CDXC Offers Supplemental Authority in Delaware
Updated: Sep 21, 2020
UPDATE September 21, 2020: Elysium's response added at the end.
ChromaDex yesterday offered Judge Connolly some additional cases supporting its argument that it has standing to assert a patent infringement claim against Elysium.
The arguments address technical legal issues, but you can read them here:
The main part that we care about is that we can see the two questions that Judge Connolly asked ChromaDex to answer, and we can judge the quality of the answers.
To recap, in order to bring a patent infringement lawsuit you have to be the owner of the patent or an exclusive licensee. Dartmouth is the owner, and ChromaDex is the exclusive licensee. We need ChromaDex to have standing because ChromaDex's damages for patent infringement are different from Dartmouth's.
ChromaDex IS an exclusive licensee -- it says so all over the license. Elysium's argument is that the license that purports to be exclusive actually breaks exclusivity by giving rights to two different ChromaDex subsidiaries -- ChromaDex and Healthspan. As sibling subsidiaries, they are referred to as "affiliates" of each other.
The point of the standing rules is to make sure the right person is suing and to make sure that the defendant isn't subjected to a multiplicity of lawsuits.
Elysium thinks it has found a loophole in the standing doctrine big enough to squeeze through, because although Healthspan and ChromaDex are sort of the same company -- they are subsidiaries of the same parent, and they have the same leadership -- they are legally separate corporations, and the court can't ignore the corporate form.
ChromaDex turns that argument around on Elysium and says, "Right, you can't ignore the corporate form, and the corporate form constrains them severely. You can't pretend that they are separate and unrelated corporations, because they are not."
The leading authority, WiAV, says that the test for whether a license is exclusive is whether the alleged infringer is excluded from getting a license. Elysium interprets that to mean that neither subsidiary can exclude the other from licensing to Elysium. ChromaDex interprets it to mean that Elysium is excluded from getting a license from either one -- that the alleged infringer is the one being excluded; it is not the licensee who has to exclude all other licensees.
So with that context, we have two questions from Judge Connolly:
The first question is whether there are additional cases that followed the principle in WiAV Sols. LLC v. Motorola, Inc., 631 F.3d 1257, 1266–67 (Fed. Cir. 2010) that “if an exclusive licensee has the right to exclude others from practicing a patent, and a party accused of infringement does not possess, and is incapable of obtaining, a license of those rights from any other party, the exclusive licensee’s exclusionary right is violated?”
The answer is yes, and ChromaDex cites three cases, noting, "The decisions in Smith v. Garlock Equipment Co. and AstraZeneca v. Apotex are particularly instructive. In Smith, the court found that Raptor was an exclusive licensee with standing and thus a proper co-plaintiff even though Smith, the other co-plaintiff and owner of the patent, had the ability to grant licenses to others to settle infringement lawsuits.... In AstraZeneca, the court found that four affiliates had standing and thus were proper co-plaintiffs based on the agreements and understandings among them..."
The Court's second question was whether the two ChromaDex affiliates legally could independently license the Asserted Patents to Elysium, putting aside whether they would do so as a factual matter?
ChromaDex's answer is very interesting.
ChromaDex points out that corporate subsidiaries have a fiduciary duty to act in the best interests of the parent and the shareholders, and licensing to Elysium would not be in ChromaDex's best interest.
That seems obvious, but it shines a bright light on the key issue in the case, which is that licensing exclusively to two wholly-owned affiliates of the same parent corporation is different from licensing to separate corporations, which is why the Court will be justified in granting standing to ChromaDex and Healthspan in this case, even if it would not be proper were they separate and competing entities.
Nobody knows for sure what a court will do, and the reason we have appellate courts is because district courts often make mistakes. That is particularly true in the highly technical area of Patent Law, which is why a single appellate court -- the Court of Appeals for the Federal Circuit (CAFC) -- has jurisdiction over all patent appeals from all district courts nationwide.
Judge Connolly was appointed just two years ago, and did not come to the bench with deep experience in intellectual property. Nonetheless, his docket has been swamped by patent cases -- like all Delaware federal dockets -- for the past two years, and he is probably learning the ropes.
Over the past two years we haven't seen much from His Honor that would give us a sense of his jurisprudence, other than perhaps a distinct note of caution.
With that in mind, I continue to believe that Judge Connolly is unlikely to rule that an exclusive patent license that offers exclusivity to an entity "and its affiliates" destroys the enforcement of the exclusivity at the same moment that it purportedly grants exclusivity. This would be new law, and disruptive to a large number of existing patent licenses. Moreover such a ruling would not advance the purposes of the patent standing doctrine at all, and it is not called for by existing authority. So it's unlikely to happen.
So it seems like a good sign that Judge Connolly has asked these questions and received these answers. They really are right questions to ask if you want to button down an opinion denying Elysium's motion.
Judge Connolly now has everything he needs to move the case forward. Dare we hope for a resolution soon?
I don't think so. Judge Connolly resolved three motions to dismiss in the past 11 days. The motions were filed, respectively, in November, September, and December of last year. It does not look like he is close to resolving any motions that were filed in May of this year, which is when the motion in our case was filed.
But we'll see.
UPDATE: September 21, 2020
Elysium does not like ChromaDex's supplemental authority: "Plaintiff's unauthorized submission was improper and should either be disregarded or stricken."
Apparently ChromaDex's letter left a mark. Elysium stands by its argument that WiAV didn't change anything. You can read Elysium's supplemental response here.