ChromaDex today filed its reply brief to Elysium's motion to dismiss the patent infringement suit on the ground that ChromaDex and Healthspan lack standing to assert patent infringement because their status as co-plaintiffs means that neither is an exclusive licensee. We explained last week why that argument was almost certainly wrong, although we expected Covington & Burling and Haley Guiliano would do a better job of it in their reply brief. They did. You can read it here:
Here is the crux of it (which turns out, surprisingly, to be just what I predicted in the update last Sunday at the bottom of this post):
Overview
Elysium asks the Court “to dismiss all claims of Plaintiff ChromaDex Inc. [(“ChromaDex”)] for lack of subject matter jurisdiction”—and to deny Plaintiffs’ motion for leave to amend its Complaint to add as a co-Plaintiff Healthspan Research, LLC (“Healthspan”), a sister company of ChromaDex wholly owned by the same corporate parent—on the ground that there cannot be more than one “exclusive” licensee. D.I. 58. But the fundamental premise of Elysium’s motion— that “exclusive” means “only one”—could not be more wrong.
Applying the Federal Circuit’s authoritative discussion of patent standing in WiAV Solutions LLC v. Motorola, Inc., 631 F.3d 1257 (Fed. Cir. 2010), courts have explained that “the term ‘exclusive’ must not necessarily imply ‘sole’ or ‘only,’” and that “a licensee may have an ‘exclusive license,’ even though others ... may retain a license to practice the patent as well.” Luminara Worldwide, LLC v. Liown Elecs. Co., No. 14-CV-3103 (SRN/FLN), 2015 WL 11018002, at *12 (D. Minn. Apr. 20, 2015) (citing WiAV, 631 F.3d at 1266–67).
Elysium appeals to “logic” to argue that “[p]atent rights held by two different entities that are allegedly injured by the same conduct cannot possibly be exclusive.” D.I. 59 (“Mot.”) at 9. But WiAV rejected this supposed “logic” out of hand. There, the Federal Circuit explained that patent standing does not depend on whether the plaintiff can exclude infringement by everyone, but instead on whether the plaintiff can exclude infringement by the defendant. WiAV, 631 F.3d at 1266–67.
A critical component of that inquiry is whether the defendant can obtain a license to practice the patent from another entity. Id. If it cannot, then the plaintiff has standing to sue that defendant, even if the plaintiff may not have standing to sue another party that can obtain such a license. Id. Elysium’s citations of decisions predating WiAV—such as Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359 (Fed. Cir. 2008), which was expressly distinguished in WiAV by the same judge who authored Mars—are not persuasive....Elysium’s argument that it could have obtained a license from either ChromaDex or Healthspan, Mot. at 9, 11, is frivolous. So much for the law.
ChromaDex's factual recitation is also worth considering:
Facts
One of the about 45 direct-to-consumer companies to which ChromaDex sold NIAGEN was Elysium, for incorporation into its BASIS® product. D.I. 1, ¶ 20. Elysium, however, wanted the NR market all to itself. Thus, not long after its commercial relationship with ChromaDex began, Elysium set a course to “destroy” ChromaDex and “take control” of the NR market. See Ex. A at 232, 249.
Elysium recruited the assistance of Mark Morris—ChromaDex’s then-Vice President of Sales and Marketing and the primary account manager for Elysium. Morris provided Elysium with inside information about ChromaDex’s NR supply and patents, including trade secrets regarding ChromaDex’s customer sales and other valuable financial information See Ex. B at 4–9. Morris and Elysium gleefully expressed their desire to crush ChromaDex. For example, Morris texted Dan Alminana, Elysium’s Chief Operating Officer, that “I want to destroy them!” Ex. A at 249. Morris also said he could not wait to join Elysium so that they could, together, “make [ChromaDex’s] worst nightmares come true!” Id. at 232. Alminana responded: “Time to take control of everything!” Id. Elysium’s plot against ChromaDex began in earnest in June 2016, when Elysium ordered two unusually large shipments of NIAGEN with no intention to pay for them. Sure enough, when the shipments were delivered in August 2016, Elysium refused to pay, asserting baseless breach of contract claims. See Ex. B. Through this stockpile, Elysium intended to inflict financial chaos on ChromaDex while at the same time giving itself a runway to steal away ChromaDex’s exclusive license to the Asserted Patents while it looked for an alternative source for NR. See Ex. C at 427–31; Ex. D at 446–47.
Elysium concurrently began a misinformation campaign to undermine ChromaDex’s relationship with Dartmouth and position itself to steal ChromaDex’s exclusive license. For example, relying on the financial harm it had inflicted by refusing to pay for the two large NIAGEN shipments, Elysium falsely told Dartmouth that ChromaDex was insolvent. See Ex. C at 427–31. Elysium was motivated to steal ChromaDex’s exclusive license not only by its desire to destroy ChromaDex, but also by its recognition, based on Morris’s analysis, that the Asserted Patents are valid and infringed by Elysium’s BASIS Product. See, e.g., Ex. A at 250 (“We need those patents!”).
[Here is the relevant portion of Exhibit A:]
Brazenly, Elysium made no attempt to hide its assault on ChromaDex’s exclusive license. For example, Elysium shared its plot with potential investors: on August 14, 2016, Elysium’s CEO Eric Marcotulli emailed Dan Giovacchini and Justin Roberts at General Catalyst—a company deeply involved in Elysium’s financing—informing them that Elysium was “making some very important, strategic moves” and detailing Elysium’s plan 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.” Ex. E at 567. Elysium even celebrated its anticipated success, with Marcotulli (incorrectly) texting Morris that “Dartmouth is revoking the patent!!” Ex. F at 479. But Dartmouth did not revoke ChromaDex’s exclusive license, nor did it grant a license to Elysium. Elysium subsequently attempted to invalidate the Asserted Patents through IPRs, but those efforts also failed. D.I. 33 at 5–6. Now let's look at the details of the legal argument:
Detailed Argument
Elysium argues that “a company cannot be the ‘exclusive’ licensee of a patent if others are also given a license covering the same field and the same territory.” Mot. at 9. As Elysium’s counsel explained in an email to Plaintiffs’ counsel: “Our motion is straightforward. ‘Exclusive’ means only one. Dartmouth has at least two licensees, and neither can claim to be Dartmouth’s ‘exclusive licensee.’” Ex. G.
WiAV expressly rejected Elysium’s position. 631 F.3d at 1266 (rejecting the defendants’ argument “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”). WiAV explained that “exclusive license” has a special meaning in the patent standing context: it is not based on whether the plaintiff can exclude infringement by everyone, but instead on whether the plaintiff can exclude infringement by the defendant, which is determined by whether the defendant could obtain a license to practice the patent from anyone else....
Elysium argues that ChromaDex and Healthspan “are non-exclusive licensees” because their licenses both “cover the same” patent rights and include the right to sublicense, and thus “either company” could allegedly “license Elysium’s allegedly infringing activity, and neither has the power to independently exclude Elysium from engaging in that activity.” Mot. at 9, 11; see also id. at 16 (“At all relevant times, ChromaDex could have granted a license to Elysium under the express terms of the Restated License Agreement.” (emphasis added)).
Elysium misstates the legal standard. The question is not whether ChromaDex or Healthspan “could have granted a license” in the abstract. If that were true, every exclusive licensee with the right to sublicense would lack standing to sue for patent infringement because it “could have granted” a sublicense to the defendant. That is obviously wrong. Instead, as the Federal Circuit held in WiAV, the question is whether the defendant could have obtained a license:
If the accused neither possesses nor can obtain such a license [to the asserted patents], 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.
631 F.3d at 1267 (emphasis added); see also id. at 1266–67 (plaintiff has standing where defendant “does not possess, and is incapable of obtaining, a license of those rights from any other party” (emphasis added)).
Even Elysium does not try to argue that it could have obtained a license to the Asserted Patents from ChromaDex or Healthspan, and for good reason. ChromaDex and Elysium have been at war since Elysium began attempting to “destroy” ChromaDex and “take control” of the NR market for itself.
Although Elysium ultimately failed to either destroy ChromaDex or obtain a license from Dartmouth, its relentless campaign to destroy ChromaDex has led to numerous ongoing litigations between the parties, including litigations in the Central District of California and the Southern District of New York that were already pending when this case was filed in September 2018. Elysium clearly could not have obtained a license from ChromaDex or Healthspan while it was at war with the entire ChromaDex organization, and any assertion to the contrary is frivolous. Elysium’s argument incorrectly assumes that ChromaDex and Healthspan are independently managed entities with the ability to take actions that would harm the other. This is incorrect, as Elysium is well aware. Not only are Healthspan and ChromaDex both wholly owned by ChromaDex Corporation, but all three entities are managed (and have been since this litigation was filed) by a single executive management team that makes all decisions in the interests of the ChromaDex corporate family as a whole and its shareholders...
Elysium argues that “corporate form matters for purposes of injury in patent cases,” Mot. at 14–15, but this is consistent with Plaintiffs’ argument that ChromaDex’s and Healthspan’s corporate affiliation is one fact among many others that together show that Elysium could never have obtained a license from either ChromaDex or Healthspan.
Elysium’s argument that ChromaDex or Healthspan “could have granted a license to Elysium under the express terms of the Restated License Agreement,” Mot. at 16, is also baseless for another reason. Under the Restated Agreement (as well as the Original Agreement), any sublicense of the Asserted Patents requires Dartmouth’s consent. D.I. 50, Ex. C § 2.02. Notably, Elysium does not argue that Dartmouth would have consented to a sublicense, and for good reason: Elysium actually tried in 2016 to obtain a license to the Asserted Patents, and Dartmouth refused. In 2018, moreover, Dartmouth and ChromaDex sued Elysium for patent infringement, confirming that Dartmouth had no intention to grant Elysium a license.
Conclusion
That's a wrap.