EcoFactor, Inc. v. Google LLC, Appeal No. 2023-1101 (Fed. Cir. May 21, 2025)

In its first en banc decision of the year, the Federal Circuit reversed a district court’s admission of expert testimony concerning damages, holding it did not pass muster under Rule 702.  The Court concluded that the expert’s testimony about a reasonable royalty rate was not sufficiently connected to three license agreements he relied on.

We addressed this case as our Case of the Week when the three-judge panel issued its original decision in June 2024.  See here.  The case involves smart thermostats.  A jury found Google infringed and the patents at issue were not invalid.  The jury also awarded a lump sum royalty of $20,019,300 following testimony from EcoFactor’s damages expert that a reasonable royalty in past cases was $X.  The district court had denied Google’s Daubert motion to exclude the testimony, in which Google argued that the expert’s opinion was unsupported by reliable methodology or sufficient facts.  Google also filed a motion for JMOL, which was denied.  A panel of the Federal Circuit affirmed.

The en banc court agreed to review solely Rule 702 issue: whether the district court erred by allowing EcoFactor’s damages expert to testify that a reasonable royalty would have been $X.

The Court first considered the legal standard under Rule 702, and recent developments.  Specifically, in 2023, Rule 702 was amended, and the Advisory Committee noted that “many courts have held that the critical questions of the sufficiency of an expert’s basis, and the application of the expert’s methodology, are questions of weight and not admissibility. These rulings are an incorrect application of Rules 702 and 104(a).”  Instead, the Court explained that, “Determinations of admissibility, which fall within the gatekeeping role of the court, are separate from determinations of weight and credibility, which are within the province of the jury in a jury case. . . . While the credibility of an expert’s damages calculation is properly left to a jury, a determination of reliability under Rule 702 is an essential prerequisite.”

With respect to the instant case, EcoFactor’s expert relied on the prototypical willing licensee-willing licensor framework, which incorporates as a factor “[t]he royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty.”  EcoFactor’s expert considered licenses between EcoFactor and three licensees, and testified that those licenses all reflected an $X unit rate applied to their sales.

However, each of the three licenses were lump sum licenses, and had language such as the following in their preambles:

WHEREAS, Ecofactor represents that it has agreed to the payment set forth in this Agreement based on what Ecofactor believes is a reasonable royalty calculation of $[X] per-unit for estimated past and Daikin’s projected future sales of products accused of infringement in the Litigation.

At least one of the three licenses goes on to state in its operative payment provision that “[s]uch [a lump-sum] amount is not based upon sales and does not reflect or constitute a royalty.”  The $X royalty rate in fact did not appear anywhere else in any of the three license agreements.

The en banc Court held that, “To the extent Mr. Kennedy read this unambiguous license and opined that it reflected Schneider’s agreement to the $X royalty rate, there are not sufficient facts or data to support this opinion.”  While these license agreements stated what EcoFactor believed the licenses to be worth, which facts may have been admissible, they were insufficient to support its expert’s testimony that prior licensees had agreed to pay the $X royalty rate.  “The licenses, individually or in combination, do not support Mr. Kennedy’s opinion that the licensees were paying the $X rate, agreed to pay the $X rate, or agreed that the $X rate was a reasonable royalty.”

EcoFactor attempted to buttress its expert’s opinion with testimony from its CEO.  He had “testified that the lump-sum payments for each of the three licenses was calculated by multiplying the licensee’s past and future projected sales by the $X per unit rate.”  But  “When asked about the basis for his understanding of the lump-sum calculations, [he] testified that neither he nor anyone else at EcoFactor had been given access to sales data for” the three licensees.  Accordingly, he had no personal knowledge that the lump sum royalties in those licenses actually reflected the $X per unit rate.

Accordingly, the Court reversed.  The Court reinstated the panel’s opinion with respect to other issues.  The Court also briefly addressed an argument raised by EcoFactor that the en banc panel was not properly constituted because Judge Newman was excluded for disciplinary reasons.  The Court readily disposed of that argument, citing its authority under the Judicial Conduct and Disability Act.

Judges Reyna and Stark both dissented from the Court’s analysis concerning the damages issues.

The Court’s opinion can be found here.

By Nika F. Aldrich

ALSO THIS WEEK

Sigray, Inc. v. Carl Zeiss X-Ray Microscopy, Inc., Appeal No. 2023-2211 (Fed. Cir. May 23, 2025)

In an appeal from a Patent Trial and Appeal Board decision declining to hold any of the asserted claims of a patent unpatentable based on prior art, the Federal Circuit reversed and remanded.  Specifically, Sigray challenged the Board’s determination that claims 1, 3, and 4 were not anticipated by a prior art reference, and that claims 1-6 were not obvious in light of the prior art, either in combination with other references or under a single reference theory.  The Court found the Board applied an incorrect claim construction to claim 1 and thus never addressed anticipation under the correct claim construction. “Reversal, rather than remand, is appropriate if on the evidence and arguments presented to the Board, there is only one possible evidence-supported finding: that the Board’s determination when the correct construction is employed, is not supported by substantial evidence.” (internal quotations omitted). The Court further found that all the other disputed claims were dependent on claim 1. “When a dependent claim and the independent claim it incorporates are not separately argued, precedent guides that absent some effort at distinction, the claims rise or fall together.” The Court thus remanded to the Board to determine whether claims 2, 5, and 6 would have been obvious in light of the opinion.

The opinion can be found here.

By Julia Davis

This article summarizes aspects of the law and does not constitute legal advice. For legal advice with regard to your situation, you should contact an attorney.