by Dennis Crouch
Google recently petitioned for en banc review a Federal Circuit split decision in EcoFactor v. Google. The case focuses on when a damages expert testimony satisfies Daubert. The original opinion also highlights an interesting debate regarding the appeal of pre-trial eligibility rulings.
In EcoFactor, Inc. v. Google LLC, No. 23-1101 (Fed. Cir. June 3, 2024), the Federal Circuit issued a 2-1 split decision affirming a $20 million jury verdict in favor of smart thermostat company EcoFactor. The majority opinion, authored by Judge Reyna and joined by Judge Lourie, upheld the district court’s denial of Google’s motions for judgment as a matter of law on non-infringement and for a new trial on damages. Judge Prost dissented from the damages portion of the decision, arguing that the testimony of EcoFactor’s damages expert was fatally flawed and should have been excluded.
Google has now petitioned for rehearing en banc, arguing that the panel decision “contradicts this Court’s precedent” on patent damages and “threatens to substantially lower the bar for admissibility of expert opinions based on comparable portfolio licenses.” The petition focuses on two main issues: (1) whether the damages expert improperly relied on self-serving recitals in license agreements to derive a royalty rate, and (2) whether the expert failed to properly apportion the value of the asserted patent from other patents in the comparable licenses.
Background: EcoFactor’s US8738327 claims smart thermostat systems that use inside/outside temperature measurements to estimate how quickly inside temperature will change, and use that to optimize HVAC operations. Ecofactor sued Google back in 2020 in W.D. Tex. before Judge Albright who denied Google’s summary judgment motion that the claims were directed toward ineligible abstract ideas under 35 U.S.C. § 101.
License Rate: At trial, EcoFactor’s damages expert, David Kennedy, used a hypothetical negotiation approach to calculate a reasonable royalty based upon three prior EcoFactor licenses. He opined that the reasonable royalty would be $X per unit based. (The exact amount here is redacted in the briefs). These were apparently lump sum licenses, but included “whereas” clauses stating that EcoFactor believed that the lump-sum payments were based upon this $X per-unit royalty rate. Kennedy also relied upon an email with one of the licensees (Johnson Controls) discussing the $X rate and testimony from EcoFactor’s CEO about the licensing rate.
Apportionment of Portfolio: One difference with the prior licenses is that they involved EcoFactor’s entire portfolio rather than the one patent at issue here. Kennedy recognized that the single patent license would reduce the expected royalty rate, but concluded that “downward pressure” was offset by “upward pressure” based upon the proceedings. In particular, unlike with the prior licenses, the claims in this case have now been adjudged valid and infringed. Google argued that this testimony failed the Daubert standard of reliability, which requires that expert testimony be based on scientifically valid reasoning / methodology.
Interestingly, Google did not present any competing damages theory or evidence at trial.
Appealing Summary Judgment Denial: In the case, Judge Albright denied the Google’s motion for summary judgment on the issue of Alice Step 1 – the purely legal question of whether the claims were directed to an abstract idea. Remember here that denial of a motion is typically not a final judgment on a question and Judge Albright seemingly decided to reserve the final decision on eligibility until after trail. I say this because Judge Albright submitted Alice Step-2 to the jury who found in favor of the patentee. Google did not directly appeal the jury verdict here, but rather appealed the denial of summary judgment.
On appeal, the court did not delve into the merits of 101, but rather held that “a district court’s denial of summary judgment is not appealable after a trial on the merits.” Syngenta Crop Prot., LLC v. Willowood, LLC, 944 F.3d 1344, 1364 n.7 (Fed. Cir. 2019); Ortiz v. Jordan, 562 U.S. 180 (2011). In general, a denial of summary judgment cannot be appealed after trial — rather, the issue must be renewed at trial in order to preserve the issue for appeal. The panel did not address the Supreme Court’s more recent opinion in Dupree v. Younger, 598 U.S. 729 (2023), holding that a party is not required to renew purely legal arguments that had been denied at summary judgment. It doesn’t appear that Dupree was raised or discussed by either party.
Damages: The bulk of the majority opinion focused on Google’s challenge to the damages award and Mr. Kennedy’s expert testimony. The majority held that the district court did not abuse its discretion in admitting the testimony and denying a new trial on damages. Here, the majority concluded that the opinion was sufficiently tied to the evidence presented and that Kennedy adequately apportioned — accounting for differences between the comparable licenses and the hypothetical negotiation at issue.
Judge Prost dissented from the damages portion of the decision, arguing that Mr. Kennedy’s testimony was fatally flawed in two respects. First, she contended that “self-serving recitals” in the licenses were contradicted by express language in two of the agreements was not sufficient to provide a concrete basis for converting lump-sum payments to running royalties. Second, Judge Prost argued that Mr. Kennedy failed to properly apportion the value the asserted patent from the entire portfolio found in the comparable licenses. The analysis here of the directions of apportionment is accurate (upward and downward pressure), but the particular numbers of how far up or down was apparently not based upon underlying hard evidence.
Google’s En Banc Petition: Google’s petition for rehearing en banc largely tracks Judge Prost’s dissent, arguing that the panel majority’s decision “contradicts this Court’s precedent” on damages in patent cases. Google contends that en banc review is necessary to clarify two important issues:
- Whether a damages expert can rely solely on self-serving recitals in license agreements to derive a royalty rate, particularly where other provisions contradict those recitals.
- Whether general testimony about “upward and downward pressure” on a royalty rate is sufficient to apportion the value of an asserted patent from other patents covered by comparable licenses.
The petition cites Apple v. Wi-LAN, where the court rejected similar testimony from the same expert. Google argues that allowing such generalized testimony effectively eliminates the apportionment requirement for comparable license analysis.
Google’s basic approach here is similar to that of law review editors: Every claim in a damages analysis should be based upon hard evidence, not opinion by a licensing expert. It is a strong argument with some case backing, but I expect it will ultimately fail to garner support from the judges.
How much of the numbered often-cited “Georgia-Pacific Factors” for determining what the litigated patent infringement damages could or should be is still good law? I don’t see Georgia-Pacific cited in this EcoFactor v. Google material in either the panel decision or the Google petition for en banc review.
Clearly, patent infringement damages or reasonable royalties calculated after a judicial decision of validity and infringement, rather than before, are logically higher, but how is that amount to be decided by hard evidence? And are appeal reversal odds factored in?
P.S. Thanks for noting that this was a Judge Albright W.D. TX Waco case below that did get a jury trial decision. How’s his backlog nowdays?