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  • Writer's pictureShelly Albaum

CDXC Reply ISO Motion for Summary Judgment

Now we have ChromaDex's Reply Brief in support of its Motion for Summary Judgment. You can read the reply brief here:

Exhibit 87 (Not sure what happened to Exhibit 86)

To recap, here is where ChromaDex moved for Summary Judgment on several claims, and here is where Elysium said in Opposition that Summary Judgment was not warranted. The purpose of this Reply Brief is to rebut Elysium's Opposition.

ChromaDex makes six arguments.

First, Patent Misuse requires coercion or conditioning, and Elysium has failed to raise a genuine dispute of material fact as to coercion or conditioning.

Second, no reasonable jury could find that ChromaDex breached the product safety provision.

Third, Elysium has not raised any genuine dispute of material fact that would allow it to escape the contractual and statutory waiver provisions with respect to its product safety claims.

Fourth, Elysium admits it has no evidence of damages on three claims.

Fifth, Elysium's claimed damages for breach of the exclusivity provision are unsupported and speculative.

Sixth -- and perhaps most new and interesting -- Elysium has opportunistically and impermissibly changed the alleged fraudulent statement and admits no evidence supports the statement it alleged.

We'll take these in order.

1. Patent Misuse

Elysium ignores clear authority cited by ChromaDex, cites inapposite cases from a different body of law related to antitrust claims, and bungles the evidentiary record to suggest that ChromaDex somehow misused its patents. The correct legal standard for a tying claim in the patent misuse context requires Elysium to show that ChromaDex “conditioned” access to nicotinamide riboside (“NR”) on the mandatory use of its trademark. Elysium identifies no evidence that ChromaDex did so. To the contrary, there is uncontroverted evidence that most of ChromaDex’s customers voluntarily used the mark and that Elysium itself chose and negotiated not to use it. The record cannot support Elysium’s counterclaim.

Most of the argument here is a refutation of the applicability of the cases Elysium cites, which I will spare you, but the main point is that the agreements between ChromaDex and its customers in this case do not contain any indication of tying arrangements like those in the antirust cases offered by Elysium.

"Contrary to Elysium’s position, a customer’s voluntary purchase of both a patented and unpatented product is not an illegal tying arrangement. And a patentee does not misuse its patent simply by allowing a customer to purchase both."

I still don't quite understand why ChromaDex is even engaging with these aspects of the Patent Misuse claim, because the record is entirely devoid of evidence that Elysium was paying money for the trademarks, and so no tying at all occurred -- permissible or impermissible. But I guess they are taking no chances: Even assuming tying occurred, it wasn't illegal or patent misuse.

Next, ChromaDex refutes several of Elysium's evidentiary points supporting patent misuse. For example, the fact that ChromaDex threatened to enforce its patent rights does not by itself show patent misuse. And the fact that ChromaDex's patent gives it market power does not by itself show that a tie was coerced. And the fact that some customers paid for the right to use ChromaDex's trademarks [if they even did!] would not necessarily show coercion if the purchase was voluntary. And since Elysium itself was part of a super-majority (75%) of customers who did not have mandatory use, the claim of coercion is contradicted by the evidence.

The only reasonable inference a juror could make arising from the Elysium negotiations is that each customer freely negotiated the trademark terms that it wanted.

I've never seen a dead horse beaten so hard, and I'll eat my hat if the Patent Misuse claims survives summary judgment despite all this nuking.

2. Product Safety Provision

ChromaDex points out that the methodology that Elysium is relying on to establish the facts for its claim is so unreliable that Elysium itself abandoned the methodology with respect to its own business.

Elysium contends that the NR sold to it by ChromaDex contained levels of acetamide in excess of the “No Significant Risk Level” (“NSRL”) set by California’s Proposition 65. But Elysium points only to “preliminary results” obtained through pilot testing performed by its third-party NR manufacturer, which admittedly used an unverified testing method that was “not ready yet” and which later discontinued using because it generated false positive results. Standing alone, no reasonable jury could rely on these preliminary, unreliable, and unverified results to return a verdict in Elysium’s favor. That is especially true when combined with ChromaDex’s uncontroverted expert testimony...establishing that none of the product sold to Elysium contained acetamide in excess of the NSRL, an undisputed fact that Elysium never contests by expert opinion, rebuttal report, or deposition testimony....

Given the uniform agreement by all parties that the testing method used to generate the April 2017 results is nothing but junk science and completely unreliable, there is no evidence on which a reasonable jury could rely to find for Elysium.

I guess that's right.

In the footnotes, Elysium gets called out again for mischaracterizing the evidence:

Elysium incorrectly calls [REDACTED] an “independent third party,” but in reality [REDACTED] was the manufacturer hired by Elysium to replicate ChromaDex’s process for manufacturing NR using stolen ChromaDex trade secrets and confidential information.

3. Waiver Provision

Elysium raised no facts or law allowing it to avoid the plain terms of the waiver provision in the supply agreement with respect to its cGMP and Product Safety Provision counterclaims. Nor has Elysium shown that, as a matter of law, it satisfied the notice requirement under California Commercial Code section 2607 as to the purportedly defective NIAGEN that it later sold at full price and profit to consumers.

This is going to leave a mark:

In an effort to confuse the issue before the Court, Elysium mislabels Section 3.7 of NR Supply Agreement a “notice provision.” Elysium ignores the actual title of that provision, “Limited Warranty and Disclaimer of all other Warranties.” (Ex. 17 at 282–83 (emphasis in original).) Elysium also overlooks the plain terms of the provision, which expressly state that “CHROMADEX HERE EXPRESSLY DISCLAIMS ANY AND ALL OTHER WARRANTIES” and, further, that “ELYSIUM HEALTH IRREVOCABLY WAIVES AND RELEASES ALL CLAIMS THAT ARE NOT PROPERLY MADE WITHIN [30 DAYS OF DELIVERY].” Elysium is so committed to obscuring the language of the Limited Liability Provision that it avoids using the word “waiver” even once in its brief.

The distinction matters. The core of Elysium’s argument is that the purpose of the Limited Liability Provision was to “provide an opportunity to cure” and that Elysium’s compliance therefore would have been futile. (Opp. at 16–17.) But the terms of the Limited Liability Provision explicitly limit ChromaDex’s liability; they do not provide a right to cure after notice. Notice by Elysium was thus necessary for it to preserve any claim with respect to the NIAGEN sold...

ChromaDex makes a few additional arguments, too, before concluding:

Elysium has not raised a genuinely disputed material fact showing that the Limited Liability Provision is unenforceable or that Elysium’s (non-existent) notice was sufficient under California Commercial Code section 2607(3)(A).

4. Damages

Elysium fails to raise any facts showing that it is entitled to any damages for three of its counterclaims. Elysium admits that it was not damaged by the alleged breach of the Confidentiality Provision. Elysium did not present any evidence of damages arising from the alleged breach of the Product Safety Provision; the random invoices it cites have no connection to Elysium’s purported harm. And Elysium admits that its counterclaim for breach of the implied covenant of good faith and fair dealing “arises from” the alleged breach of the Exclusivity Provision and that damages are the same for both claims; as a matter of law, the entirely duplicative implied covenant counterclaim must be dismissed.

There follows a good many legal citations and a detailed review of the evidence.

5. Exclusivity Provision (NR + PT)

Elysium cites no law permitting it to ask the jury to speculate about how much “lost profits” it could have earned within the “wide bands of uncertainty” it proposes arising from other companies’ sales, which its own expert admits cannot be narrowed any further even using his own black-box “analysis.” Those wide ranges are not reasonably certain under the law.

If the claim goes to trial, ChromaDex will make other arguments, like that the exclusivity provision wasn't breached anyway because resveratrol is substantially different from pterostilbene (no doubt citing Eric Marcotulli's statements to that effect).

But here at Summary Judgment, the claim will go away if damages are inadequately pled, so that's the thing being debated.

ChromaDex actually makes two separate arguments under the exclusivity provision based on inadequate showing of damages.

First, Elysium was in a panic and was shutting down marketing because it lacked a supply of NR during the period in question, so it could not have taken any additional market share because it lacked the capacity to fill the orders.

Elysium argues that it DID have access to NR because ChromaDex had an obligation to sell NR until February 2017, when the contract terminated.

Every first year law student knows that if Elysium materially breached the contract first, then ChromaDex was no longer obligated to supply NR. I dare say Judge Carney knows that, too.

Anyway, says ChromaDex, Elysium actually CHOSE not to order NR, as evidenced by one of the notorious messages, which read, "If the GC money comes in we can always figure out what we actually owe chromadex and then place another order with them." ChromaDex rightly says,

Because Elysium consequently refused access to additional NR from ChromaDex by choice, it may not at the same time rely on a theory that it could have purchased that NR from ChromaDex to sustain a lost profits claim. Cal. Civ. Code. § 3517 (“No one can take advantage of his own wrong.”)

It's always nice to see a reference to the ancient equitable principle that one may not benefit from one's own wrongdoing, and it says a lot about this case that it gets invoked here against Elysium, which apparently knew it owed ChromaDex money, but refused to figure out how much and pay the debt, and now tells the Court that it could have undone its breach, and there mere potentiality of its having chosen to behave itself ought to entitle it to measure the damages that would have been available had it in fact behaved itself. Chutzpah.

Second, the damages are completely speculative because Elysium's own expert says Elysium might have taken anywhere between 10% to 90% of the potentially lost sales. ChromaDex says,

"...While the law does not require “absolute precision,” Elysium is still “obliged to demonstrate its loss with reasonable certainty.” ...This burden is not met by Dr. Cockburn, who conceded in his deposition that his opinion rests on “wide bands of uncertainty.” ...Those “wide bands of uncertainty” are by definition not “reasonably certain[]” enough to go to the jury. (emphasis added)

It would seem that the expert's own language defies the specific legal standard. This is artful drafting by Cooley.

6. Fraudulent Inducement

in a desperate ploy to save its fraudulent inducement counterclaim, Elysium now points to a different statement than the one it both expressly alleged in its pleadings and then unequivocally argued to this Court satisfied Federal Rule of Civil Procedure 9(b) in order to sustain it past ChromaDex’s motion to dismiss. The Court accepted Elysium’s allegations then, and Elysium cannot now—on the eve of trial—put forward an entirely new claim, especially when Elysium has always been in possession of the “facts” of what it thinks ChromaDex said.

So what's going on here? This is actually funny.

ChromaDex traces the history of Elysium's allegations through the various complaints, all the way through Judge Carney's refusing to dismiss the allegation.

Elysium originally alleged:

ChromaDex falsely represented to Elysium that it required all of its customers who signed nicotinamide riboside supply agreements also to execute license and royalty agreements,

By the Third Amended Complaint, that said:

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...

In Judge Carney's opinion refusing to dismiss the claim, His Honor characterized it thus:

Jaksch’s representation that all of ChromaDex’s customers who signed purchase agreements to obtain NR were also required to sign separate trademark license and royalty agreements was false when made.”

ChromaDex tells us that in is opposition brief Elysium says that this "of course, is not what [it] alleges."

We'll have to go back to the Opposition Brief and see what Elysium wrote there!

Here is the relevant page of Elysium's Opposition Brief:

In its counterclaim for fraudulent inducement, Elysium alleges that, during the negotiations that led to the NR Supply Agreement, Jaksch falsely stated that ChromaDex “required all of its customers who purchased nicotinamide riboside to sign trademark license and royalty agreements.”...The statement is also indisputably false...Perhaps cognizant of this, ChromaDex seeks to recast Elysium’s allegation to be that Jaksch represented only that all customers who signed a supply agreement were required to sign a license and royalty agreement. That, of course, is not what Elysium alleges or what the evidence shows. Jaksch represented more broadly that this requirement applied to all NR customers... (emphasis added)

Uh-oh!!! According to ChromaDex it is EXACTLY what Elysium alleges, and Elysium is misrepresenting the pleadings! The reason the wording matters is because LiveCell, which did not sign a license and royalty agreement, also did not sign a supply agreement. So the evidence Elysium gathered didn't falsify Jaksch's statement after all. ChromaDex:

Now, after discovery has closed, Elysium has belatedly realized that this specific statement was not false when it was allegedly made. Elysium thus seeks to amend it to be less specific so that it now applies to “all NR customers,” rather than just those that had signed purchase agreements to obtain NR. (Opp. at 14 (emphasis added).) That is not how Rule 9(b) works...Elysium’s allegation that the alleged false statement pertained to “all of its customers who signed nicotinamide riboside supply agreements” has been unchanged since it first filed its counterclaims. Elysium could have corrected that allegation when it filed its First Amended Counterclaim (as it did with other details) or at any time since, but instead it expressly argued to this Court that its allegation “provided the content” of the statement. (Dkt. 38 at 5 (emphasis in original).) It cannot now, on the eve of trial, informally amend its allegation yet again and try to blame ChromaDex for “recast[ing]” it.

That appears to be correct, and represents first-rate lawyering by Cooley (and something much worse on the other side).

Maybe some judges would let the defendants nonchalantly re-cast their allegations on the eve of trial, but Judge Carney doesn't seem like the type. Summary Judgment on the fraudulent inducement claim seems likely.


So ChromaDex has slam-dunked these claims very, very hard. The only one I would have much hesitation with would be the Exclusivity Provision -- might the judge let the jury find a "reasonable damages amount" within the "wide bands of uncertainty"? It's possible, although not likely. And less likely still if Elysium could not fill the orders anyway, and there's lots of evidence that it couldn't.

So I am expecting a bunch of Elysium's claims to go away on summary judgment, and the next question is whether the kinds of behaviors that ChromaDex is document here in this Reply Brief -- mischaracterizing the pleadings, blaming ChromaDex for what Elysium itself did, mischaracterizing authority, mischaracterizing the contractual provisions, recommending to the Court evidence that Elysium rejects for itself, misstating first-year Contracts law...Is there some point at which Judge Carney says "Enough!" Judges are notoriously sober, and I've seen some that have been surprisingly patient. But the opposite occurs, too.

We'll keep an eye out not only for the substance of Judge Carney's opinion, but its tenor as well. He's likely to rule sooner rather than later.

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