CDXC's Supplemental MSJ Brief
Cooley's attorneys burned the midnight oil and then some, filing their supplemental brief and exhibits late last night -- and the motions to seal those exhibits actually AFTER midnight. The Cooley team consistently leaves it all on the field. Which is what a million dollars a month buys you. (By contrast, Baker Hostetler's last brief was unexpectedly stuffed with Lexis-only cites, which makes me suspect that they outsourced their legal research to a low-cost provider.)
There is much at stake with this brief. The trade secrets claims are ChromaDex's most important causes of action in California. If Elysium's bad acts caused little or no harm, as Elysium suggests and Judge Carney wondered, that would weaken ChromaDex's California case considerably (although the same damages might again be available in New York or Delaware under different causes of action -- only later in the future).
So it was cheering last month to hear Cooley tell Judge Carney,
These questions are readily answered with evidence that ChromaDex has submitted to the Court, additional evidence it will submit, and still more evidence that it would prove at trial but will advance now in response to the Court’s order. This evidence is overwhelming, and will prove beyond doubt that Morris and Elysium’s theft of ChromaDex’s confidential information and trade secrets—framed by Morris’s pledge to “destroy” ChromaDex in order to benefit Elysium’s founders, to whom he promised “unconditional loyalty” while he was still a ChromaDex executive—materially and economically benefitted Elysium and Morris and hurt ChromaDex.
And finally today we get to see Cooley spell out in meticulous detail, with 40 additional exhibits, what was already obvious to those who have been following the matter closely.
Here is ChromaDex's supplemental brief on summary judgment along with additional exhibits 107-147.
CDXC's Supplemental Brief on Summary Judgment
Exhibits 1-106 and ChromaDex's prior brief in opposition to Elysium's summary judgment motion can be found here. That was back in August. And the analysis of the original brief is here.
In its newest brief ChromaDex spends about 20 pages defending its trade secrets claims, and about 5 pages supporting its own summary judgment motion on Elysium's bogus patent misuse claim.
We'll start with Trade Secrets.
ChromaDex frames the issue powerfully:
The Court’s questions about causation flow from the premise that “[t]he heart and soul of this case is the breach of a sales contract.” (Order at 2.) It is not. The heart of this case is Defendant Mark Morris’s breaches of fiduciary duty and the aiding and abetting of those breaches by Eric Marcotulli and Dan Alminana, the co-founders of Defendant Elysium Health, Inc. (“Elysium”). For months, this trio carried out a wide- ranging scheme to “destroy” ChromaDex so they could, in their words, “get rid of the scumbags holding this magnificent technology” (ChromaDex’s patented ingredient nicotinamide riboside (“NR”)). (Ex. 15 at 232, 249.) The scheme these three cooked up certainly included the theft of NR from ChromaDex through a brazen breach of contract. But that was just part of it. Their plot also included stealing and misusing numerous confidential and proprietary documents in violation of multiple contracts and trade secrets laws, as well as other acts of deception and disloyalty that enabled the trio to pull off their scheme. (See Dkt. 302-1 at 3–14.) The evidence presented by ChromaDex shows that the conspiracy both harmed ChromaDex and unjustly enriched the Defendants. At a minimum, it creates triable issues of fact for a jury to decide.
That last sentence there is critically important. ChromaDex doesn't need to prove its case to the judge in order to get to the jury. It only needs to establish that there is enough evidence so that a jury COULD find in its favor, not so that a jury MUST find in its favor.
Next, ChromaDex makes an unexpected move, stating that if the Court thinks that $30M is an overstated damages claim, then ChromaDex only currently intends to request from the jury readily provable damages of an amount probably under $10M:
"ChromaDex takes seriously the Court’s concern that damages might be “overstated.” (Order at 3.) To alleviate that concern, ChromaDex only intends to request a subset of readily provable damages from the jury. Those damages are:
Elysium’s outstanding balance for the June 30 orders (about $3 million);
Elysium’s profits arising from its resale of ingredients from the June 30 orders (about $ [REDACTED]);
Elysium’s avoided costs from its use of two confidential ChromaDex documents, the NRCl Analytical Method and the pTeroPure GRAS Report ($110,000);
Elysium’s wrongfully obtained price discount ($600,000); and
Morris’s compensation ($684,781).
ChromaDex will also request punitive damages
"ChromaDex will explain its theory of causation with respect to each category of damages (except the first, as the Court has raised no questions about that one). Then, for completeness, ChromaDex will address damages categories that it does not presently intend to pursue at trial (but could)."
For those, like me, deeply disturbed by Elysium's behavior and frustrated by the justice system's inability to provide any kind of timely accountability, the idea of ChromaDex's potentially backing off two-thirds or more of its damages claim is at first upsetting.
However, from the standpoint of a cool, strategic analysis, this makes every kind of sense.
What ChromaDex needs in California is a decisive legal victory showing who is in the right and who is in the wrong, plus a damages award significant enough to potentially end the litigation. Whether the damages award be $10M or $30M does not matter at all, since most of a $30M award would not be recoverable anyway.
And if it were recoverable, there are two subsequent lawsuits (New York and Delaware) waiting in the wings.
Plus ChromaDex has also reserved the right to ask for more at trial if the evidence warrants it.
Plus the unspecified punitive damages component could be significant.
So ChromaDex here is proposing to get everything they need, and to simultaneously eliminate any possibility of a bad outcome at summary judgment. That makes all the sense in the world.
Even though I don't like it.
And I especially don't like it since, as ChromaDex points out, "ChromaDex understands the Court’s questions to only concern causation, not the amount of damages, because '[d]etermining amount of harm suffered is for the jury.'" (citing a 9th Circuit case).
From a purely legal standpoint, that last point right there -- that the amount of damages sought does not implicate the causation issue upon which the Court raised a summary judgment question -- ought to resolve the matter, and ChromaDex can ask for whatever it wants. But if you find the judge unpredictable, and losing is not an option, and the actual amount of damages doesn't matter much after a certain point, then Cooley's approach here makes cold, hard sense.
And what it amounts to, in the end, I think, is a decision by ChromaDex to instead pursue Elysium's profits arising from its alternative source of NR, plus ChromaDex's lost profits, in the patent infringement case, where a complex causation calculus won't be required, and infringement will be straightforward to show.
ChromaDex cites almost 50 cases in this brief. It is the largest table of authorities we have seen yet. Cooley is throwing a LOT of law at the judge. Part of that law is to establish that under the causation or "substantial factor" test ChromaDex only needs to establish that the trade secret theft helped Elysium, not that it was the primary reason that Elysium succeeded:
“Undue emphasis should not be placed on the term ‘substantial.’” Crowe v. City of San Diego, 2005 WL 8156613, at *3 (S.D. Cal. Apr. 11, 2005) (quoting Rutherford v. Owens-Illinois, Inc., 16 Cal. 4th 953, 969 (1997)). The standard “requir[es] only that the contribution of the individual cause be more than negligible or theoretical.” Rutherford, 16 Cal. 4th at 978. Even “a very minor force” that causes harm is a substantial factor. Grancare, LLC v. Thrower, 2016 WL 1082780, at *4 (N.D. Cal. Mar. 21, 2016), aff’d, 889 F.3d 543.
A “substantial factor” need not be the only factor causing loss. Yanez v. Plummer, 221 Cal. App. 4th 180, 187 (2013). “[T]here may be multiple causes of a plaintiff’s injury,” both tortious and nontortious. Third Eye Blind, Inc. v. Near N. Entm’t Ins. Servs., 127 Cal. App. 4th 1311, 1319 (2005). Merely because “other factors” may have contributed to the harm “does not conclusively establish that there is no genuine issue” for a jury. Bulletin Displays, LLC v. Regency Outdoor Advert., Inc., 518 F. Supp. 2d 1182, 1190 (C.D. Cal. 2007) (Carney, J.). A plaintiff is not required to apportion damages between multiple causes because “where a defendant’s [conduct] is a concurring cause of an injury, the law regards it as a legal cause of the injury, regardless of the extent to which it contributes to the injury.” Espinosa v. Little Co. of Mary Hosp., 31 Cal. App. 4th 1304, 1317–18 (1995)
I will summarize, rather than quote, the next batch of case citations, which relate to the use of circumstantial evidence to prove causation. ChromaDex shows that (1) the use of circumstantial evidence is particularly appropriate in trade secret cases, given the secretive nature of the misconduct; (2) It is logical to infer that a competitor who hires away a rival’s valued employee with access to inside information has done so in order to use that inside information to compete with the rival; and (3) A smoking gun is not required to defeat a motion for summary judgment in suits predicated upon asserted disclosures of confidential information.
So here, says ChromaDex, is the story that the evidence tells:
Evidence here shows that Elysium placed an unusual purchase order in late June 2016. Marcotulli and Alminana wanted to buy more product than ever before— substantially more—and wanted to pay a lot less. For ChromaDex, this order was risky. (Jaksch Decl. ¶ 8.) ChromaDex paid its contract manufacturer—W.R. Grace (“Grace”)—for ingredients before getting paid by its customers for those same ingredients, and ChromaDex did not carry much cash on hand. (Id.) Thus, if ChromaDex shipped a large quantity of ingredients to a single customer, and the customer failed to pay, ChromaDex would be in significant financial peril. (Id.) It was far from certain, therefore, that ChromaDex would have accepted the June 30 Orders in the ordinary course. It would have rejected them if it knew (as Morris did) that Marcotulli and Alminana planned to stiff ChromaDex on the bill. (Id. ¶¶ 10, 13.)
Rather than warn ChromaDex of Elysium’s plan to get the ingredients without paying, Morris facilitated it. Morris slipped ChromaDex trade secret information to Elysium about a competitor’s purchases, (Ex. 15 at 224), and the price ChromaDex paid Grace, (id. at 242 (“I verified—These guys paid for this inventory”)). Alminana was ecstatic. (Id. at 224 (“This is between us and you are the F’n man!!”).) Marcotulli and Alminana then used this inside information to pressure ChromaDex during negotiations; for example, Alminana “harp[ed]” repeatedly about ChromaDex’s margins, and (wrongly) accused ChromaDex of breaching the parties’ supply agreement. (Ex. 108 at 1160–61; Ex. 142 at 251:2–7.)7 At the same time, Marcotulli sweetened the pot by falsely promising that Elysium would place further large orders before the end of 2016. (Ex. 144 at 254:17–21.)
Internally, ChromaDex debated whether to take Elysium’s orders. But Morris pushed to accept them as a way to resolve the very dispute with Elysium that Morris had purposely helped instigate. (Jaksch Decl. ¶ 11; Ex. 33 at 347–48.) In the end, ChromaDex reluctantly agreed. As CEO Frank Jaksch testified: “I think the one point I said [to Elysium]. . . ‘what you guys are trying to do right now is harming us. The negotiations that you are doing is not as a good partner, but we want to be a good partner regardless of that, and if we have to sell it to you at $800 a kilo, then we’ll do that. And that’s—that’s essentially how . . . the whole thing ended.’” (Ex. 142 at 252:18–25.)
What Jaksch did not know is that, contrary to their promises, Marcotulli and Alminana never intended to pay and never intended to order ingredients from ChromaDex again. But Morris knew. On July 1, 2016, the day ChromaDex began shipping the ingredients, Morris and Alminana discussed Elysium’s plan to accuse ChromaDex of contractual breaches “the second our ingredients are at Tishcon” (Elysium’s contract manufacturer). (Ex. 15 at 247–49.) Morris told Alminana to “make sure I am out of here first . . . . I want to destroy them!” (Id. at 249.) Two weeks later, Morris sent Marcotulli and Alminana an email recommending manufacturers who could provide Elysium a new (and infringing) source of NR, including the very company that Elysium uses today: [REDACTED]. (Ex. 44 at 542.) When he sent that email, on July 14, Morris was still a ChromaDex executive, and still owed his employer a duty of undivided loyalty. (Ex. 86.) Morris’s loyalty, however, already belonged to his new benefactors, Marcotulli and Alminana. (Ex. 47 (“I also have unconditional loyalty to you two.”); Ex. 145 at 325:19–329:11.)
Suffice it to say, Morris did not warn ChromaDex about the coming storm, and events played out just as he, Marcotulli, and Alminana had planned. ChromaDex shipped the large quantities of ingredients to Elysium on credit. (Ex. 34 at 420–24.) As soon as those shipments were safely in Elysium’s possession, Alminana accused ChromaDex of wrongdoing as a pretext for nonpayment (as he and Morris had discussed). (Ex. 36 at 433; Ex. 72 at 777–79.) Then Elysium made millions of dollars in profits by selling the stolen ingredients as it searched for a new source of NR. (Ex. Ex. 107; Ex. 141 at 128:8–18.) A jury could infer from this evidence that Defendants’ scheming and/or misappropriation of ChromaDex’s trade secrets were substantial factors in enabling this unjust enrichment...
This tour of the evidence makes an overwhelming case that Elysium's bad behavior caused harm to ChromaDex. There's no denying it.
However, were I to critique this account, I would point out that the bad behavior in question mostly does not have to do with trade secrets -- there's just one, the pricing information -- and is much, much more about breach of fiduciary duty.
So the risk here is that ChromaDex gets to the jury on the breach of fiduciary duty claim (and Elysium's aiding and abetting that), and not on the trade secrets claim. That unwanted outcome might not necessary be a big deal -- breach of fiduciary duty is a tort, and all parties are implicated, and the damages seem roughly the same -- but there could be some differences in the legal standards, evidentiary requirements, and exemplary damages calculations, etc., which would cause ChromaDex to prefer to assert both theories simultaneously.
Let's continue reading to see if ChromaDex makes a stronger case for the trade secrets in relation to subsequent events:
ChromaDex also seeks to recover the money Elysium saved, or “avoided,” by breaching its contracts. The theory is straightforward. Elysium had obligations to keep certain ChromaDex documents confidential. Instead of complying with those obligations, Elysium exploited two documents for its own benefit, disclosing them to others. These documents are: (1) the NRCl Analytical Method and (2) the pTeroPure GRAS Report. (Dkt. 153, Fifth Amended Complaint (“FAC”) ¶¶ 159, 175.) By exploiting these documents, Elysium saved money on development, and was unjustly enriched.
NRCl Analytical Method. The NRCl Analytical Method is a highly technical document. (Erickson Decl. ¶ 10; Ex. 110 at 117881–81.) In the simplest terms, it describes how to test a substance to determine if NR is present and, if so, how much. (Erickson Decl. ¶ 10.) ChromaDex spent years and considerable money developing the method described in the document. (Id. ¶¶ 11, 13.)11
ChromaDex shared the NRCl Analytical Method, prominently marked “CONFIDENTIAL,” under a confidentiality agreement with Elysium when it was a ChromaDex ingredient customer. (Ex. 110 at 1174.) After the relationship soured, however, Elysium disclosed the document to others to further its own goals. In August 2016, for example, Elysium needed to get a new source of NR—quickly—so it reached out to the contract manufacturer [REDACTED]. (Ex. 111.) [REDACTED] had never made NR, and doing so at scale would require significant time in research and development. (E.g., Ex. 62.) To save time, Morris gave [REDACTED] the NRCl Analytical Method—or, more accurately, Morris gave [REDACTED] a version of the Method that he doctored to omit ChromaDex’s name and to which he added the following footnote: “This document is the property of Elysium Health and contains proprietary and confidential information. No part of this document may be disclosed in any manner.” (Ex. 111 at 1186–87.) [REDACTED] used ChromaDex’s Method for months to develop a manufacturing process before developing a method of its own.
This is a stronger case for consequential trade secret theft. ChromaDex has specifically identified the trade secret, and how it was used. Elysium's first Mystery NR manufacturer "used ChromaDex's Method for months to develop a manufacturing process before developing a method of its own." Despite the redactions in ChromaDex's brief, we know from the lack of redactions in Elysium's prior public filings that the Mystery NR manufacturer in question is PCI Synthesis.
We know from other evidence that PCI struggled mightily to synthesize NR at all, and even more-so to synthesize NR that lacked acetamide residue. It remains theoretically possible, based on evidence we have not seen yet, for PCI to suggest that it was not helped by the NRCl Analytical Method, and it would have taken less time to achieve Elysium's goals if PCI had ignored it. That would maybe break the causal chain. Absent that evidence, however, this seems like a very strong claim for trade secrets theft that caused harm to ChromaDex.
Moreover, the facts seem to be just the opposite: ChromaDex directs the Court to evidence that PCI's CEO said that ChromaDex's document contained "very good" information that PCI would otherwise have had to develop iteratively, and that having the ChromaDex information "makes things easier and quicker for sure." Elysium also sent the ChromaDex method to two other labs, to help those labs develop tests for Elysium. This looks like very strong evidence that trade secret theft caused damages.
The story is the same with the confidential pTeroPure GRAS Report, says ChromaDex.
Evidence shows that Elysium used ChromaDex’s Report repeatedly, both before and after its own GRAS report was drafted—e.g., to appease investors, (Ex. 117), to explore regulatory options, (Ex. 118), to support a meeting with the U.S. Food and Drug Administration, (Ex. 119; Ex. 116), and to assist its own consultants in preparing its GRAS report, (Ex. 120; Ex. 121; Ex. 122; Ex. 123). A jury could reasonably infer that Elysium used this document precisely because there was value in doing so.
The next two sections of the brief focus on Morris's breach of fiduciary duty, and the damages calculations resulting from that. They are interesting and lurid in the usual ways, but I won't summarize them here.
We get a few more interesting details later on in the brief about Elysium's financing. Before General Catalyst offered more financing to Elysium in 2016,
Elysium obtained millions of dollars in extra cash, a life preserver that kept it afloat long enough to get the first shipments of NR from [REDACTED]. (Opp. at 14; Ex. 64.) It obtained this cash in three ways. First, as described above, Elysium wrongfully acquired the June 30 Orders on credit, forcing ChromaDex to provide Elysium a $3 million interest-free bridge loan. Second, Elysium made at least $ [REDACTED] in revenue from reselling those stolen ingredients. (Ex. 141 at 128.) Third, as discussed below, Elysium raised an additional $15 million on the prospect of usurping ChromaDex’s NR patent rights and exclusive supplier and developing its own supply.
Elysium’s efforts to solicit investment are well documented. In July 2016, investors offered Elysium only $5 million for its Series B financing. (Ex. 133.) But Marcotulli pushed for $20 million. (Id.) Investors repeatedly raised a “major concern” about Elysium’s NR supply. (Opp. at 11; Ex. 51; Ex. 53 at 574; Ex. 134.) Marcotulli alleviated those concerns by stating that he could “acquire some of [ChromaDex’s] assets or patents” and “own the IP and supply chain.” (Ex. 135 at 1439; see also Ex. 51 at 567 (“We are also making some very important, strategic moves in the supply chain to own (1) the molecular structure of NR and (2) broad use patents that will, if successful, give us global control of the entire NR market.”); Opp. at 12.) Marcotulli “peg[ged] probability of this at 75%,” (Ex. 51 at 567), and he repeatedly discussed these efforts with investors, (see, e.g., Ex. 135; Ex. 9 at 143 (Alminana: “Dartmouth meeting is on”; Marcotulli: “Lemme talk to Roberts”); Ex. 40 at 474–75; Opp. at 12).
I would like to take a close look, in particular, at the places where Marcotulli allegedly says, "(“We are also making some very important, strategic moves in the supply chain to own (1) the molecular structure of NR and (2) broad use patents that will, if successful, give us global control of the entire NR market.”), except that the source documents seem to be redacted. I could have swore that I saw these. I will insert the evidence later if I can find it.
In any case, ChromaDex adds,
Those extra millions made all the difference to Elysium. Elysium’s financial statements show that, by the end of 2016 (after the Series B closed), Elysium had a net income of [REDACTED] and liabilities [REDACTED] in cash. (Ex. 137 at 1456–57.) And Elysium’s 2017 statement shows a net income of [REDACTED] including [REDACTED] to develop its new source of NR using ChromaDex information—and liabilities [REDACTED] in cash. (Id. at 1459 (“6800 Research & Development”), 1460.) Simple math would allow a jury to conclude that the millions obtained in part because of Defendants’ misconduct was a substantial factor in keeping Elysium alive.
ChromaDex spells out the causation evidence showing that PCI's Mystery NR was a substantial factor in keeping Elysium alive:
Elysium’s ability to survive depended on its ability to sell product, and that depended on obtaining ingredients. (Opp. at 14.) Elysium had only three ways to get NR: purchase it from ChromaDex, get it from Grace, or develop a new source from a new supplier, [REDACTED]. ChromaDex was not an option; given Elysium’s nonpayment, ChromaDex was forced to cancel the supply relationship. (Ex. 142 at 180:20–24.) And Grace was not an option because, despite Marcotulli and Alminana’s best efforts, they were unable to sever Grace’s exclusive relationship with ChromaDex (although they did seriously strain it). (Opp. at 12–13.)
By late 2016, Elysium “had no other supply” of NR besides [REDACTED], which was then only in development. (Ex. 146 at 39:23–25.) Marcotulli and Alminana planned to stockpile the June 30 Orders in order to give Elysium the time and money to get [REDACTED] up and running. (See Ex. 31.) Without that stockpile, as Marcotulli told his investors in October 2016, “[t]he business wouldn’t exist anymore. Plain and simple.” (Ex. 54 at 578.) It was barely enough. By January 2017, Marcotulli, Alminana, and Morris were “in panic mode” because Elysium’s “supply [of NR was] dwindling.” (Ex. 105; see also Ex. 66 at 729.) Running out of NR would have “crush[ed]” Elysium. (Opp. at 14.) With only three weeks to spare, Elysium finally obtained that NR from [REDACTED]. (Id.) Testimony from [REDACTED] CEO, [REDACTED], shows that Morris—by then at Elysium— told [REDACTED] that [REDACTED] had “saved the company” by “allow[ing Elysium] to continue their business because they were in a desperate situation.” (Ex. 146 at 39:8–40:11.)
The record shows that Defendants used ChromaDex trade secrets and confidential information as a shortcut. NR is a delicate and complex molecule to manufacture in pure form and then keep stable. (Erickson Decl. ¶ 4; Ex. 147 at 62:16– 63:14.) ChromaDex spent years and invested millions of dollars in developing and perfecting the manufacturing techniques for NR. (Erickson Decl. ¶¶ 4, 7; Jaksch Decl. ¶ 3.) For example, ChromaDex [REDACTED]. (Erickson Decl. ¶ 5.) Morris was privy to that work. (Id. ¶ 6.) A jury could infer that is why Morris [REDACTED]. (Opp. at 13–14.) Morris further shared with [REDACTED] the NRCl Analytical Method, a confidential document that took ChromaDex years of refinements to develop. (Erickson Decl. ¶¶ 11, 14.) Ultimately, it took [REDACTED] only one year to develop Elysium’s NR manufacturing process, (Ex. 147 at 64:1–3), compared to the two years it took ChromaDex, (Erickson Decl. ¶ 4). A jury could reasonably find that Defendants used ChromaDex’s trade secrets and confidential information to save at least three weeks of time, and thus save Elysium’s business and enable it to profit. See Pac. Shores Props., 730 F.3d at 1168 (holding once plaintiff presents evidence it suffered “the sort of injury that would be the expected consequence of the defendant’s wrongful conduct,” it “has done enough to withstand summary judgment”).
ChromaDex also points out that Morris destroyed some of the evidence:
A jury would be within its rights to find that the documents, as damning as they are, tell only part of the story. Morris’s destruction of relevant text messages, emails, and documents—which he admitted deleting, (Ex. 145 at 31:10–14, 33:10–12, 34:8–40:12, 64:8–19; Ex. 109 at 1164–65, 1169–70)—is a basis to find that Defendants wrongfully acquired and used ChromaDex’s information. CTC Glob. Corp. v. Huang, 2019 WL 4148184, at *5 (C.D. Cal. July 29, 2019) (denying defendant’s motion for summary judgment when, inter alia, plaintiff’s damages theory was “sprawling and unclear— perhaps in part because of Defendant’s spoliation of evidence”). And a jury could also infer from Marcotulli’s perjury at his deposition, (Dkt. 284-1), as well as the “evasive” demeanor of Marcotulli, Alminana, and Morris at their depositions, that they used ChromaDex information, U.S. v. Zhang, 590 F. App’x 663, 666 (9th Cir. 2014).
ChromaDex also marshals the evidence that price and cost information stolen by Elysium mattered:
Morris assisted in these efforts to “get rid of the scumbags holding this magnificent technology.” (Ex. 15 at 232.) While still a ChromaDex fiduciary, Morris offered Alminana insights into ChromaDex’s patent portfolio to help with Elysium’s “game changing” patent strategy. (Opp. at 8; Ex. 9 at 133; Ex. 15 at 231; Ex. 38; Ex. 145 at 241:2–252:24.) Alminana eagerly accepted his help. (Ex. 15 at 250 (“We need those patents!”).) Morris also pilfered for Elysium the Ingredient Sales Spreadsheet, (Opp. at 10–13; Ex. 26; Ex. 50), and texted Alminana ChromaDex’s cost of NR from Grace, (Ex. 15 at 242), both ChromaDex trade secrets. Possession of this information would have been very helpful to any company selling a consumer product with NR. It would have, among other things, informed that company of the ingredient purchasing trends and forecasts of its NR competitors, allowed it to evaluate the marketing and overall success of those competitors, and adjust its efforts accordingly. (Jaksch Decl. ¶ 5.) Elysium used it to soothe investors’ nerves and undermine ChromaDex’s relationship with Grace. (Opp. at 12.) For example, Marcotulli told investors about the NR inventory of another ChromaDex ingredient customer, Thorne. (Opp. at 12.) And Alminana told Grace that Elysium was in pole position in “[t]he NR market” and that “Elysium is NR.” (Opp. at 13.) It is logical to infer that Marcotulli’s and Alminana’s intimate knowledge of the NR market came straight from the trade secrets pilfered by Morris and that this information was more than a negligible or theoretical factor in Elysium’s ability to bring in the extra $15 million. See Espinosa, 31 Cal. App. 4th at 1317–18 (ruling “inability to pin down the exact extent to which defendants’ conduct contributed to the outcome is immaterial for purposes of causation”).
I hesitate to write much about the alleged Patent Misuse, because we have covered this bogus claim exhaustively, for years, but I will reproduce ChromaDex's arguments, which are clear, concise, and compelling:
ChromaDex has never “misused” a patent...The Court should dismiss Elysium’s counterclaims based on patent misuse because (a) they fail as a matter of law on the merits for the reasons stated in ChromaDex’s summary judgment motion; and/or (b) there is no remedy available to Elysium in light of the purge. The Court should do so promptly, because the mere existence of this counterclaim frustrates ChromaDex’s ability to enforce its patent rights. The District Court in Delaware has stayed ChromaDex’s patent infringement litigation against Elysium until this counterclaim is resolved. An indefinite delay amounts to a daily running fine both on ChromaDex and the patent owners from whom ChromaDex licenses NR patents (to which ChromaDex pays license fees and royalties), and provides a windfall profit to Elysium (which pays nothing to the inventors)...
First...there is no evidence that ChromaDex ever conditioned the sale of NR on a requirement that Elysium or any other customer use the NIAGEN trademark...There is simply no evidence in the record regarding any illegal conditioning or coercion...Second, even assuming there was past misuse (and there was not), that misuse has been “purged.”...The supposedly abusive practice—ChromaDex conditioning access to NR on the purchase of a trademark license—is simply not occurring. It is undisputed that, nearly two-and-a-half years ago, ChromaDex terminated the challenged provisions and refunded or (in Elysium’s case) covenanted to refund any royalties its customers paid. (Ex. 140 at 156:7–157:17.) Consequently, any “misuse” has been abandoned...Elysium does not and cannot contend that the challenged practices are still ongoing...If the defendant fails to show anticompetitive consequences, merely terminating the challenged provision effects a purge.
As for Elysium's arguments to the contrary,
Elysium attempts to manufacture a factual dispute about anticompetitive effects by having its expert claim that ChromaDex’s “misuse” so strengthened the value of its brand, that competition is forever harmed. (DOSB at 23–24; Ex. 140 at 168:9–171:25 (“Q: [I]t’s your opinion that it’s impossible at this point for ChromaDex to ever purge the effects of the alleged misuse? A: I don’t think the effect can ever be fully dissipated....”).) That suggestion, however, is absurd on its face. Courts have never applied patent misuse to permanently deprive a patent owner of the enforceability of its patent, and Elysium offers no authority otherwise.
Moreover, the only “evidence” for that allegation is Elysium’s expert’s ipse dixit. But he admitted that he conducted no analysis to quantify the value of the NIAGEN brand, (Ex. 140 at 131:18–133:17, 166:8–167:2), and cannot point to a single example of unpurgable misuse in all published literature, (id. at 171:20–25). Worse, his report provides no evidence that consumers (as opposed to just competitors) suffered any cognizable harm, e.g., through higher prices or reduced quality. (Dkt. 262-1 at 13; Dkt. 335 at 6–7.) His opinions are of no help to a trier of fact. (Dkt. 262-1, 335.) Because there is no evidence—let alone admissible evidence—of lasting anticompetitive consequences from supposed misuse, the unprecedented remedy Elysium seeks (a declaration of perpetual unenforceability) is unavailable as a matter of law.
Judge Carney asked that ChromaDex spell out very clearly how Elysium's behavior could have caused the harms that ChromaDex claims. That has now been spelled out very clearly.
Judge Carney also asked for clarity on how the Patent Misuse claim could still be asserted. ChromaDex has made that issue as plain as can be (it cannot be asserted).
As a result, I would have a very high level of confidence that Summary Judgment will be denied on the trade secrets issue and granted on the Patent Misuse issue.
Summary judgment motions are also pending on a large number of other claims, and a mixed result on those is most likely.
However, before we find out about that, we get Elysium's Reply Brief on November 27 disputing that which we have just reviewed, and then Judge Carney can rule any time, but probably will wait until close to his self-imposed deadline (the hearing date) of January 13, 2020.