -- and forecast for every other company selling NR-containing products. Now with a fulsome understanding of its competitive position in the market, Elysium deployed its ChromaDex trade secrets and information to (1) obtain a new source of funding to finance its new supply of NR and (2) use that funding, together with the nearly $3 million it was withholding from ChromaDex, to secure a new source of NR.

First, Defendants used ChromaDex's trade secrets -- including its sales information, the price paid to Grace, and details concerning ChromaDex's hard-earned and costly research and development into new methods of manufacturing NR -- to convince potential investors to invest in Elysium with a $20 million Series B financing round that closed in late 2016. That investment was absolutely vital to Elysium's existence, because it knew as of August 2016 that [REDACTED] (Ex. 51 at 567; Ex. 94 at 165:15-166:1; Ex. 52.) Moreover, Elysium's supply chain was a major source of concern for its potential investors, including General Catalyst, the Silicon Valley venture capital firm that led the Series B financing. (Ex. 51 at 567 [REDACTED]); Ex. 53 ("Also when I spoke w GERALD he does have a major concern, as do we, re supply, and that we have the additional supply in place, let's address this ASAP").)

Elysium soothed its future investors' worries, and answered their questions using ChromaDex's trade secret information. For example, when predicting for an investor what Elysium's cost per kilogram would be from its new NR supplier, Marcotulli stated that [REDACTED] (Ex. 51 at 567.) (Ex. 54 at 577.) That was a lie. [REDACTED] (See., e.g., Ex. 55 at 590.) [REDACTED] did not tell Marcotulli that Elysium's cost would be [REDACTED] per kilogram; instead, he relied on his knowledge of ChromaDex's cost from Grace -- which Morris unlawfully divulged to him -- to reassure and persuade his investors that Elysium was on track for profitability. (E.g., Ex. 15 at 242.) Elysium also used its newfound (and wrongfully obtained) understanding of the entire NR dietary supplement market to convince potential investors of its relative success and bright future (See, e.g., Ex. 56 at 592 ("Thorne is actually sitting on 18 (!) years of inventory after unsuccessfully trying to copy our product, and we are in the process of a possible deal to purchase some of their raw materials.").)

More egregiously still, Elysium shared with potential investors its plot -- formed with help from Morris while he was still at ChromaDex -- to steal ChromaDex's licenses to the Dartmouth NR patents. (Ex. 38; Ex. 39; Ex. 9 at 133.) For example, on August 24, 2016, Marcotulli texted Justin Roberts (a partner at General Catalyst who was deeply involved in the Elysium financing): "Just getting back from Dartmouth. Awesome meetings. Huge for us." (Ex. 40 at Row 474.) Twelve seconds later, he followed up that he was "[w]rapping up" drafting the term sheet ("TS") for the financing and would send it to Roberts that night. (Id.) Roberts responded ecstatically: "Also got (sic) to me some details on Dartmouth!!! What went down?" (Id.) Marcotulli called Roberts later to debrief him and advance Elysium's quest for the financing. (Id. at 475.) Later, on September 5, 2016, Marcotulli and Alminana had a call with an investor to "explain the Dartmouth shit," among other things. (Id. at 478.) And on September 9 -- three days after Marcotulli believed that Dartmouth was "revoking the patent," (id at 479) -- Elysium and General Catalyst executed the term sheet for the $20 million investment, (id. at 481).

Second, Defendants deployed the $20 million in new financing, and the profits it earned from the $3 million worth of ingredients that it never paid ChromaDex, to fund its new source of NR. Defendants used ChromaDex's trade secrets and confidential information to achieve commercial production of NR far sooner than it could have on its own (Ex. 57.) Elysium's plan to cut ChromaDex off from Grace depended in large part on Elysium's illegally-obtained knowledge of ChromaDex's sales and costs. In a draft email to Grace dated August 12, 2016, Alminana wrote that "[t]he NR market is not growing (it's actually retracting) without Elysium" and then warned "[i]f we don't work together, then we have no choice but to follow ChromaDex to whoever they end up making this with in San Diego." (Ex. 58.) Alminana's oblique reference was to the third part with which ChromaDex was exploring new manufacturing methods, a relationship about which he should not have known given that it was a highly sensitive trade secret, but which Morris divulged while he was still a ChromaDex executive. (Ex. 39.) Elysium's strategy was to hammer home to Grace the notion that "Elysium is NR," and a strategy that Elysium formed with Morris while he was still at ChromaDex. (Ex. 15 at 245-246.) That strategy almost succeeded. (E.g., Ex. 59.)

Having failed with Grace, Elysium turned to its backup plan. Morris, leading the charge for Elysium, took key ChromaDex files -- including certain NR specifications, analytical methods for NR, and the NR GRAS Dossier -- and retyped or simply took screen shots and pasted their contents into new documents that he shamelessly labeled "property of Elysium Health" and containing Elysium's "proprietary and confidential information." (See, e.g., Ex. 60.) He sent the mislabeled documents to [REDACTED] in early August 2016, and [REDACTED] used them in its development of the manufacture of NR. (Ex. 62; Ex. 97 at 83:3-85:4) On August 30, 2016, [REDACTED] (Ex. 98 at 94-5.) (Ex. 63.) Those are only some of the examples of Defendants using ChromaDex's trade secrets and information to accelerate their production of a new source of NR.

Having successfully jump-started its new, infringing NR supply, Elysium obtained its very first shipment of NR from [REDACTED] in May 2017. (Ex. 64.) Elysium was not able to encapsulate it for sale to consumers until [REDACTED]. (Ex. 100 at 101:7-12; Ex. 65 at 725.) That NR contained levels of acetamide that exceeded both Elysium's original safety specifications and the safe-harbor limit in California's Proposition 65, so Elysium diverted its remaining stores of Niagen to California while selling its acetamide-tainted NR to consumers in the rest of the country. (See Dkt. 233-1 at 9-10, 16-17.) As Elysium's company witness sated: "If we don't have NR, we don't have a product to sell." (Ex. 100 at 109:12-18; see also Ex. 43 at 503.) That outcome would have been disastrous for Elysium, causing it to enter a death spiral of "losing loyal customers, which leads to decreased sales/retention metrics, which then leads to decreasing venture capital investment interest and valuation." (Ex. 66 at 729.) Alminana put it succinctly: it would "crush our business." (Id.) Morris described the company as being in "panic mode" about its predicament. (Ex. 105.)

That is a breathtaking and devastating story. And these are not mere allegations, like the complaint and the motions to dismiss -- this is description of the evidence in the record.

These facts are incredibly damning, and you can see why ChromaDex is eager to get these to a jury, and found no cause to settle the matter last week.

But there are some technical legal issues before us, too, because these facts are recited in opposition to Elysium's attempt to get some of ChromaDex's claims dismissed. So let's look at those legal issues.

Legal Issues

1. Apportionment of Damages

The big legal issue, which we discussed before, was whether ChromaDex has to say how much damages resulted from each individual trade secret stolen (apportionment of damages) in order to recover at all.

I said that was an absurd theory (actually, I said "wacky and delusional") and that Elysium's own cases didn't say that.

ChromaDex agrees, noting that there is no rule requiring ChromaDex to apportion its damages trade secret-by-trade secret, and the law does not reward those who steal, commingle, and misuse confidential information in complex ways.

Defendants invent a legal standard that plaintiffs must “apportion” their damages on a trade secret-by-trade secret basis, and on that ground seek to invalidate ChromaDex’s damages claims. Defendants are incorrect. California law is clear: it “does not require an apportionment of damages” among trade secrets. BladeRoom, 331 F. Supp. 3d at 989. A plaintiff with a theft of trade secrets claim is permitted to argue to the jury that “its trade secrets” were used as part of a “unified structure,” and therefore “the misappropriation of any of the asserted trade secrets would have caused all of the damages it sought.”

That's the end of the summary judgment issue, but we're still interested in how this issue will play out later -- both with respect to the pending motion in limine, and later at trial. Cooley obliges:

The claim for disgorgement of Elysium’s unjust profits is proper because there are sufficient facts for a jury to find that Defendants used ChromaDex’s trade secrets to get a new supply of NR and thus stay in business. (Ex. 101 at 1085.) If Elysium had collapsed because it ran out of NR, which was a real possibility, then Elysium would have made no profits at all. Further, ChromaDex’s claim for the profits that it lost is also sufficient because the jury could also find from the record that Defendants used the trade secrets to accelerate development of its new source of NR, thus depriving ChromaDex of sales it would have made....ChromaDex’s damages expert, Lance Gunderson, testified that even assuming that Defendants misappropriated only one of ChromaDex’s trade secrets, and there were no other successful claims for liability, his damage analysis would not change “[t]o the extent that the jury finds that [the one trade secret] allowed [Elysium] to stay in business.”...Defendants’ own cases support that apportionment is not necessary. (emphasis added)

2. Use and Benefit from Trade Secrets

Elysium also argued that it did not possess the Ingredient spreadsheet at the time it allegedly used the information in it, and that Morris was authorized to disclose competitive pricing information, and that Jaksch had already disclosed to Elysium the information in question.

ChromaDex points to evidence in the record that shows otherwise.

3. Separation of Damages by Legal Claim

Defendants argue that ChromaDex is required to “differentiate[]” between the damages arising from Defendants’ theft of trade secrets from those of Defendants’ other misconduct. (Mot. at 16.) That is not an accurate recital of the law. A plaintiff is not required to “provide separate estimations of misappropriation and breach of contract damages” to survive summary judgment. BladeRoom Grp. Ltd. v. Facebook, Inc., 2018 WL 1611835, at *6 (N.D. Cal. Apr. 3, 2018). That is especially true where, as here, the harm to ChromaDex arose from Defendants’ indiscriminate theft of a wide variety of trade secrets and other information, commingled it, and used it in many different ways to support varying objectives. That Defendants chose to steal trade secrets and confidential documents and breach Morris’s fiduciary duty to ChromaDex, does not foist on ChromaDex a non-existent legal requirement to differentiate its damages by legal claim...Because there are sufficient facts, as discussed in detail above, for a jury to conclude that Elysium stayed in business only through Defendants’ use of ChromaDex’s trade secrets, Elysium’s unjust profits are an appropriate damages claim. (emphasis added)

4. Enforceability of Morris's July Confidentiality Agreement

Elysium proposed that Morris was not bound by the confidentiality agreement he signed on his last day because (1) there was no consideration for the agreement, and (2) because the HR rep had illegally told him that if he didn't sign the agreement his final wages would be withheld.

ChromaDex responds with fire:

This Court previously ruled that ChromaDex’s forbearance of its right to conduct a more thorough investigation to confirm that Morris had returned all of ChromaDex’s information establishes consideration...Morris tries to overcome that presumption by declaring that he did not have access to ChromaDex information because, as he attests in his declaration, he returned his computer on July 14 and “[o]n July 15, 2016, I did not have access to email or ChromaDex computer systems.” (Dkt. 234-1 ¶¶ 8, 11.) Those are lies. Documents and the declaration of Jenny Robles—ChromaDex’s human resources manager—demonstrate that Morris still had his computer on July 15 and sent at least two emails from his ChromaDex account that day, one as late as 4:01 PM. (Robles Decl. ¶ 23; Ex. 75; Ex. 76.) Morris also still possessed a thumb drive containing ChromaDex trade secrets and other documents when he arrived at Elysium on July 18, 2016. (Ex. 106 at 1149; Ex. 96 at 49:10-50:5, 11 53-56.) Morris fails to meet his burden to rebut California’s presumption of consideration. (emphasis added)

The Jenny Robles declaration is unequivocal. She says,

"At no time did I tell Mr. Morris that he would not receive his final paycheck unless he signed an updated Confidentiality and Non-Solicitation Agreement. As the HR Manager, I am aware of California law and understood that ChromaDex had a pre-existing obligation to pay Mr. Morris for the time he worked."

The jury would have to decide who to believe, but if Morris was applying lies with a roller during this period, it might not be a difficult decision.

5. MFN Provision

The MFN provision is ambiguous, so Elysium can't win on summary judgment. One ambiguity we have previously considered was whether the "higher volume" that justified MFN treatment could involve a single order or had to be measured over time. We now know that Live Cell bought more NR than Elysium in 2015.

ChromaDex argues that the word "volumes" in the contract necessarily requires a consideration of purchases across a time period.

ChromaDex understood that “volumes,” both as used in Provision and in common parlance in the industry, referred to purchases over a period of time. (Ex. 70; Ex. 71.) While that period is not expressly identified in the Provision, other parts of the contract contain various commercially viable options, such as a calendar year, 12-month trailing average, or quarterly trailing average. Cal. Civil Code § 1641. Under any of those reasonable options, Elysium is not entitled to a refund. (Ex. 102 at 1118, 1121.)

That's plausible.

ChromaDex's second argument, which we were anticipating and are glad to see, is that the word "supplies" in the MFN clause did not apply to one-off discounted samples to prospective customers, who were not thus "supplied" with Niagen under the agreement.

That's HIGHLY plausible.

Whether the jury will think so remains to be seen, but obviously it cannot be resolved in summary judgment.

CONCLUSION

We weren't expecting Elysium to win any of these points on summary judgment, but it's nice to better understand the legal headwinds that Elysium is facing.

I'm not feeling sorry for Baker Hostetler that they were dealt such a bad hand -- maybe they (and their predecessor at Skadden) should have made it really clear to Elysium from the start that they would be facing a hurricane of contrary law -- or maybe they did.

But it's worth noting that the legal battle is quite one-sided at this point, and if ChromaDex gets a bunch of Elysium's claims tossed on summary judgment but Elysium doesn't get any of ChromaDex's claims tossed on summary judgment, then it's going to get even more one-sided.

And if a jury hears and believes ChromaDex's story and supporting evidence, well...we'll see.

#CDXC #ChromaDex #ElysiumHealth #Litigation

0 views