Judge Carney today postponed the trial in California and ordered supplemental briefing from the parties on a number of issues. His Honor also took the evidentiary motions off calendar until after resolution of the summary judgment motions.
The new briefing schedule is as follows:
OCT 30 -- Elysium's Opening Supplemental Brief due
NOV 18 -- ChromaDex's Opposition Brief due
NOV 27 -- Elysium's Reply Brief due
JAN 13 -- Hearing on Summary Judgment Motions
The Court will set a new trial date and a new hearing date on the evidentiary motions after ruling on the Summary Judgment motions.
You can read the Court's order here:
The Court gave the general impression that it sees this as a breach of contract case, and is not very interested in the claims for trade secret theft and patent misuse.
With respect to trade secret theft, the Court challenged ChromaDex to explain, pointing to specific bits of evidence, why Elysium would not have been able to continue its business if it had not taken trade secrets and confidential information.
With respect to patent misuse, the Court challenged Elysium to explain why it would be entitled to any damages at all given that ChromaDex has apparently purged any conceivable harm resulting from any alleged wrongdoing.
ANALYSIS
This ruling contains bad news for everybody -- ChromaDex, Elysium, and the Court itself. Let's start with the Court:
What Does the Court's Ruling Say About the Court
It simply has to be noted that ChromaDex on August 7 asked the Court for ten pages of supplemental briefing on the grounds that presenting the motions would require extensive factual recitation. On August 8, Judge Carney denied that request on the ground that "the legal principles in this care are relatively straightforward to apply."
So how does it feel to have Judge Carney now tell us that he can't rule on the motions because he needs way more factual recitation? Not so great.
The same can be said for His Honor's comments about Patent Misuse. Judge Carney can't understand why this claim is before him. He says,
Elysium does not argue that the Purge was insufficient or otherwise improper. It appears, then, that certain of Elysium’s requested damages on this claim may be unrecoverable. For example, what restitution does Elysium seek beyond what ChromaDex has promised to pay at the end of the case? What unjust enrichment has ChromaDex obtained beyond that which it has already paid or promised to repay? Why is a declaration that ChromaDex has not purged its misuse and has not dissipated the effects of the misuse appropriate?
Those are VERY reasonable questions for HIs Honor to be asking, but the proper time for asking them -- and answering them -- was TWO YEARS AGO when ChromaDex argued extensively and repeatedly in motions to dismiss the Patent Misuse claims as moot on those very grounds!
Don't you remember? In May 2017 -- that's actually more than two years ago -- ChromaDex mooted the Patent Misuse claim by disclaiming and undoing the behavior that Elysium complained about (even though there was nothing wrong with what ChromaDex had done, for reasons we have explained ad nauseum).
In June 2017, Elysium claimed that the misuse was nonetheless not purged, and I went apoplectic.
What on God's earth does Elysium think they can gain from their patent misuse claim besides not having to pay any of the fees owed pursuant to the alleged misuse?
This is the kind of nasty, litigious behavior that is just the opposite of what the justice system purports to be encouraging. ChromaDex says, You win, you can have your bogus claim and all its fruits. And Elysium's response is, No, we'd rather fight.
Then in August 2017 -- also more than two years ago -- ChromaDex moved to dismiss the Patent Misuse claim as moot.
We covered Elysium's Opposition, and ChromaDex's Reply. And then we went into shock in November 2017 when Judge Carney ruled that because ChromaDex in the future might sue for patent infringement (which it in fact did), the patent misuse claim was not moot.
I went apoplectic again, because the Court applied the wrong standard in evaluating the mootness question. I said,
"The thing that was mooted was the predicate for a Patent Misuse claim. The fact that Elysium might ALSO be infringing ChromaDex's patents is a completely different issue."
I accused the Court of being a "willing co-conspirator with Elysium to unnecessarily prolong this litigation, racking up costs for both parties and largely defeating the purpose of the court system." I said some other true things, also.
And Elysium has spent two years using that improper, fictitious, moot patent misuse claim to stir up trouble for ChromaDex. Not only has it resulted in a HUGE amount of discovery and briefing to defeat the patent misuse claim on the merits, but the patent misuse claim is the SOLE justification for Judge Connolly's putting a stay on the Patent Infringement litigation in Delaware -- a stay that has lasted most of a year now.
And then what happens? Judge Carney says, Why are we even talking about Patent Misuse? There's no possible damages. This should have been dismissed!
Indeed it should have.
Here are Judge Carney's exact words:
"The Court also ORDERS the parties to submit supplemental briefs on what recovery is still available and sought on Elysium’s patent misuse claim given the Purge, and under what authority."
The good news is that Judge Carney is now paying some attention to the issues in this case.
Elysium Health
The bad news for Elysium goes beyond the fact that Judge Carney can't think of a reason why Elysium's most important claim -- Patent Misuse -- is even a part of this case.
In addition, Judge Carney's specific concern with ChromaDex's case is one that we know ChromaDex can address. Who knows, with ten extra pages of briefing they might already have addressed it.
Judge Carney's expressed concern isn't that Elysium didn't steal trade secrets or that ChromaDex isn't entitled to recover at all. Instead, His Honor said, "...ChromaDex now seeks over $60 million. The Court is seriously concerned that ChromaDex's damages are overstated."
And Judge Carney has given ChromaDex a roadmap for proving its case. His Honor said,
The Court’s main concern centers on causation—that is, how Elysium’s and Mark Morris’ alleged theft and misuse of alleged trade secrets and other confidential information allegedly caused such extensive harm...
Under both California and federal law, a complainant may recover damages for (a) actual loss and (b) unjust enrichment caused by misappropriation. Damages are caused by trade secret theft if the trade secret theft was a “substantial factor” in causing the damages. The “substantial factor” standard “generally produces the same results as does the ‘but for’ rule of causation,” but it also reaches beyond it to “address other situations, such as those involving independent or concurrent causes in fact.” Causal chains may have more than one link, but those links must be “not hypothetical or tenuous,” and remain plausible. (emphasis in original, citations omitted)
We haven't seen all the evidence, but we have spent a LOT of time with the evidence that we have seen so far -- likely more than Judge Carney has, because he has loads of other cases on his docket and we have none on ours. And based on the evidence we have seen, it seems pretty clear that ChromaDex is going to be able to show that the loss it suffered was caused by Elysium's misappropriation of information, in exactly the "but for causation" way that Judge Carney is requesting.
But Judge Carney continues to draw the roadmap:
The court is not sure ChromaDex can prove...that (1) it had a trade secret, (2) which Defendants obtained improperly and (3) used to develop an alternative supply (4) that it would not have found without the specific trade secret information, or that the trade secret information was a substantial factor in finding the supply, and (5) Elysium would not have been able to stay in business without that specific alternative supply.
The Court, as gatekeeper, needs more assurance that there is sufficient evidence for each of these links in the causal chain to ask a jury to spend time considering whether to give ChromaDex the tens of millions of dollars in damages it seeks, and if so, how much. For example...What specific trade secret was a substantial factor in Elysium being able to develop an alternative supply, and how? Is there any evidence that tends to undercut any link in this chain? And what is the case or legal authority that supports ChromaDex’s claim that it can recover such profits under such a hypothetical theory of damages with so many assumptions?
On the surface, Elysium probably is taking a fair amount of pleasure in Judge Carney's raising so many questions, and such pointed questions, about ChromaDex's damage claims, and especially Judge Carney's questioning whether this should be anything more than a breach of contract case.
But the pleasure will be short-lived if Cooley is able to summon exactly the evidence that Judge Carney has called for, and to present it in a compelling way, which is actually what Cooley has shown an extraordinary aptitude for doing.
ChromaDex
This is not happy news for ChromaDex.
First, at the very least we are seeing another delay of the trial for at least three months. This is bad news because ChromaDex has said that it is eager to get the facts to a jury, and now it has to wait again. The trial was originally scheduled for April, then July, then October, and now it's off-calendar. A silver-lining is that this will probably be enough to convince Judge McMahon to re-start the proceedings in New York, which were stayed pending the outcome of the California trial.
Second, the Patent Infringement action in Delaware might have recommenced this month if Judge Carney had simply granted summary judgment on the Patent Misuse claim, as ChromaDex requested. But instead with the 3+ month trial delay comes almost certainly a 3+ month delay in the Delaware action.
The fact that Judge Carney doesn't even understand why the Patent Misuse claim wasn't mooted is obviously good news, but it's hard to feel joy when such news comes two years too late and after all parties incurred significant and unnecessary costs.
Third, it is actually BAD news that the answers to Judge Carney's questions are in the evidentiary exhibits referenced by the motions and discussed in the briefs -- all those depositions and text messages and letters that describe Elysium's struggle to create Mystery NR and the information they used to accomplish that. Judge Carney did not say, "I've seen your evidence and I don't think it says that." What he said is,
"Quite frankly, the Court is struggling to connect the dots between Elysium’s possession of these alleged trade secrets and the tens of millions of dollars that damages that ChromaDex now contends it is entitled to recover."
This doesn't sound like a judge who has fully comprehended and deeply considered the events leading up to this legal dispute, and how the underlying facts support the various legal claims. It's been almost three years now; this lawsuit was filed in December, 2016,
Conclusion
So now we get to wait some more. Then Elysium gets a 25-page opening brief, and ChromaDex gets a 25-page opposition brief, and then Elysium gets a 15-page reply. It's not clear to me why Elysium goes first, given that the majority of Judge Carney's questions were posed to ChromaDex, not Elysium. Here is the Court's specific order:
The Court ORDERS the parties to submit supplemental briefs on what specific evidence shows (or disproves) that Elysium’s and Mark Morris’ trade secret theft and use caused:
* Elysium to stay in business such that ChromaDex may recover about $30 million in Elysium’s profits,
* Elysium to stop ordering from ChromaDex such that ChromaDex may recover about $25.5 million in alleged lost profits,
* Injury justifying recovery of Mark Morris’ about $685,000 compensation,
* Elysium to secure a price discount such that ChromaDex may recover the alleged $600,000 value of that discount, and
* Elysium to avoid R&D costs such that ChromaDex should recover about $525,000 in avoided costs.
The parties’ briefs should direct the Court to specific testimony and exhibits
proving or undermining each link in the causal chain, with reference to the specific applicable trade secrets. The briefs should also address the theory on which ChromaDex’s financing expenses resulting from Elysium’s failure to pay are or are not recoverable. Finally, the briefs should provide the case or legal authority that supports or negates ChromaDex’s claim that it is entitled to recover any and all of these categories of damages.
The Court also ORDERS the parties to submit supplemental briefs on what recovery is still available and sought on Elysium’s patent misuse claim given the Purge, and under what authority.
It seems like Elysium's opening brief has to try to prove a negative, that ChromaDex can't show what Judge Carney asked it to show. It would be more effective to have ChromaDex put its proof on the table, and then let Elysium try to refute that.
I guess that's why I'm not a federal judge.
In any case, I think that ChromaDex probably will be able to explain the causal links to Judge Carney's satisfaction -- at least enough to get to a jury.
But it's going to be a few months before we know for sure.