A blue moon is rising in the Federal Circuit this week, as the Court is set to host the oral argument for its en banc review of the panel’s decision in EcoFactor, Inc. v. Google, Inc. At issue is the admissibility of expert testimony regarding per-unit reasonable royalties based on lump-sum payments for a patent license agreement covering a portfolio of patents.

Background: Jury Verdict and Initial Appeal

The appeal stems from a trial in the Western District of Texas, where the jury returned an infringement verdict and a $20 million damages award for EcoFactor. Google appealed the district court’s denial of its motion for a new trial. On appeal, Google challenged the admissibility of testimony from EcoFactor’s damages expert, arguing that it did not comply with admissibility standards set forth in Federal Rule of Evidence 702 (Rule 702) and Daubert v. Merrell Dow Pharmaceuticals, Inc.

The panel’s Majority affirmed the damages award with Judge Prost dissenting. See EcoFactor, Inc. v. Google LLC, 104 F.4th 243, 252-53 (Fed. Cir. 2024), reh’g granted 115 F.4th 1380 (Fed. Cir. 2024). In her dissent, Judge Prost held that the district court abused its discretion in admitting the testimony of the expert regarding royalty rate. She specifically found that the expert used “self-serving recitals” in the licenses to “manufacture a royalty rate” and incorrectly based his opinions on the licenses, which included other patents that the expert did not value. Id. at 258-59.

The Issue Before the Court

The Federal Circuit granted Google’s Petition for Rehearing, limiting briefing to whether the district court’s adherence to Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc.… in its allowance of testimony from EcoFactor’s damages expert assigning a per-unit royalty rate to the three licenses in evidence in this case.”

Google’s Arguments Against EcoFactor’s Expert Testimony

According to Google, the district court abused its discretion by failing to exclude the expert’s testimony. Google first argued that EcoFactor improperly extracted per-unit royalty rates for a single patent from lump-sum licenses covering multiple patents. Google noted that the expert’s royalty rate was primarily based on:

1. A “whereas” clause in the agreements that expressed EcoFactor’s unilateral and unfounded belief about a purported per-unit royalty rate.
2. The unsupported testimony of EcoFactor’s CEO.

Google also noted that the expert ignored identical statements of the licensees in each agreement that the lump-sum amount was “not based upon sales and does not reflect or constitute a royalty.”

Google maintained that the expert’s royalty testimony was not based on any sales data or mathematical analysis that would have allowed him to verify if the lump-sum amounts were calculated based on the royalty rate he championed. Thus, Google argued that the expert’s testimony was not reliable because it was not “based on sufficient facts or data” nor was it “the product of reliable principles and methods.”

Given these failures to comply with Rule 702, Google asserted that the district court abused its discretion by admitting the expert’s opinions. Google also attacked the panel Majority’s decision for its purportedly improper focus on:

1. The weight to be given to the expert’s testimony rather than its admissibility.
2. The jury’s credibility determinations arising from the extensive cross-examination of the expert.

EcoFactor’s Defense of its Expert’s Testimony

EcoFactor’s response first focused on the relevant standard of review, noting that it not only requires a showing that the district court abused its discretion in admitting its expert’s testimony, but also that any error was not harmless.

Not surprisingly, EcoFactor argued that the jury’s verdict was not based on the challenged testimony and thus the second half of the standard of review could not be satisfied.

EcoFactor also challenged Google’s assertion that its expert did not apply a reliable methodology. It emphasized that its expert’s methodology correctly involved analyzing comparable licenses in the context of a hypothetical negotiation as outlined in Georgia Pacific.

Furthermore, EcoFactor emphasized the volume of facts specific to the case that its expert relied on:

• Testimony of its CEO.
• Statements on the face of the license agreements
• Correspondence regarding the negotiation of the licenses.

Because its expert purportedly relied on the correct methodology and facts specific to the case, EcoFactor argued that Google was seeking to import a new “credibility of the facts” standard that is not part of Rule 702 and not required by the Federal Circuit or Supreme Court. According to EcoFactor, such a standard, even if permitted, would only affect the weight to be given to the expert’s opinion, but not its admissibility.

Broader Implications and Amicus Briefs

Dozens of amici submitted briefs in this appeal, mostly on behalf of Google’s position. The briefs, however, are too voluminous to be summarized here. However, the volume of amicus briefs demonstrates that the issues before the Federal Circuit are of broad concern and may be a game changer in the patent damages world.
Watch this space over the coming months for a full analysis of the Federal Circuit’s en banc decision when it is issued.