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Nutritional Biomimetics, LLC v. Empirical Labs, Inc.

United States District Court, D. Colorado

April 20, 2017

NUTRITIONAL BIOMIMETICS, LLC, Plaintiff/Counterclaim Defendant and Counterclaim Plaintiff,
v.
EMPIRICAL LABS INCORPORATED, Defendant/Counterclaim Plaintiff,
v.
CHARLES BARKER Counterclaim Defendant, and EMEK BLAIR, CLVM, LLC, Counterclaim Defendants/ Counterclaim Plaintiffs,
v.
KELLY GOYEN and ASA WALDSTEIN, Counterclaim Defendants.

          ORDER

          KATHLEEN M. TAFOYA, UNITED STATES MAGISTRATE JUDGE

         This matter is before the court on Defendant/Counterclaim Plaintiff “Empirical Labs' Motion for Partial Summary Judgment.” (Doc. No. 94 [“Mot.”]). Plaintiff/Counterclaim Defendant/Counterclaim Plaintiff Nutritional Biomimetics, LLC (“NB”) filed a Response (Doc. No. 106 [“Resp.”]), to which Defendant/Counterclaim Plaintiff Empirical Labs, Inc. (“Empirical Labs”) replied. (Doc. No. 113 [“Reply”].)

         BACKGROUND INFORMATION

         Empirical Labs produces and sells nutritional supplements. From 2010 through 2014, Empirical Labs employed Counterclaim Plaintiff/Counterclaim Defendant Dr. Emek Blair (“Dr. Blair”). In November 2012, Dr. Blair created NB and serves as the sole managing member. While Dr. Blair was employed by Empirical Labs, NB and Empirical Labs entered into multiple licensing agreements involving the development, manufacturing, and selling of liposomal nutritional products. Dr. Blair and NB contend that NB owns the manufacturing methodology and formulas related to the liposomal products and that Empirical Labs could only manufacture and sell products derived from the same pursuant to a licensing agreement from NB allowing it to do so. Under the licensing agreement in place during the time period relevant to the instant Motion, Empirical Labs was required to pay NB 15% of its gross profits from the sale of liposomal products covered by the agreement. Empirical Labs disputes NB's characterizations of the licensing agreements, contends they are neither valid nor enforceable, and contends the manufacturing methodology and formulas related to the liposomal products are Empirical Labs' trade secrets stolen and utilized by Dr. Blair and NB.

         In order to resolve Empirical Labs' Motion for Partial Summary Judgment, it is not necessary for the court to determine the proper characterization of the licensing agreements and their validity, nor the proper owner of the liposomal manufacturing methodology and formulas. The issue presented in Empirical Labs' Motion is limited to the enforceability of a stipulated damages provision contained within a document entitled “Resolution of Phytalive product use of structured phophotidycholine and liposomal iodide” (“Resolution”), executed by NB and Empirical Labs in June 2014, and related to liposomal products not previously covered by a licensing agreement. Empirical Labs seeks summary judgment from this court that the Resolution's stipulated damages provision is not enforceable because it serves as a penalty clause rather than a liquidated damages provision. Empirical Labs further contends that, if the court concludes the stipulated damages provision is unenforceable and the trier of fact ultimately determines Empirical Labs breached the Resolution, the proper measure of damages would be 15% of Empirical Labs' gross profits because that was the amount Empirical Labs was paying NB under the licensing agreement in place at the time the Resolution was executed.

         UNDISPUTED FACTS

         1. In June 2014, Empirical Labs and NB executed the Resolution, which provides, “Empirical Labs has manufactured two products that are under the liposomal agreement .....Due to miscommunication, [Empirical Labs] will not be required to make any payments for these products as long as no further batches will be manufactured past June 25, 2014.” (Doc. No. 94-1.)

         2. The Resolution further provides:

In the future, [Empirical Labs] must get express signed written authorization via a licensing agreement from NB, LLC prior to manufacturing any new formulas that are liposomal products, advanced bioavailability products (aka UltaXorb), or any of the krill oil processing products as finished product, bulk, or as an ingredient(s) in another product(s).

(Id.)

         3. The Resolution includes the following stipulated damages provision: “If [Empirical Labs] does not comply, it will be required to pay the full retail price of manufactured products to NB LLC, no less than $0.25 per 5mL.” (Id.)

         4. On May 29, 2014, prior to executing the Resolution, Dr. Blair submitted a draft to Mr. Goyen for his review. (Doc. No. 94-3 at 1-2.)

         5. Upon reviewing the same, Mr. Goyen replied to Mr. Blair, “The licensing resolution seems a bit strong on penalty.” (Doc. No. 94-3 at 1.)

         6. Nevertheless, the Resolution was signed by Counterclaim Defendant Kelly Goyen (“Mr. Goyen”), President of Empirical Labs, on June 2, ...


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