Shelly Albaum
May 26, 2017
ChromaDex on Wednesday answered Elysium's Counterclaims. You can read about it here:
ChromaDex's answer to Elysium's Counterclaims
To make sense of most of it you need to read it alongside the counterclaims, so you can see what ChromaDex is admitting to or denying. You can read those here:
ChromaDex's answer is mostly a routine and uninteresting document. Its primary purpose is to identify which issues are or are not in dispute, which we mostly know.
The Affirmative defenses are somewhat interesting legally -- apparently ChromaDex intends to assert a standing challenge, as well as laches, unclean hands, unjust enrichment, and more.
But what's REALLY interesting is affirmative defense #12, in which ChromaDex calls bullshit on the patent misuse claim, but then instead of appealing the dismissal to the Ninth Circuit, simply moots the claim by agreeing to stop doing and to also undo everything that Elysium thinks constitutes patent misuse, prospectively and retrospectively with respect to all customers. As a result, (1) any patent misuse has been purged (which eliminates the need for any remedy) -- that's the 12th affirmative defense, and (2) there is no longer a controversy over patent misuse, which means that the issue is moot (it's already resolved) -- that's the 13th affirmative defense.
In plain English, what ChromaDex said is, this:
"You think collecting royalties via the trademark agreement is illegal? Okay, you're wrong, but fine, we'll stop doing it, we'll give you a credit for any royalties we collected previously, and we'll do the same for all our other customers. So shut up, we're done with that now."
The reason this is a very smart move by ChromaDex's legal team is because if you study the Trademark and Royalty Agreement -- here, feel free to study it:
Trademark and Royalty Agreement
You will see that the total amount due pursuant to the disputed royalties is somewhere between 5% and 7.5% of the total amount owed by Elysium. That translates to a few hundred thousand dollars, which is less than the litigation has already cost. So it's cheaper to just write that off than to continue fighting over this issue.
ChromaDex shareholders who want to see this settled can be satisfied that at least this claim has effectively been settled (on terms favorable to Elysium, but not a significant amount in the bigger picture).
I don't like this outcome very much because it bugs me that Elysium got a recovery on a bogus legal theory supported by a bogus legal opinion. Worse, now Judge Carney's opinion is going to sit in the legal ether and inspire every aggrieved patent licensee in the world to re-interpret their trademark agreement as patent misuse, until the Ninth Circuit cleans up the big dump that His Honor added to the already messy legal corpus.
But it's a good move for ChromaDex. One tort claim is gone, the other is bogus (there is literally no reason to think that the alleged revelations in 2016 regarding contemporaneous contract arrangements are probative of anything that occurred 2.5 years earlier. And ChromaDex may well know for a fact that they are not.
So that hastens us toward settling the breach of contract claims and ending this stupid circus, in which the ringleader is the legal system itself.