Shelly Albaum
Feb 18, 2017
[May the record reflect that Cooley is not afraid of Skadden.]
ChromaDex has moved to dismiss all of Elysium's claims other than breach of contract, and has added two new claims against Elysium for violating federal and state trade secrets laws. The new Court Documents are linked below.
Newly alleged by ChromaDex:
"Elysium also conspired with two ChromaDex employees to steal ChromaDex’s confidential and proprietary information in order to disrupt ChromaDex’s commercial relationships and activities. Elysium successfully prevailed upon ChromaDex’s employees to misappropriate ChromaDex’s trade secrets in violation of their confidentiality agreements with ChromaDex. Elysium then used that information to its benefit knowing it had been improperly taken from ChromaDex. After wrongfully disclosing ChromaDex’s trade secrets, both employees resigned from ChromaDex and immediately began working for Elysium."
If ChromaDex gets Elysium's tort claims thrown out, but is able to sustain its own tort claims against Elysium, ChromaDex's negotiating position in resolving this dispute, and setting future terms, will be very strong.
ChromaDex's Motion to Dismiss
So what are the prospects?
The amended complaint is a good bit tighter than the original and is updated in several ways, but does not change the fundamental story.
The two new trade secret claims are potentially important, but the extent of the potential harm to ChromaDex is unclear. ChromaDex specifically mentions the loss of information about its employees, agents, partners, and research plans.
That's not explosive; it's not like Elysium is creating black market NR. But then even ChromaDex admits, "The full extent of the improper disclosures and actions by Morris and Dellinger is not now known to ChromaDex and can only be uncovered through discovery."
Certainly the employees involved would have had access to confidential information, and the general circumstances around their departure do not smell good. One can imagine from the allegations that something beneficial to Elysium might have been spilled. Unless Elysium is prepared to argue that employee compensation, partner plans, and research agendas are not trade secrets, I would wager that ChromaDex's allegations will survive dispositive motions.
Meanwhile, we will be waiting at least until March 27th to learn the fate of ChromaDex's attempt to get Elysium's non-contract claims dismissed, but here is a guess:
Counterclaim 4 -- Fraudulent Inducement.
ChromaDex is certainly right that Falsity at the time of the statement was not pled (as we noted in our previous piece catching a tricky verb tense change). Then ChromaDex plays hardball by claiming that Elysium's own words negate one of the elements of fraud, actual reliance -- Elysium's saying "We had no choice but to agree to ChromaDex's requirement," does suggest a lack of reliance, although Elysium might argue around this and claim that it had no choice "given its misunderstanding," which might or might not be worth something. So Elysium has not yet alleged a statement false when made, and there is some evidence that it would not have mattered. Our Bet: Even if Elysium fixes its allegations, it might still get dismissed.
Counterclaim 5 -- Patent Misuse.
ChromaDex cites authority suggesting that this is a frivolous and sanctionable claim in the current context. In our last article we used softer language -- "puzzling" -- in response to this claim. But ChromaDex is probably right. Our Bet: Easy Win for ChromaDex. [Note to Skadden: smh]
Counterclaim 6 -- California Unfair Competition
ChromaDex launches a blizzard of attacks generally to the effect that California's Unfair Competition Law cannot be used the way Elysium is trying to use it. Our Bet: ChromaDex is right; attempted fraud and breach of contract don't constitute unfair competition.
Summary
We thought that ChromaDex had the upper hand before, and that seems even more likely now.
However, this mutually self-destructive litigation is crazy, given that both companies could be putting their time and resources into two really promising and complementary businesses.
Hopefully Elysium will return to its core competency in Marketing, and depend less for its profits on Litigation or Business Intrigue, and hopefully ChromaDex will give Elysium a second chance.