Analysis: Elysium's Motion to Dismiss Partially Granted in Delaware
Updated: Dec 23, 2020
[In which we deeply consider the latest nonsensical court decision, and then step back to assess not only whether the decision matters, but also whether the case as a whole matters, and whether even the litigation as a whole matters. Spoilers: Possibly not.]
Last May Elysium filed a motion to dismiss ChromaDex as a co-plaintiff in Dartmouth's patent infringement lawsuit in Delaware. We thought ChromaDex's opposition was convincing, and Elysium's reply was unconvincing.
ChromaDex relied heavily on the letter of the law in defending against Elysium's motion to dismiss, rather than invoking all the policy reasons why denying ChromaDex standing under these circumstances would be a terrible thing to do.
ChromaDex's approach made sense, though, because courts do prefer to apply the law as written, and don't want to seem to be making policy decisions. And from ChromaDex's standpoint, the law was pretty clear, and the policy implications (I suspect) pretty obvious.
If that was the thinking, it was a miscalculation, because Judge Connolly earlier this week held that if a patent owner exclusively licenses a patent to two different subsidiaries of the same company then neither subsidiary has the ability to enforce the patent.
Welcome to a Four Part analysis. I am going to argue in Part One that this is an obviously wrong decision, and that it will be reversed by the Court of Appeals for the Federal Circuit, if ChromaDex appeals. Next, I will argue in Part Two that ChromaDex might not even bother to appeal, because even if the decision stands, it is not very consequential to ChromaDex. In Part Three, I will argue that even if the outcome on this decision does not matter, it nonetheless provides cause for concern to ChromaDex. This will bring us to Part Four, and the core question of whether the litigation in general matters to ChromaDex investors, or whether we should just stop following it entirely, and this blog should stop covering it -- or at least the readers of this blog should stop reading.
Part 1: Exclusive Licensee Standing in Patent Cases
It doesn't make sense for us to go deeply into the rules governing exclusive licensee standing in patent infringement cases. Judge Connolly basically admits he can't make sense of it, and we're not going to do much better ourselves.
Judge Connolly says in the opinion, "Constitutional standing in a patent case is anything but straightforward." He then favorably quotes another case that says, "confusion about the interplay between ... [a plaintiffs] statutory right to sue [in a patent case] and our doctrine of standing has long persisted." He then favorably quotes another case that says, "[T]he standing rules in [patent] law appear to be as much a patchwork as Dr. Frankenstein's monster, and only marginally more coherent."
When that happens in the law, the best practice is to go back and figure out why we even HAVE standing rules -- what the standing rules are trying to accomplish.
That's not hard to do. In Alfred E. Mann Foundation v. Cochlear Corp., 604 F.3d 1354 (CAFC 2010), the Court of Appeals for the Federal Circuit explained the problem clearly enough:
"...for purposes of determining standing to sue...the question is whether the license agreement transferred sufficient rights to the exclusive licensee to make the licensee the owner of the patents in question. If so, the licensee may sue but the licensor may not. If not, the licensor may sue, but the licensee alone may not. When there is an exclusive license agreement, as opposed to a nonexclusive license agreement, but the exclusive license does not transfer enough rights to make the licensee the patent owner, either the licensee or the licensor may sue, but both of them generally must be joined as parties to the litigation."
That's the requirement for Constitutional standing.
But there is another type of standing in patent law, too, which is called "prudential standing." The Court of Appeals for the Federal Circuit explained prudential standing in Morrow v. Microsoft, 499 F.3d 1332 (CAFC 2007), where it said of patent owners who have transferred their rights by an exclusive license,
"The patentee who transferred these exclusionary interests is usually joined to satisfy prudential standing concerns...for the purpose of avoiding the potential for multiple litigations and multiple liabilities and recoveries against the same infringer."
So that's why ChromaDex's lawyers thought -- and no doubt still think -- that they had satisfied both constitutional and prudential standing requirements. The license in question is exclusive in both form and substance, the patent owner (Dartmouth) is joined in the action. There is absolutely no ambiguity about who is enforcing what rights and where those rights came from. All owners are joined, and there is no risk of multiple litigations against the same infringer.
Judge Connolly doesn't mention that, though. Instead, he decides to resolve the controversy based solely on the text of a single phrase in a single opinion, WiAV Solutions v. Motorola, 631 F.3d 1257 (CAFC 2010), and Black's Law Dictionary. Judge Connolly:
"Thus, the resolution of the pending motion turns on the meaning of 'ability to obtain...a license from another party with a right to grant it' in WiAV."
WiAV is a good case, and the right place to look, but I would be cautious about trying to do a textual interpretation in a way that strictly limits exclusive patent licenses to a single entity -- not multiple affiliates of the same corporation -- when WiAV expressly rejects the position that "for a licensee to be an exclusive licensee of a patent, the licensee must be the only party with the ability to license the patent."
Instead, WiAV concludes, "This court therefore holds that an exclusive licensee does not lack constitutional standing to assert its rights under the licensed patent merely because its license is subject not only to rights in existence at the time of the license but also to future licenses that may be granted only to parties other than the accused. If the accused neither possesses nor can obtain such a license, the exclusive licensee's exclusionary rights with respect to that accused party are violated by any acts of infringement that such party is alleged to have committed, and the injury predicate to constitutional standing is met."
So that's the test ("the court therefore holds"): It's not whether multiple entities have exclusive licenses; it's whether the accused infringer possesses or can obtain a license.
ChromaDex says Elysium is the accused infringer, and that Elysium does not have and cannot obtain a license from ChromaDex, Healthspan, or from Dartmouth -- that's who is suing Elysium for patent infringement -- and there is nobody else on Earth who could grant Elysium a license. Therefore, the injury predicate to constitutional standing is met.
That seems so obvious.
How did Judge Connolly reach the exact opposite conclusion, in just a few quick paragraphs?
Judge Connolly says that:
"Although the disputed language [in WiAV] by itself lends support to both parties' positions, I think Elysium has the better argument for three reasons.
"First, the focus of standing in patent case is on the plaintiff's rights, not the defendant's rights or the defendant's abilities. As the Federal Circuit held in Morrow v. Microsoft Corp., 499 F.3d 1332 (Fed. Cir. 2007), "[i]n determining whether a party holds the exclusionary rights, we determine the substance of the rights conferred on that party...." Id. at 1340 n.7 (emphasis added). Seealso Ortho, 52 F.3d at 1032 ("[l]t is the licensee's beneficial ownership of a right to prevent others from making, using or selling the patented technology that provides the foundation for ... standing." (emphasis added)).
"The court emphasized this point in WiAV. It stated that "the touchstone of constitutional standing in a patent infringement suit is whether a party can establish that it has an exclusionary right in a patent that, if violated by another, would cause the party holding the exclusionary right to suffer legal injury." 631 F.3d at 1265 (emphasis added). And the court explained that "the key question" in determining standing is whether the plaintiff "has shown that it has the right under the patents to exclude" the defendant from practicing the invention covered by the patents. Id. at 1267 (emphasis added). A right is "[a] legally enforceable claim that another will do or will not do a given act." Right, Black's Law Dictionary (11th ed. 2019). A plaintiff does not have the right to prevent a defendant from using a patent if another party has the right to allow the defendant to use the patent.
"Second, in answering "the key question" to determine whether the plaintiff in WiAV had standing, the court did not consider whether other parties other were willing to license the asserted patents to the defendants. Instead the court examined whether other parties "ha[d] the right to extend [a] license to the Defendants." 631 F.3d at 1267. In the court's words: "the relevant question is whether [another party] can license the Defendants to practice the patents in [the plaintiffs] field of exclusivity." Id.
"Third, the injury necessary for constitutional standing cannot be "conjectural or hypothetical." Lujan, 504 U.S. at 560 (quotation marks and citation omitted). But whether Healthspan would have refused to give Elysium a license in the past is a hypothetical question. Even though it makes sense to me based on the current record that Healthspan would likely have refused to give Elysium a license, that conclusion is ultimately conjecture-an inference formed without proof.
"Accordingly, I find that Elysium had "the ability to obtain ... from another party with the right to grant it" a license to practice the asserted patents, as that phrase is used in WiAV..."
There are a number of problems with Judge Connolly's reasoning. He ignores the WiAV language that focuses on the alleged infringer's "ability" to get a license, and focuses instead on the licensee's "right to allow the defendant to use the patent." That's not justified by WiAV or by common sense. Moreover, Judge Connolly considers it mere "conjecture" that ChromaDex or Healthspan would not license the patent to Elysium. Obviously anyone familiar with the parties knows that this is no mere conjecture.
But you don't have to be familiar with the parties. Judge Connolly has before him an affidavit from ChromaDex's AND Healthspan's general counsel, Mark Friedman, which Judge Connolly quotes as follows: "The General Counsel and Secretary of ChromaDex and Healthspan, Mark Friedman, stated in a sworn declaration that he believes that "Elysium ... inten[ds] to destroy the ChromaDex organization, [has] conspired with a key ChromaDex employee to abscond with trade secrets and other confidential information, and attempted to financially ruin the ChromaDex organization ...Elysium would not have been able to obtain a license to the Asserted Patents from ChromaDex or Healthspan."
Now a normal person who reads that single sentence would probably conclude that if the General Counsel of both entities states "Elysium intends to destroy (us)" and "Elysium would not have been able to obtain a license to the asserted patents from either ChromaDex or Healthspan" then Elysium did not have the ability to obtain the licenses.
But that's not Judge Connolly's read. Instead, Judge Connolly says, "Curiously, Dartmouth and ChromaDex never expressly state in their briefing or supporting declarations that Healthspan would not have agreed to give a license to Elysium even though their entire argument is predicated on the assumption that Healthspan would have refused to grant Elysium a license."
Your Honor, respectfully, I do think Dartmouth and ChromaDex did in fact expressly state that.
So the Court's argument is obviously stretched beyond what the cited opinions are saying, and he is contorting the evidence, too. But there's no reason to engage in a logic battle with Judge Connolly, because His Honor already put up the white flag, conceding that WiAV supports ChromaDex's position, too. In other words, Judge Connolly admits that just by staring at WiAV and the dictionary, you could go either way, but he likes Elysium's way better.
I don't like Elysium's way better. But I do understand why Judge Connolly likes it better.
At the start of his opinion, as I recited, Judge Connolly expresses very significant frustration at the CAFC's jurisprudence on patent standing, which he suggests is not-straightforward, confusing, and incoherent.
So we should hardly be surprised when Judge Connolly instead settles on a bright-line rule that is really easy to apply: If there are multiple exclusive licensees to multiple entities, then there can be no constitutional standing to assert a patent infringement claim, because no entity can prevent any other entity from licensing the patent to the infringer. That's true even if the exclusive licensees are both subsidiaries in the same corporation (affiliates). That's true even if the co-licensees both have the same CEO and General Counsel and are answerable to the same board of directors. It is mere speculation, Judge Connolly says, that the parent corporation might not direct one of the affiliates to act to the detriment of the other affiliate, even if the corporate officers state in sworn affidavits before the Court that they would never do so.
That's a very bright line. Very easy to apply. It means that you can license to one entity (a corporation or a subsidiary), and MAYBE you could license to the corporation AND to the subsidiary, because maybe it's not speculation that the corporation will control the subsidiary. But if the two corporate entities do not control each other, like two sibling subsidiaries (or "affiliates"), then the exclusive license basically self-destructs (becomes unenforceable) for both entities when the second entity gets the license.
But really, even the idea that the corporation would not prevent the subsidiary from licensing the patent to the corporation's arch-enemy is speculation, too, in Judge Connolly's world, because in the end that argument that the subsidiary is controlled by the corporation relies on the idea that one person is essentially in control of both, and Judge Connolly rejected that reasoning as "speculative" in the affiliate context, even though the logic is the same. If it's speculative that Mark Friedman and Rob Fried might behave differently with respect to different affiliates that they control, then they might just as well behave differently with respect to both a corporation and a subsidiary that they control.
So the inevitable logic of Judge Connolly's opinion directly contradicts WiAV's statement that there need not be only one exclusive licensee.
Nonetheless, the biggest problem with Judge Connolly's bright line rule isn't just that it defies logic, precedent, and common sense. It's much worse than that.
What Judge Connolly has said is that the doctrine of constitutional standing in patent cases will now dictate how corporations must organize themselves.
I have said before that you can find leading patent licensing practice materials that specifically recommend language licensing a patent to a named entity "and its affiliates." And therefore, Judge Connolly has essentially declared open-season on exclusive licenses that have followed the same form that ChromaDex followed. I don't know how many there are, but it will probably be a large number.
But forget, even, about upending a galaxy of existing exclusive patent licensees with arrangements that were working fine but all of whom may now find themselves targeted by future infringers clutching the new Connolly Rule tight in their fists.
Ask instead, WHY is the "and its affiliates" language that offends Judge Connolly so common?
You don't have to be a patent law expert to understand it.
Just suppose that a corporation like, say, Microsoft, decides to obtain a license to an important new patent that makes software better. The patent will support consumer products and business products. Microsoft may have organized itself so that it has one subsidiary that handles consumer products, and another that handles business products.
If Judge Connolly's rule is correct, then Microsoft's consumer and business subsidiaries cannot both have exclusive licenses, or else neither one can defend against infringers. Instead, Microsoft will have to reorganize itself into a single entity that does not use subsidiaries to run separate businesses, or it will have to only license the patent for its consumer or its business product lines, but not both.
Why should corporations be forbidden from organizing their different products or businesses into separate subsidiaries if they want to license patents?
Of course, Microsoft is capable of organizing itself into a single entity and eliminating subsidiaries, but it has its own reasons to organize how it will, and neither Judge Connolly nor the legal system has any interest in disrupting those business practices in order to ensure that patent law is properly enforced.
I once was chatting with a former federal judicial clerk who expressed this concern: "It would be really helpful if, as a judicial clerk, I had understood better the different industries of the companies that had disputes before the Court. Sometimes we really didn't understand how our legal decisions were impacting their business practices."
That quote haunted me when I read Judge Connolly's opinion. If Judge Connolly's decision becomes the law of the land, not only existing patents will be upended, but patent licensing itself will be upended as corporations scramble to reorganize themselves in ways consistent with the new patent licensing requirements, or they can limit their use of intellectual property to the products or businesses contained in a single corporate entity.
So that's why I think the CAFC is going to reverse this decision. Even if it's reasonably logical, as Judge Connolly says, and easy to administer, it's unworkable in practice.
Here's some news for the Patent Bar: The problem of how the law should deal with affiliated corporate entities that sometimes need to work in concert is actually a solved problem, so the Courts don't need to invent something new.
Another lawyer, not me, on social media posted this comment, explaining that even if ChromaDex and Healthspan were different affiliates, they were both part of the same enterprise:
My experience was in employment law, and the question of whether multiple establishments were part of the same enterprise or were separate businesses was frequent. Here is the definition used regarding the Fair Labor Standards Act:
"In order to constitute an enterprise, the activities sought to be aggregated must be related to each other, they must be performed under a unified operation or common control, and they must be performed for a common business purpose. Activities are related when they are the same or similar, or when they are auxiliary services necessary to the operation and maintenance of the particular business. Activities constitute a unified operation when the activities are operated as a single business unit or economic entity. Activities are performed under common control when the power to direct, restrict, regulate, govern or administer the performance of the activities resides in a single person or entity or when it is shared by a group of persons or entities. Activities are performed for a common business purpose when they are directed to the same or similar business objectives. A determination whether the statutory characteristics of an enterprise are present in any particular case must be made on a case-by-case basis."
The same concept should apply to exclusivity in being able to license. Did the two entities have a closely related purpose, identical ownership and control? Yes - and they are part of the same enterprise. Call them affiliates or one a subsidiary, it shouldn't matter. They are part of the same thing, and the control of the licensing was exclusive, just as the Chromadex executives believed.
That seems right to me. If the patent has been licensed to two entities that are part of a single enterprise, then either should be able to assert the patent. All of the concerns that animate the standing doctrine would be well-addressed, and the legal system already knows how to do it. There is simply no need for federal judges to tell corporations how to organize their affairs in order to license patents.
Part 2: What If The Decision Is NOT Reversed?
I have argued that if Judge Connolly's decision stands, a lot of corporations are going to be phoning their lawyers to discuss filing lawsuits, defending lawsuits, or reorganizing their companies.
Or, alternately, a lot of corporations may decide that patents simply aren't worth having any more. They are difficult and expensive to enforce, the PTAB has turned into a killing field for patents, and Judge Connolly says you can't organize your business lines into multiple subsidiaries and still enforce patents for the benefit of more than one affiliate.
I wouldn't be surprised if it's the latter, and business stop caring so much about patents.
Tesla has already released its patents to the public. That may be seen as a publicity stunt, but if so, it's not ONLY a publicity stunt. Tesla is also saying, in the most convincing way, that it doesn't need patent protection to win.
Large corporations know all kinds of ways to build defensive "moats" around their businesses. It's only small corporations that need patents to compete. And if large corporations are writing the rules of the economy, and heavily influencing the political process, and therefore the legal system, we might find that the legal system simply doesn't care that much whether patent law works or not.
But ChromaDex, ironically, is one of the few corporations that really does NOT have to care much about Judge Connolly's ruling. And for that reason, ChromaDex might not bother to even appeal it, just as they did not appeal the PTAB's invalidation of Claims 1, 3, 4, and 5 of the '086 patent. The PTAB was obviously wrong, but ChromaDex had a less-expensive "good enough" way of solving their problem, which was to just rely on Claim 2 -- after all, you don't get 5x damages for having five valid claims.
The federal court system doesn't have a garbage collection system. If a judge writes a bad opinion, that opinion will remain the law until some private party is so aggrieved that they spend the time and money to challenge it in some higher court. Does ChromaDex care about Judge Connolly's ruling that much?
Maybe, maybe not.
ChromaDex's business objective is to "own the science." For that, they need a valid, enforceable patent. But Judge Connolly's bad ruling on standing doesn't impact the validity or enforceability of the patent. Instead, it just says ChromaDex can't enforce the patent unless and until the patent is licensed to a single entity.
ChromaDex can easily solve this problem by re-writing the license from Dartmouth (again!), and maybe collapsing Healthspan into ChromaDex, or having the exclusive license go to the parent company instead of to the affiliates. The lawyers can figure out the right way to do it, but it shouldn't be any trouble going forward to arrange things so that ChromaDex's intellectual property is enforceable against everybody.
Can this be done retroactively? I have no idea. But let's say it can't -- let's say it can only be fixed going forward. If that's right, then the thing lost is patent infringement damages from 2017 to present. That would be a supreme frustration, but not necessarily a big business problem.
ChromaDex's future depends on its sales and revenue. Its future does NOT depend on recovering a big damages judgment from Elysium in this Delaware case. In fact, I don't know anybody who thinks it would even be possible to recover a huge judgment from Elysium -- like, say, $25M or $50M. Does Elysium have assets like that? I don't assume so. Does Elysium have business insurance that would cover it? I don't assume so.
And even if Elysium isn't judgment-proof, ChromaDex has two other active lawsuits scheduled to go to trial this year in California and New York. Both of those lawsuits would seem to be capable of generating multi-million-dollar judgments that might stretch the defendant's ability to pay. So how much more valuable is obtaining a third judgment in Delaware? Very speculative.
Of course, the lawsuits aren't just about money. ChromaDex was seeking an injunction in Delaware preventing Elysium from continuing to sell Basis if Basis infringes Dartmouth's patents. But Dartmouth can still seek that remedy in Delaware, even if ChromaDex's participation in the lawsuit as a plaintiff is limited. And Dartmouth can also vindicate the validity of the patents as a warning to future infringers.
So if ChromaDex might already have a path to recover as much money as they can get, and Dartmouth can protect the patents by itself, should ChromaDex spend the money to appeal this decision? I don't know.
Part 3: So Is Everything Just Okay Then?
Definitely not. If my analysis is correct, and Judge Connolly's analysis is incorrect, then how can we trust that Judge Connolly will resolve the other matters before him correctly?
Last week a Markman hearing was held at which the parties contested the definition of important claim terms like "in combination with" and "isolated." If His Honor interprets the words "in combination with" to mean what Elysium wants them to mean, then Elysium might be able to argue that Elysium did not infringe the patents because Basis was not "combined" with nicotinamide even if it was "in combination with" nicotinamide. We took a look at the parties' joint claim construction brief here.
I don't have any guess as to how those claims will be construed, but I'm not feeling a lot of confidence in the court's willingness to really dig in and figure it out, just as I wasn't feeling a lot of confidence in Judge Carney's willingness to sort out the parties' claims in California until he suddenly got thousands of pages of briefs, motions, and exhibits dumped on him and abruptly pulled the trial off calendar.
In short, I'm not confident that the legal system is willing and able to resolve a dispute like ours.
The promise of our civil litigation system -- this is what law students are taught -- is that we can resolve disputes non-violently. That's why our legal system is supposed to be one of the great pillars of our civilization. Whether the legal system was ever as good as that I cannot say -- Dred Scott and Korematsu certainly give pause. But anyone who has read Bruce Cannon Gibney's The Nonsense Factory knows that every part of our legal system is overwhelmed, underfunded, and dysfunctional. Observers of this case are seeing it up close.
The problem is that most business disputes are just business disputes, and 95% of them settle. Judges mostly view their jobs as keeping the parties nose-to-nose and threatening them with negative outcomes until they settle, and mostly it works.
But that approach does NOT work when the parties are not having a business dispute, but are actually at war, and they bring that war directly into the courtroom, and then attempt to use the legal system itself as a weapon.
It appears that many judges aren't really on the lookout for this, and so they don't even notice it when it happens. It took years in California before Judge Carney started taking our case seriously.
It is deeply ingrained in the law that justice be "blind." That's why all those Lady Justice statues are wearing a blindfold and holding scales. But the "blind" we are looking for is blindness as to the identity of the parties -- rich and poor alike -- not blind as to the consequences of the court's actions.
Imagine a taxi driver that will deliver a passenger to their correct destination, blind to whether the passenger is white or black, male or female, rich or poor, etc. That's good. But we do NOT want the taxi driver blind as to the front windshield, driving without concern for who gets run over, or what public infrastructure gets destroyed in the process, like corporations' ability to organize themselves efficiently, and inventors' ability to license their patents reliably.
We have only seen one Judge so far who seemed up to the challenge of reining in bad litigation behavior. Judge McMahon, in her denial of Elysium's motion for reconsideration a couple years ago, laid down the law.
Instead, what we see more of is Judges unwilling to sort through the blizzard of cross-accusations and figure out (1) if something really bad is happening, and (2) whether the judge's job is to stop it.
When you try to kill a natural person, the criminal law engages pretty reliably and pretty severely. But what if you try to destroy a corporation -- a business, a person that is not a natural person? In Judge Connolly's written decision, he quotes ChromaDex's General Counsel, Mark Friedman, in a sworn affidavit, stating, "Elysium ... inten[ds] to destroy the ChromaDex organization." I highly doubt that Mark Friedman, a member of the California Bar, an Officer of the Court, and an experienced General Counsel, wrote those words lightly or carelessly.
And yet maybe he should have addressed them to a police officer instead of to a federal judge? Those words seem to have had no impact on Judge Connolly who recited that exact quote and then said, in the same footnote, "Friedman intimates, but does not state directly in his declaration, that ChromaDex and Healthspan would never have agreed to grant Elysium a license." Hello? Hello? Can you hear me? Can you hear me now? I don't think he can hear me.
I know from hard experience that it takes an enormous amount of time and energy to read through all the cross-accusations and evidence and figure out what's going on. And I know from talking to litigators, judicial clerks, and the occasional federal judge that they don't have time for that.
And that's what allows unscrupulous lawyers to turn the legal system itself into a weapon.
There are supposed to be rules against that -- for example, judges can impose sanctions that can be quite severe for both parties and attorneys that abuse process or make misrepresentations before the Court.
But in practice, the legal profession does a lot better if every claim is allowed, and then the frivolous ones are eventually dismissed. If frivolous claims are allowed and then dismissed, lawyers get paid for making the frivolous claim, and then lawyers get paid for getting the frivolous claim dismissed. And the whole things ends up right where it should.
But if judges aggressively police litigation misbehavior, there is an actual risk that some meritorious claims will be excluded because the proponent fears that they will be badly received (by judges who aren't paying that much attention anyway) -- plus lawyers won't get paid on either side of the transaction because the entire transaction was prevented. Far safer, and more lucrative for the Bar to let everybody have their day in court. Just as the pharmaceutical companies make more money from developing treatments than from developing cures, so does the legal profession make far more money from courts that are willing to hear every kind of argument in every kind of dispute. And if a few people or businesses die along the way, in both law and in pharmacy, that's just the way it is.
I don't think it should be that way. But the patterns are hard to miss.
Judge Connolly was first appointed to the bench by George W. Bush in 2008. But one of Delaware's two Senators at the time, Joe Biden, blocked the appointment, for reasons we know not. In 2017, Judge Connolly was renominated by Donald Trump, and this time confirmed. Now Joe Biden is President, and I imagine that President Biden will not be appointing judges like the kind he blocked; instead, President Biden will be looking for something else. But again, we know not what.
All we can say is that we get Judge Connolly, and our four-year voyage through the judicial system has been as unexpected and inexplicable as Mr. Toad's Wild Ride. It's not over yet, either, and for all we know it may end the same way it does at Disneyland.
Will the Judicial System ever vindicate ChromaDex's and Dartmouth's legal right to commercialize Dr. Brenner's patents?
Patent lawyers occasionally get an assignment like this: "Destroy this patent. Look wherever you need to look, do whatever you need to do, but nobody sleeps until this patent is dead." That happens when the amount at stake with respect to a patent -- the value of the invention -- is potentially greater than all the salaries of every federal judge in the country combined, times ten.
We can't stop that from happening -- sometimes the stakes in business disputes between global behemoths will be measured in the billions of dollars, so dropping $50 million on lawyers is no big deal.
But our patent system cannot exist if this style of assault is allowed. If judges stand by wide-eyed while alleged infringers parade an infinity of motions and challenges and technicalities, then the legal system is more of an accessory to a crime than an adjudicant. There is no fortress that can withstand an infinite bombardment. The whole point of the legal system is to prevent this kind of warfare, not to preside over it, not to host it.
So that finally brings us to the question of whether ChromaDex actually needs the litigation to come out a certain way?
If so, then the battle will rage on, funded by who knows who, and maybe ChromaDex will win, or, alternately, maybe the legal system will one day simply sweep away ChromaDex's exhausted carcass.
But maybe ChromaDex doesn't need to win.
ChromaDex does not stand alone. There is reason to believe that ChromaDex has constructed for itself a castle with so many layers of defense that the game is actually the opposite of what it seems.
Instead of ChromaDex being desperate to successfully commercialize Niagen before it is exhausted by litigation, maybe the real game we are seeing is ChromaDex playing out the clock while its enemies exhaust themselves in a futile battle that will accomplish nothing even if the enemies triumph, all the while the science behind NR grows stronger and stronger.
I don't know enough about ChromaDex's business arrangements to say if this is true, but we have hints, at least, that ChromaDex, Grace, and Nestle have formed something like a flotilla, sharing their intellectual property and other business capabilities through a series of exclusive licenses.
ChromaDex contributes not only Niagen, but also its active pipeline of intellectual property related to NAD-boosting technologies. ChromaDex has hundreds of research agreements with universities, and we have seen a patent for reduced NR, and a patent application for encapsulated NR.
Nestle, in turn, is uniquely situated to commercialize NR, whether it is for pet food, infant food, or health supplements.
Grace has a global-scale manufacturing capability, and patents on the only two known forms of stable NR that could be productized, and is fully capable of defending its intellectual property. Together, the three companies could make a fortune.
So if some alleged infringer like Elysium managed to fully defeat ChromaDex in court, they would merely advance to next level in the game, only to confront another much bigger Boss. If that's the real game, then it is not ChromaDex set up to be exhausted, but ChromaDex's foolish opponents.
Part 4: So Why Read This Blog? Should It Even Exist?
I can't think of a good reason to continue covering the litigation. When I started writing about the first ChromaDex case, almost four years ago, it's because I felt like my modest investment in a small company was at risk in ways I could not understand. Given that I was following the litigation anyway, I thought others without easy access to PACER would appreciate being able to read the court documents for themselves. So that's how it started.
But now we are about to start our fifth year, and the plot is pretty clear at this point. Does anybody really want or need to watch the fifth season of ChromaDex v. Elysium?
For investors, ChromaDex is either too risky an investment, or a wild day-trading opportunity, or a long-term hold.
For me, it's a long-term hold. Four years later, the science looks good, the litigation looks infinite, the company is well-positioned, and either the entire world will start taking NAD-boosting strategies seriously, or they won't. And if they do, then it's a huge market, and ChromaDex is well-positioned to participate in it, regardless of what becomes of Claim 2 of the '086 patent.
There's no guaranties, obviously, but there's also no benefit from watching the legal play-by-play, either. Seeing how litigation works up close has been very helpful to me in a number of ways. I'm not sorry I did it. But the daily machinations of the courts just seem to me like soap opera nonsense, and I don't think it deserves anyone's attention. Certainly not mine.
Maybe there should be an update every six months, or maybe an update once a year. Or maybe never. Maybe instead we just wait until a press release issues one distant day saying how it all came out.
And in the meantime we can put our time to better use, by attending to and discussing the complicated science behind NAD replenishment -- which is difficult enough to understand -- instead of the complicated jurisprudence behind commercial and patent transactions, which is impossible to understand, and -- ironically, and unlike the science -- obeys no law.
POSTSCRIPT DECEMBER 23, 2020:
I am not specialist in patent law. It's a highly technical area. But I do know a few patent law experts, and I asked them to look over Judge Connolly's opinion. One of them said, "It seems like the judge got it wrong so maybe the Federal Circuit will clarify the issue in due course." Another said, " I actually think the district court decision is correct." [The third expressed no opinion.]
However, all three were thinking of the question in terms of whether they would know what to advise their clients in response to the opinion, and they all thought there was a simple fix: Simply tell the clients not to grant exclusive licenses to both subsidiaries, but instead grant an exclusive license to ONE subsidiary, and then grant that one exclusive licensee-subsidiary the right to sublicense to the other subsidiaries. Then there is only one exclusive licensee, but everyone can practice the patent; problem solved.
I didn't think that solved the problem, though. So I asked the patent law expert, "But then would the SUB-licensee affiliate have standing to assert a patent infringement claim?" Answer: No, they would not. Only the exclusive licensee subsidiary would have that right.
Well, then that's the same Microsoft example I identified, or Google is as good an example: Google is actually the largest subsidiary of Alphabet. Alphabet has all kinds of subsidiaries run as separate businesses, like Jigsaw, Loon, Calico, Waymo, and DeepMind.
Under the Connolly Rule only one subsidiary may recover damages for lost profits in a patent infringement suit, which creates a patent law penalty for organizing separate business lines into separate subsidiaries. In other words, if Google wants to license some technology that would help both DeepMind and Calico, only one, not both, can defend itself against patent infringers.
The weird thing is that Congress didn't create this weird standing rule that is now being used to indiscriminately immolate intellectual property. Judges invented "standing" in order to achieve a perfectly reasonable judicial goal, which is to know who has the right to sue whom. Standing rules make sense. And in the instance where a patent has been so badly fractured into limited licenses and partial, temporary, conditional, geographically limited slices that it is not clear who is entitled to assert what against whom, it makes perfect sense for courts to draw a line and say we can't resolve this dispute.
However, none of those concerns were implicated in the case before Judge Connolly: There was no ambiguity as to where the rights came from and who was asserting them. Every party in the world who could conceivably claim a right to the Dartmouth patents -- including Dartmouth itself -- was joined in opposition to Elysium. And yet Judge Connolly was content craft a rule that would upend existing patents and business practices in a way that would serve no identifiable congressional, judicial, or public policy purpose, merely for the convenience of the courts. It seems.