High-Level Takeaways
1. FIVE of Elysium’s bullshit contract claims are dismissed.
2. Elysium’s bullshit patent misuse and fraud claims are wounded but not dead
3. Only a small bit of damages sought by ChromaDex ($110,000) is disallowed
4. Judge Carney has read the text messages and understands them
More Subtle Observations
1. Judge Carney now accepts ChromaDex’s theory of the case
2. Judge Carney has changed his view on Patent Misuse
3. Elysium’s damages expert had a very bad day
4. Judge Carney for some reason recites more evidence than necessary to resolve the points
5. Almost all the evidence gets unsealed
6. Judge Carney says ChromaDex did not have to accept the June 30 order
Meanwhile, Down on the Planet’s Surface…
1. All the evidence already produced in California is now available in New York
2. Baker Hostetler has asked to leave the case -- at least in California -- which should scramble things in interesting ways that we'll learn more about on Tuesday after 1:30pm.
3. Evidentiary motions are coming, which should further enhance or impair the parties' ability to prove those claims that have just been green-lighted for trial.
Let's get started!
Elysium’s FIRST Bullshit Contract Claim: cGMP
ChromaDex promised to deliver Elysium Niagen made to the food supplement current good manufacturing process (cGMP) standards. But Elysium put the pharmaceutical standard in the contract instead. ChromaDex struck the pharmaceutical standard from Elysium's draft, but it ended up in the final version anyway.
I call this a bullshit claim because Elysium weeps about all kinds of harm when in fact this ought to be a mutual mistake case with no damages – and no litigation on this issue. After all, Basis is a supplement, not a pharmaceutical. Elysium gives us no good reason to believe that the difference matters. It certainly did not stop them from selling a single unit, and we know of no customers who returned their product because, because, because….I guess because the food supplement they bought was manufactured in accordance with good manufacturing processes for food supplements?
This is SUCH a bad faith complaint from Elysium. Parties acting in good faith would have been able to resolve in this in a heartbeat. It is a point of great shame for Elysium that they used this issue to create legal fees, waste court time, and vexatiously multiply the litigation.
But on summary judgment, the considerations that I just raised are not proper, because they are based on disputed evidentiary questions – Do the differences matter? Do customers care? What did the parties intend?
What’s not disputed is that Elysium waited 16 months after learning of the issue before objecting to it. That, as a matter of law, amounts to a waiver of their claim, end of story. Here’s how Judge Carney describes it:
“Elysium’s failure to give notice for sixteen months was not reasonable under California law…On September 24, 2016, Elysium drafted a letter notifying ChromaDex of the purported cGMP provision breach. For whatever reason, Elysium decided not to send that letter… Rather, the first time it notified ChromaDex of the alleged breach was through its lawyers on January 9, 2018, more than sixteen months after Elysium knew of the breach… Elysium made a business decision not to notify ChromaDex of the alleged breach of the cGMP provision, or to include a counterclaim for the alleged breach until its fourth pleading in this case…Elysium cannot make that business decision and also maintain this counterclaim.”
I would actually prefer to see this claim resolved on the merits with Elysium getting sanctioned for malicious litigation, but that’s not how summary judgment works, and now the claim is gone, so that’s that.
Elysium’s SECOND Bullshit Contract Claim: ACETAMIDE
Elysium also claimed that ChromaDex breached a contractual duty to notify it that there was allegedly acetamide in the Niagen. Here, Elysium’s notification was not impossibly deficient, like on the cGMP claim. Instead, Judge Carney grants summary judgment against Elysium for a different reason: There’s no evidence that there was acetamide in the Niagen!
The lab that did the test that purported to show acetamide said the test result was not a reliable, and Elysium’s own employee (Mark Morris!) agreed that the result was unreliable.
So, that’s that. No acetamide, therefore no duty to warn of acetamide, therefore no breach of contract.
Once again, I’d like to see Judge Carney ask Elysium why it is asserting a claim for which there is no evidence, and impose some juicy Rule 11 sanctions.
That would be too much to hope for, but maybe SOMETHING was on Judge Carney’s mind, because he could have moved on to the next section of the brief right then – he’s done; the issue’s resolved; Elysium loses -- but – and we’ll see this more as we go on today – His Honor tarries a bit. He keeps writing.
Judge Carney says,
Moreover, there is evidence that Elysium believed the Basis it sold was safe for consumption even after it received the April 2017 test results. (See Dkt. 240-2 [Ex. 69] at 305–06 [Dr. Wilhelm so testifying].) Indeed, Elysium sold all of the Niagen it had, even after discovering alleged heightened levels of acetamide.
Judge Carney notes not only that Elysium has no evidence that that Niagen was unsafe, but ALSO that Elysium obviously did not even believe itself that the Niagen was unsafe, nor did its own expert!
Sanctions ought to be warranted, but we will have to satisfy ourselves that Judge Carney has himself laid out the case for sanctions, even if he won’t prosecute that case.
Elysium’s THIRD Bullshit Contract Claim: “RESVERATROL”
Elysium negotiated from ChromaDex some contractual exclusivity around NR + PT. Elysium could sell either ingredient to others, but could not sell both in combination to anyone else – ChromaDex agreed not to allow its other distributors to combine NR with pterostilbene “or anything substantially similar” to pterostilbene.
Then Elysium claimed that resveratrol was “substantially similar” to pterostilbene, and thus ChromaDex violated the contract by allowing any of its distributors to combine pterostilbene and resveratrol.
You’ll recall my going ballistic when I first saw this claim a few years ago, because it’s so facially ridiculous to anybody following the industry. The whole point of pterostilbene is that it solves a problem that resveratrol has, so PTs very purpose as a supplement is what makes it NOT substantially similar to resveratrol.
I have rehearsed so many arguments and analogies that show why they are not substantially similar, but NONE of those arguments matter in this motion for summary judgment, because, as Judge Carney explains in footnote 2:
ChromaDex disputes that resveratrol is a “substantially similar ingredient” under the agreement, but the parties have assumed for purposes of this motion that it is.
So, the fact that resveratrol is NOT substantially similar to pterostibene is NOT RELEVANT to this motion. Hold that thought for a moment please; we’ll come back to it, I promise.
The issue we are going to consider instead is, even if the two were substantially similar, whether Elysium has been able to show any damages as a result of the NR+RSVRTL combinations that some of ChromaDex’s distributors sold.
The answer, says Judge Carney, is no. As in, absolutely not.
Judge Carney does not care for the testimony offered by Elysium’s damages expert, Dr. Alexander Cockburn. Dr. Cockburn estimated that Elysium might have captured anywhere from 10%-90% of the competing product sales, if only the competing products had not been sold.
I’m actually sorry that Dr. Cockburn did not go the rest of the way, and estimate that Elysium could have captured somewhere between 0%-100% of the competing sales. Because if he did, then I could have gone into the expert witness business, too, and offered MY estimates of between 0% and 100% IN MY PROFESSIONAL OPINION, on practically any issue, and it would be a better career than what I have now. I was all full of admiration for Dr. Cockburn.
But Judge Carney saw it different. Judge Carney called Dr. Cockburn’s methodology “a tenuous stretch,” and said that the exercise was “a shot in the dark riddled with speculation.” That is not very respectful. But Judge Carney continued:
This analysis is simply too speculative. Expert testimony must be “based on sufficient facts or data,” be “the product of reliable principles and methods,” and be the result of the expert’s reliable application of “the principles and methods to the facts or data.” Fed. R. Evid. 702(b)–(d). Dr. Cockburn’s testimony is not any of these”
I guess that’s a wrap. Elysium loses…Oops! Judge Carney’s still writing!
There are even more assumptions underlying Elysium’s damages theory. Another competing product, ResveraCel, “was sold both in the practitioner channel, from which Elysium was contractually excluded…Dr. Cockburn did not know what proportion of ResveraCel’s sales were to practitioners and which were direct-to-consumer, so he had to assume—based on no data whatsoever—that they were half and half.
I guess Elysium REALLY loses! Too bad. – but wait – His Honor has something else to say, and it’s a doozie:
“Compounding these issues is the fact Dr. Cockburn made several assumptions that “were inherently uncertain, contingent, unforeseeable and speculative. For example, Dr. Cockburn had to “assume that consumers would regard [PT and resveratrol] as equivalent in terms of therapeutic effect,” based only on his contention that there is an “absence of evidence to the contrary.” This assumption is baseless…” (emphasis added)
And then Judge Carney tells us why Dr. Cockburn’s assumption is baseless – why Dr. Cockburn’s assumption that consumers would regard PT and resveratrol as equivalent in terms of therapeutic effect is baseless -- why consumers would not view them as substantially similar (you might say):
Indeed, Elysium’s CEO Eric Marcotulli, stated that “Lenny Guarente, [Elysium’s] co-founder and Chief Scientist, is the pioneer of resveratrol, and he will be the first to tell you it lacks both potency and bioavailbililty.”
As Judge Carney said in footnote 2, we are assuming for the purposes of this motion that PT and Resveratrol are substantially similar, and you have seen that this claim is dismissed because Elysium’s damages expert gave utterly flawed and unreliable testimony.
But Judge Carney just took the time to show you that he knows that even Elysium does not believe that the two are substantially similar.
You have to appreciate his style.
I would also appreciate a sanctions award, though.
Fraudulent Inducement
It would have been nice if Judge Carney had thrown out Elysium’s fraudulent inducement claim, instead of just glaring at it.
Elysium's bullshit fraudulent inducement claims is the bullshit idea that Elysium was defrauded when it was told that all customers have to sign a trademark license agreement, when some prior or subsequent customer was not in fact so required.
That’s a bullshit claim partly because the statement during contract negotiations would have been a statement of present policy, and could not be falsified by prior or subsequent practice.
But it’s also bullshit because there’s no damages. So what if they said you had to agree to a contractual term? You got the deal you bargained for. Elysium says they would have tried harder if only they’d known there was some give.
I tell myself the same thing after every contractual negotiation, but I don’t consider myself defrauded.
So why didn’t Judge Carney dismiss it?
This type of he said- she said disagreement is exactly the type of disputed fact juries are meant to resolve…The jury can consider the import of the differing characterizations of the alleged misrepresentation.
Fine, we’ll take it to the jury. I like our odds.
Patent Misuse
Next comes what could have been the fireworks of the order, the argument on Patent Misuse. But this section of the order turns out not even to contain a sparkler; just a dud.
Judge Carney has spent a fair amount of time in prior opinions attempting to convince us that he is no expert on Patent Misuse, and we were already thoroughly convinced. So it was actually somewhat refreshing to watch him try to steer WAY clear of the rocks in this order.
What I really would have liked is for him to handle Patent Misuse the same way he handled Acetamide-in-Niagen: It didn’t happen. And since the underlying thing didn’t happen, the claim based on the thing goes away.
Three years ago, in his original, wrongly decided order allowing this claim to proceed, Judge Carney noted that the alleged problem with the trademark agreement was not that it (allegedly) required Elysium to use the trademarks (which it did not), but that it (allegedly) required Elysium to PAY FOR the trademarks (which it also did not). Here are Judge Carney’s exact words from May 10, 2017:
This argument fails because Elysium does not complain that it was forced to use the licensed trademarks, only that it was forced to buy the license for the trademarks in order to have access to NR.
What I liked about that was not that it was legally accurate, but that at least it would be easy to factually disprove. Just from reading the contract itself -- let alone by reading all the negotiations that led up to the contract – it’s easy to see that the contract does not require the use or payment for trademarks and is no kind of tying arrangement at all.
Now, almost three years later, Judge Carney starts by correctly reciting the Zenith standard, which anyone can see does not apply to our facts:
A patentee generally “may not condition the right to use his patent on the licensee’s agreement to purchase, use, or sell, or not to purchase, use, or sell, another article of commerce not within the scope of his patent monopoly.” (emphasis added)
You see a trademark is not “another article of commerce” – in fact, it’s the same article of commerce. So, not illegal.
In fact, tying a patented good to its trademark is probably the most common type of IP agreement ever. For example, suppose that I will let you sell my patented “Intel Processor,” but you must use the trademark for my patented good with a label stating that your computer has “Intel Inside.” Not illegal. Not even improper. Even though I used the patent to strengthen the brand of the trademark in the patented good. In fact, using trademarks with patented goods is pro-competitive, because it helps consumers understand what they are getting.
But then Judge Carney heads for the rocks again by stating:
Elysium itself was not subject to the alleged patent misuse: it was required to license and pay royalties for the Niagen mark, but it was not required to use the mark.
It’s very sad to read that sentence, because it contradicts Judge Carney’s prior order from three years ago allowing the claim in the first place for precisely the opposite reason.
Before, Judge Carney says that Elysium was a victim of patent misuse because it was forced to pay for the marks, even though it did not have to use them. Now Judge Carney says having to USE the marks is what causes a patent misuse, and Elysium was NOT a victim of patent misuse BECAUSE it only had to pay them.
So who is right: Judge Carney in 2017, or Judge Carney in 2020 when he says the opposite?
Neither is right. They are both wrong. You can’t misuse a patent by requiring or allowing or disallowing the licensee’s use of the associated trademarks. As Judge Carney also says, in 2020, there has to be “another item of commerce.”
So, wrong on the law, but also wrong on the facts, because, of course, Elysium was NOT required to pay royalties for the marks; the royalties were not for the trademarks; they were deferred compensation for the sale of Niagen, which is clear from both the contract itself and the evidence describing the negotiations that led to the final version of the contract.
So that means Judge Carney still hasn’t read the contract, and he mis-stated the law, and he recited something counterfactual in his order. Which is a shame. But it can be fixed.
In the end, Judge Carney says he wants to resolve this on factual grounds, not legal grounds, which, since he is not facile in this area of the law, makes good sense. So we shall do it that way. The facts are on our side, too. See you in Court.
ELYSIUM’S MOTIONS
Next Judge Carney refuses to throw out a list of ChromaDex’s claims that Elysium wanted disposed of on summary judgment. Specifically, about $9.6M in claims are now approved for the jury, including all of the proposed grounds for those claims. Only $110,000 of claims are to be withheld from the jury. That means Elysium was able to knock out about 1% of ChromaDex’s damage claim on Summary Judgment. A poor kill rate.
But first, Elysium first tried to have Judge Carney declare offensively that the MFN clause was violated as a matter of law because ChromaDex gave lower prices to other distributors under different circumstances, like samples. Judge Carney just plain rejected that. For the jury. Or, as Judge Carney said, in a formulation that will get very familiar before the order ends,
A reasonable juror could find that those transactions were so unique in circumstance, for example providing a sample at a heavily discounted cost, that they did not create a duty under the MFN provision.
In fact, I think that is exactly what a reasonable juror would conclude, and maybe even what a reasonable judge already concluded.
Lost Profits
ChromaDex originally was looking for $50M+ in profits that were lost because Elysium stole its Niagen then started making its own Niagen based on stolen information. After Judge Carney challenged that theory in October, ChromaDex said it would be content simply to get back (1) $3M that Elysium never paid for ingredients; $8M profits that Elysium made on the sale of those ingredients; (3) $110K for stolen documents; (4) $600K in unfair price discounts, and (5) $684K in compensation paid by Elysium to the disloyal Mark Morris.
Although I still think ChromaDex is entitled to ALL of Elysium’s profits -- $32M – ChromaDex made a very wise decision to only assert iron-clad claims before Judge Carney. The bigger profit numbers can be considered later as part of the patent infringement or unfair competition cases. $10M is plenty for now.
And Judge Carney was all nods on the new, narrow, specific damage claims. The legal theory that Judge Carney likes is that the June 30 purchase orders resulted from Elysium’s aiding and abetting Mark Morris’s breach of fiduciary duty. So all the profits made during the period in which that ill-gotten NR was being sold should be disgorged as ill-gotten gains.
That’s iron-clad. All ChromaDex has to show is that it wouldn’t have filled Elysium’s orders without the breach of fiduciary duty, and that Elysium aided and abetted that breach, and the purpose of it all was to get those orders filled. That’s amply shown by the evidence.
To explain why he is allowing this damages claim to proceed to the jury, Judge Carney has to explain the evidence he thinks would allow a jury to rule in ChromaDex’s favor – evidence that connects the stolen trade secrets, the June 30 orders, Elysium’s failure to pay, and Elysium’s profits.
Judge Carney says that Morris may have given Elysium more pricing information than ChromaDex intended Elysium to have – and more than Elysium was entitled to – and Elysium might have used that information to pressure ChromaDex to accept the June 30 orders. For example, says Judge Carney, check out this text message exchange:
Morris: Dan – Live Cell was at $1400 until 8/29/14 when we sold them 100kg at $900. Then on 2/27/15 we sold them 300 kg at $800. They have been there ever since, including orders for 250 kg on both 4/28/16 and 5/19/16. They never payed a royalty.
Alminana: This is between us and you are the F’n man!!
Morris: As you know, it’s in your contract and you deserve it. You are honoring the contract and so should ChromaDex.
Alminana: 1 million %! These guys have no idea how bad off they are when they lose you
Judge Carney: “A reasonable jury could conclude that Morris gave Elysium substantially more information than ChromaDex had to give or would have given Elysium under the MFN provision, and that the additional information Morris gave caused Elysium to be in a stronger negotiating position, causing ChromaDex to accept an order on terms it might not otherwise have accepted.”
Moreover, Judge Carney points out, Elysium got its competitive pricing information from Morris more than a month before the June 30 call.
Morris explained that one executive was “saying to not take an order this quarter,” while Jaksch was “talking about $800/kg.” Alminana responded, “I love how he is talking 800/kg when we clearly see livecell deal at 700/kg for 2400kg.” (Id.) Finally, later the same day, Morris texted Alminana, “I verified – These guys paid $450 for this inventory.” (Id. at 43.) Alminana responded, “Amazing! / 500 is our limit then.” A reasonable jury could infer from this evidence that Elysium gained an unfair advantage by being able to use this information to plan for nearly a month in advance regarding its negotiating position.
But Judge Carney also approved a second theory for recovering the same damages – and – you won’t believe it but – Judge Carney again liberally quotes from Elysium text messages to show why ChromaDex might just be right about that theory:
ChromaDex’s second theory for recovering Elysium’s resale profits is this: Elysium never planned to pay for the June 30 orders, instead intending to accuse ChromaDex of contractual breaches to get out of those payments. Morris knew of that plan. Nevertheless, Morris pushed ChromaDex to accept the terms of the June 30 orders, including the $2,983,350 purchase price. ChromaDex accepted the orders because it did not know of that plan, and Morris pushed ChromaDex to accept. ChromaDex argues that a reasonable jury could infer that Elysium’s scheming with Morris was a substantial factor in Elysium’s unjust enrichment.
In support of this theory, ChromaDex cites evidence including text messages between Morris (before he left ChromaDex) and Alminana where Alminana is devising a plan for what price to request for the June 30 orders using information Morris gave him. ChromaDex also cites July 1, 2016 text messages between the two regarding what Morris described as a “major” breach of the exclusivity provision by ChromaDex, with Alminana responding, “Beyond major! I am going to drop that email the second our ingredients are at Tishcon,” Elysium’s Basis manufacturer. (Id. at 246– 47.) Morris asks Alminana not to send the email until he leaves ChromaDex, adding “I want to destroy them!” (Id. at 249.) Jury questions remain on this theory as well, including questions as to what Elysium intended at the time it placed the June 30 orders, and why ChromaDex accepted the orders.
Next, Judge Carney denies ChromaDex the right to recover $110,000 as the unjust enrichment value of two documents that Elysium stole and used – the NR-CL Analytical Method and the PteroPure GRAS document.
The source of the confidentiality obligation was the NR supply agreement, in which Elysium agreed not to disclose confidential information except as reasonably necessary for activities expressly authorized by the agreement.
Does that sound like wiggle room to you? Elysium sees two ways it might wiggle out, and Judge Carney is having none of it:
Elysium argues that summary judgment is appropriate because there is no evidence to show that Elysium avoided costs by using the purportedly confidential documents. (See Elysium Supp. at 15.) But there is such evidence.
That’s a pretty blunt smackdown, and Judge Carney follows it up by quoting from depositions in which the PCI Synthesis staff say, actually, the NR-CL document was really helpful, and an email from Elysium to another consultant in which Elysium attached the PT GRAS document to help the consultant.
But Judge Carney is much harder on Elysium’s other theory. His Honor writes with a straight-face, but you can almost hear him smiling as he writes out each example that I have put in bold:
Elysium next argues summary judgment is appropriate because it had a right to disclose these documents to certain people while the agreements were in place, and that ChromaDex fails to separate out disclosures that were permitted and expected by ChromaDex from possibly impermissible disclosures. (Elysium Supp. Reply at 7.)
However, a reasonable jury could find that Elysium disclosed these documents in a way the agreement did not contemplate. For example, a reasonable jury could infer from the fact that Elysium took parts of the NRCl Analytical Method document, added a banner reading “[t]his document is the property of Elysium Health and contains proprietary and confidential information,” and sent it to researchers, that Elysium was using the document in a way inconsistent with the parties’ agreement. (Dkt. 382-6 [Ex. 111, August 2, 2016 email from Mark Morris to Ed Price at PCI Synthesis attaching the document].)
A reasonable jury could also conclude that sharing the NRCl document with PCI—the company that created Elysium’s alternative supply of NR and thus enabled Elysium to get NR from somewhere other than ChromaDex—was not a use the contract contemplated. (See Dkts. 382-33, 382-34.) Similarly, a reasonable jury could conclude that sharing ChromaDex’s pTeroPure GRAS Report, which is ChromaDex’s self- affirmance of PT as GRAS, with a company helping Elysium self-affirm PT in the same way, was not a use the contract contemplated. (See Dkts. 382-14–382-16 [Exs. 121– 123].) (emphasis added)
Then the amazing thing that happens next is that Judge Carney then – despite all that – DENIES ChromaDex’s claim and grants Elysium’s motion for summary judgment as to the $110K in damages for stealing the two documents.
That’s super-annoying because Judge Carney is obviously wrong on the law. Judge Carney’s complaint is that ChromaDex actually does not know how much it cost to create those documents, so it doesn’t know how much cost Elysium avoided.
This is a very technical argument– all ChromaDex had to do was to get one of its managers to say, “For me to recreate those documents I’d need three people full-time for four months, which would cost $110,000.” Very easy to do, but ChromaDex didn’t do it.
However, ChromaDex shouldn’t have had to do it, because Judge Carney seems to have confused difficulty in calculating damages with difficulty in identifying damages. Earlier, we saw judge Carney reject Elysium’s damages expert because the expert was “a shot in the dark riddled with speculation,” in which the expert proposed that Elysium might have captured anywhere from 10% to 90% of the market. That’s speculation as to whether Elysium was damaged at all.
In the case of the stolen documents, there is NO question that Elysium might have been unjustly enriched – Judge Carney recited the evidence himself. The only question is valuing the harm, and difficulty in valuing harm is never a reason to deny recovery. For example, if you hit me and I lose hearing in one ear and sight in one eye, we’ll have a devil of a time valuing my loss – I can still hear everything and see everything. But we ask juries to do that kind of weird math all the time. So it would be no trouble for a jury to say that it would take a few people a few months to create a document like that – or they could say it might be done in half the time. Weak evidence might lead to a lower recovery, but the Court should not have denied recovery entirely, as if there might not have been a loss at all.
Nonetheless, the Court did, and we don’t care much because it is only 1% of the damages at stake in the case.
But given that Judge Carney was going to deny the entire claim anyway on the ground that the damage evidence was inadequately documented, isn’t it interesting that His Honor took several pages to recite two different theories in support of the damages, and then list a number of lurid text messages showing that ChromaDex had likely been wronged, and almost laughing at Elysium’s lame protestations that maybe Elysium would have been allowed to share the documents around?
It’s almost as if Judge Carney was saying, “I don’t know who needs to see this, but I have reviewed the evidence in this case.”
A bit later in the opinion, Judge Carney throws some more gas on the same fire, reviewing the evidence that Mark Morris was disloyal to ChromaDex, so that ChromaDex could try to recover over $600,000 that Elysium paid to Mark Morris through December 2018, to prevent Morris from benefitting from his own wrongdoing. Judge Carney says,
There is sufficient evidence in the record that Morris was disloyal to ChromaDex to permit a jury to decide whether disgorgement of the salary he received from both ChromaDex and Elysium is appropriate. Indeed, on July 7, 2016, Morris explicitly expressed his “unconditional loyalty” to two Elysium executives before he left ChromaDex. (Dkt. 302-18 at 550.) Additionally, in a discussion about when Morris would join Elysium, he wrote on June 21, 2016, “Time to change the world and get rid of the scumbags holding this magnificent technology.” (Id. at 232.) At a time when Jaksch had texted Alminana asking to talk about pricing, Morris texted Alminana on June 28, 2016, “Dan – If I call from this phone – Don’t answer – It will be Frank sitting in the room and forcing me to make the call,” and, “Feel the pain Frank!!!” (Id. at 240–41.) And in text messages giving Elysium executives information regarding ChromaDex’s internal operations before Morris left ChromaDex, he said on July 6, 2016, “I want to destroy them!” (Dkt. 302-5 at 249.)
CONCLUSION
So almost all of Elysium’s arguments were batted down, both its arguments in support of its own summary judgment motions, which were mostly denied, and its arguments in opposition to ChromaDex’s summary judgment motions, several of which were granted.
The major claims are all going to trial, but the thing that ChromaDex must prove at trial is pretty easy – that Elysium misbehaved in a number of ways so egregious that Judge Carney has generously read them into the public record.
By contrast, Elysium must somehow prove things like, (1) ChromaDex’s occasionally requiring others – not Elysium itself – to use the Niagen trademark somehow made ChromaDex’s manifestly useless and unenforceable patents stronger, and (2) The unrealized possibility of Elysium’s convincing ChromaDex not to have required a trademark license at all somehow represents a form of commercial fraud.
Good luck with that.
Epilogue
So Judge Carney is now accepting ChromaDex’s theory of the case. Back in October, Judge Carney said that this case, it its core, is just a breach of contract case. ChromaDex strongly disagreed. Now Judge Carney says that although it started as a breach of contract case, it has become much more. And Judge Carney approved, as the largest element of damages, $8M+ for trade secret theft and breach of fiduciary duty. So Judge Carney now clearly sees this as more than just breach of contract.
Judge Carney mischaracterized the Patent Misuse legal standard, but he did it in a way that will be awfully difficult for Elysium to satisfy. So the stage is now set for the Patent Misuse claim to be thrown out on factual grounds. But if for some reason it is not, the grounds for an appeal look ridiculously strong.
Judge Carney had harsh and lengthy language for Elysium’s damages expert’s testimony. ChromaDex has already moved to have that expert’s testimony entirely tossed out, which is now looking like a very real and imminent possibility, at least if the section of the expert report on patent misuse is as poorly received as was the section on lost profits was. And that could be a different way for the patent misuse claim to get thrown out of the case (and before trial).
All we really ever wanted was for Judge Carney (his clerk, really) to actually read the documents and understand them, and then let truth and justice prevail. Despite my disagreements with Judge Carney approach to some of the facts and the law in this case, it feels like we are now much closer to where we always wanted to be than ever before.
In footnotes and in a separate docket entry, Judge Carney has ordered almost every sealed exhibit unsealed, with possible exceptions for two documents (motions to seal denied, but without prejudice). When we get a moment, we’ll go look for some interesting newly unredacted information, although with the change of counsel and evidentiary motions coming up, there may not be any rest for the weary legal bloggers.
I don’t think Mystery NR is a part of this case any more. It is obviously the dead-center of the Delaware litigation, and it may be very important in New York. But I’m not sure that Elysium’s hiring PCI Synthesis to create Mystery NR and to compete with ChromaDex after Elysium lost access to Niagen is relevant to any of the remaining claims or damage calculations in the California case, except to show Mark Morris’s culpability for breach of fiduciary duty and Elysium's aiding and abetting theft of trade secrets.
But I am not at all sure about that. We’ll get a hint when the we get to evidentiary motions.
There’s nothing in this order that would force Judge Connolly in Delaware to lift the stay in Delaware. Judge Connolly still has still has two microscopic fig leaves – what if the CAFC invalidates the ‘086 patent? and what if the Patent Misuse claim ends up limiting the temporal component of damages?
Neither of those possibilities obviates the need for the Delaware Court to rule, and neither of those possibilities comes within a mile of being likely enough to have justified the past 18 months of delay, let alone any further delay. So we will continue to wait for the spirit to move Judge Connolly to do his job and to re-start the case. And if in the meantime patent infringers ply their dark art and patent owners like Dartmouth are deprived of the royalties they need to fund further research, who in the state of Delaware cares?
One final point. Throughout the section in which Judge Carney considers the dynamics of the June 30 meeting and the unfair information asymmetry that Elysium exploited in the meeting, Judge Carney says the jury needs to hear the evidence to decide why ChromaDex accepted the orders and whether, if Elysium had behaved differently, ChromaDex would not have accepted the orders.
That is, of course, exactly right. But it contrasts hard with what Judge Carney wrote in May 2017, when he dismissed ChromaDex’s fraudulent inducement claim on the grounds that ChromaDex was legally obligated to fill the orders. Here is how that went.
ChromaDex originally sued Elysium three years ago for fraud, on the grounds that Elysium lied to get ChromaDex to fulfill the huge June 30 orders. The lies were that sales were ramping up and there would be more orders coming – and, of course, that Elysium intended to pay for the ingredients.
There’s a legal doctrine called the “Economic Loss Rule” that tries to keep separate two bodies of law: Tort and Contract.
Tort law governs when I hit you. Contract Law governs when I break my promise to you. The problem arises when I do both, and the law tries to keep separate misbehaviors that are within the contractual relationship and misbehaviors that are outside the contractual relationship.
So if I merely failed to fulfill the contract, then you can’t get tort damages (like for fraud).
Elysium said that the Economic Loss Rule barred ChromaDex from basing a fraud claim on Elysium’s scheming to place an order within the contract and then refusing to do so – that was just a breach of contract.
ChromaDex argued that the Economic Loss Rule did not apply because ChromaDex had no duty to fill abnormally large orders. Elysium argued the opposite, that ChromaDex had no choice but to send it as much Niagen as it ordered, because that’s what the contract said, and any statements it made to induce ChromaDex to comply with its contractual obligations were by definition within the contract.
To resolve this disagreement, you need to understand just two principles of first-year Contract Law. The first is that contracts are not enforceable – in fact, there IS no contract to enforce – if all the material terms are not specified. And quantity of goods shipped is ALWAYS a material term.
However, there is an exception for something called “Requirements Contracts.” Requirements contracts are fairly common. A manufacturer agrees to provide as many goods as the buyer requires. The quantity of goods to be shipped is not specified in the contract, but the contract is still enforceable if it’s a requirements contract.
The caveat is that you can’t require any amount in the universe – the amount ordered has to be consistent with the parties’ expectations and past practices.
In other words, ChromaDex DID have to fulfill the orders, UNLESS the orders were unreasonably or disproportionately large. And that is JUST what Cooley argued three years ago. In this case, the orders were far larger than any prior order, and disproportionately so. In fact, Elysium’s first request was (if I recall correctly) larger than all prior orders combined.
In other words, if the contract was a requirements contract (which it was), then ChromaDex did not have to fulfill the abnormally large order. And if the contract was NOT a requirements contract, then it wasn’t a contract at all, because it was missing a material term, and so ChromaDex also did not have to fill the order either way.
So it was outrageous three years ago when Judge Carney dismissed ChromaDex’s fraudulent inducement claim by arguing,
ChromaDex maintains that its claim falls within a “black letter law exception” to the economic loss rule articulated in Robinson Helicopter that “a contract is not a license allowing one party to cheat or defraud another.” However…Elysium’s purported statements were simply reassurances and representations incidental to the contract to induce ChromaDex to fill orders that it was already obligated to fill under the agreements. (emphasis added)
Now that you’ve learned some first-year contract law, you know that Judge Carney was mistaken when he wrote that. He could only get to that conclusion by finding that the orders were not unreasonably large and not disproportionate to prior practice, which he could not and did not find.
Fast forward three years, and now Judge Carney is crystal clear on the fact that ChromaDex did not have to accept those orders. And if a jury finds that Elysium’s misstatements caused ChromaDex to accept the orders, then ChromaDex will be entitled to tort damages based on equitable principles.
But if that’s right – and it is – then ChromaDex’s fraud claim was wrongfully dismissed, and ChromaDex should be claiming fraud damages for this behavior, too.
All’s well that ends well, but I haven’t forgotten all of the taunts Elysium sent my way for being “wrong” about the case.
Judge Carney has come around to my view now.
Elysium should, too.