Defense Side Amici Support for Tighter Reins on Damages Expert Testimony

by Dennis Crouch

Google’s pending en banc petition in EcoFactor v. Google has drawn significant  support from some tech giants, focusing on the application of Daubert standards to patent damages expert testimony. Five amicus briefs supporting Google’s position have been filed with the Federal Circuit, each arguing for stricter scrutiny of damages calculations and expert reliability in patent cases.  This post discusses the case and the issues presented by the amici army.

I wrote previously about Google’s pending en banc petition in EcoFactor v. Google, focusing on whether EcoFactor’s damages expert testimony satisfied the requirements of Daubert v. Merrell Dow Pharma., Inc., 509 U.S. 579 (1993).  Under Daubert and its progeny, judges must act as “gatekeepers” to ensure expert testimony is relevant and based on reliable scientific methodology. Judges must consider factors such as testability, peer review, error rates, and general acceptance when evaluating the reliability of expert evidence. For damages experts, Daubert requires that their methodologies and conclusions be scientifically valid and reliably applied to the facts of the case, which can involve scrutiny of their data sources, economic models, and apportionment analyses. Apple Inc. v. Wi-LAN Inc., 25 F.4th 960 (Fed. Cir. 2022).  Large oft-sued tech companies have been pushing damages reform for many years — especially on the apportionment front.

Degrees of Disagreement: Google Petitions En Banc on Smart Thermostat Patent Damages

EcoFactor’s expert David Kennedy relied primarily on several prior EcoFactor patent licenses to calculate a royalty rate for Google’s use of their smart thermostat patent.  But there were two key differences between the prior licenses and the proposed royalty: (1) the licenses were lump sum and Kennedy converted these to a per-unit royalty; (2) the licenses were for a portfolio of patents whereas the lawsuit just involved a single patent being infringed (and a second patent being found invalid).  On this apportionment issue, Kennedy recognized downward pressure on the rate because of the single-patent, but concluded that it came out in the wash after considering upward pressure on the rate due to the fact that this patent had been adjudged valid and infringed.  Google argues (unsuccessfully thus far) that Kennedy used improper, unreliable, and unscientific methods to account for these differences.

Five briefs amici have now been filed with the Federal Circuit supporting Google’s petition: 

• EcoFactor v. Google Dell Amicus
• EcoFactor v. Google Cisco’s Amicus
• EcoFactor v. Google Civil Justice Amicus
• EcoFactor v. Google USMade Amicus
• EcoFactor v. Google Apple’s Amicus
• EcoFactor v. Google Google’s En Banc Rehearing Petition

Intel/Dell Amicus Brief filed by Meredith Zinanni and John O’Quinn of Kirkland. Meredith and I were co-clerks at Kirkland during law school. She stuck it out; while I did not.

Although I identified the damages push as a current trend, the Intel brief does a nice job linking it historically to a number of 19th and early 20th century patent cases requiring apportionment of damages, including Seymour v. McCormick, 57 U.S. 480 (1853); Blake v. Robertson, 94 U.S. 728 (1876); Garretson v. Clark, 111 U.S. 120 (1884), Lattimore v. Hardsocg Mfg. Co., 121 F. 986 (8th Cir. 1903), Westinghouse v. New York Brake Co., 140 F. 545 (2d Cir. 1905), and Westinghouse Elec. & Mfg. Co. v. Wagner Elec. & Mfg. Co., 225 U.S. 604 (1912). The brief takes a subtle dig at the Federal Circuit approach, noting that the apportionment rules still governs today “at least in theory.”

One disconnect with Kirkland’s brief is that the old cases cited are all associated with apportionment of the accused device – situations where a patent covers only a small portion of a multi-component product.  The EcoFactor case is different, because it is associated with apportionment of a portfolio of patents when only a single patent is adjudged to be infringing.  Although Section 284 provides that a patentee is owed “damages adequate to compensate for the infringement,” the argument here is that those damages should account for the potential of royalty stacking across a portfolio.  Here, royalty stacking refers to the cumulative effect of multiple royalty payments on a single product, each one eating into the potential profits and potentially leading to excessive overall royalty costs that can exceed the product’s profit margin or market value.   Intel provided its story on lack of apportionment:

For example, in a 2014 case, Intel faced a $10 billion damages claim—several times larger than the largest patent verdict ever awarded—based on patents related only to discrete aspects of circuit architecture. One expert, opining regarding six patents, began with four allegedly comparable licenses, made no adjustments to the royalty rate based on differences between those licenses and the hypothetical negotiation, and made no reference to apportionment Another expert, opining regarding the remaining patents, “did not conduct a technical apportionment analysis” by Future Link’s own admission. The district court allowed both experts’ testimony under Rule 702, asserting that the issues could be addressed by cross-examination. Had the case not settled, trial would have proceeded with the parties presenting the jury with damages goalposts nearly $10 billion apart.

Dell then provided a separate story of patentee damages experts providing royalty rates without conducting any analysis of the stacking potential.

The idea here appears to be that the patentees damages expert testimony is unreliable unless the expert first takes a comprehensive look at the defendant’s costs, including all potential licensing costs, and contrive a methodology that ensures the defendant still makes a profit. But this story does not quite make sense.  Right now, my thinking here is that this information about additional licensing costs is secondary and so need not be required as part of the patentee’s case in chief in order to provide damages.  It would be the proper subject of expert cross examination as well as the subject of a competing expert report and evidence.  However, in EcoFactor. Google made the strategic decision of not presenting its own competing damages expert. A second element that I think is interesting from the Intel/Dell brief is the repeated statement that “patent damages should be predictable.”

Cisco: In its brief Cisco continues with the argument about portfolio apportionment – arguing that “no reasonable party would pay the entire portfolio rate for a license to a single patent, and attributing the value of the entire portfolio to a single patent is not apportionment.” As discussed above though, the expert in this case did some apportionment — applying downward pressure on the rate due to the single patent. The real debate should be whether that low-key approach is sufficient.  Like Intel/Dell, Cisco also adds disparaging comments against the Federal Circuit — notably in the last line of its brief Cisco identifies the court’s approach as insane. “Under the majority’s damages rule, Cisco and others face piecemeal infringement suits seeking multiples of the damages that should be available under a sane damages regime.”

The most interesting part of Cisco’s brief is a multi-page explanation of its approach patent license negotiations. According to the brief, Cisco does not start with a portfolio-wide rate when evaluating a single patent. Instead, Cisco does value-based licensing that starts with examining the functionality and revenues of the accused product, the company then focuses on the specific component or feature related to the asserted patent. Cisco isolates the value of the patented feature from unpatented features, rather than simply adjusting a portfolio rate based on “upward” or “downward” pressures. The company uses internal profit data to determine a reasonable payment for a patent’s technological contribution. According to its statements, Cisco also requires reliable evidence of expected unit sales when converting lump-sum licenses to per-unit royalties, and would not accept one-sided statements about embedded royalty rates without verification.

While Cisco’s approach make some sense, it has major problems. The biggest issue here is that it appears to open the door to massive damages discovery on an even greater level than seen previously.  The data Cisco uses is among the most confidential held by technology companies and is unlikely to be easily handed over to the patentee for expert analysis. In addition, it ignores Adam Smith’s recognition that the market sets the price — and that comparable license rates are likely the best available evidence of what parties would have hypothetically agreed to.

Cisco’s brief here was filed by leading appellate and SCOTUS lawyer Joshua Rosenkranz of Orrick along with his team of Libby Moulton and Ed Williams, both former federal appellate clerks.

Lawyers for Civil Justice (LCJ) Amicus Brief: LCJ is a national coalition of defense attorneys and corporations that are often defendants in lawsuits.  LCJ’s amicus brief focuses on the proper application of Federal Rule of Evidence 702, which governs the admissibility of expert testimony, and argues that the Federal Circuit’s approach exemplifies a widespread misunderstanding of Rule 702’s requirements, particularly in light of 2023 amendment to the rule that were designed to reemphasize the district court’s gatekeeping function – to keep out low quality expert testimony.  In particular, the brief emphasizes that issue of expert reliability is a 702 admissibility question (many courts treat it only as an issue of weight to be decided by a jury).  LCJ argues the Federal Circuit’s approach is longstanding – citing several cases that it believes misapply Rule 702, including Apple Inc. v. Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014) and Summit 6, LLC v. Samsung Elecs. Co., 802 F.3d 1283 (Fed. Cir. 2015). The brief argues that these decisions incorrectly treat issues of expert reliability as questions of weight for the jury rather than admissibility for the court.

The brief was authored by a team from White & Case LLP, led by appellate expert Mark Davies. Notably, White & Case previously represented Google in this matter, but all of the firm’s lawyers withdrew from the case in November 2021.  The brief does not disclose whether Google continues to be a client of thte firm.

US*MADE Amicus Brief: U.S. Manufacturers Association for Development and Enterprise (US*MADE) is a nonprofit association representing U.S. manufacturing companies.  US*MADE’s brief focuses on the reliability of expert testimony under Federal Rule of Evidence 702, with particular emphasis on the use of self-interested data.  In particular, the brief argues that the panel effectively applied a presumption of admissibility to expert testimony, contrary to the requirements of Rule 702. The brief contends that the district court erred in allowing EcoFactor’s expert to rely on “licensing rates” that EcoFactor itself had invented, without independent evidence that any licensee actually agreed to pay these rates.

The brief cites several cases where courts have barred reliance on unverified information provided by a party to the litigation. See, e.g., Cooper v. Travelers Indem. Co. of Ill., 113 F. App’x 198 (9th Cir. 2004) (proper to exclude lost-profits expert testimony based on unverified “client-provided data,” as self-reported data is not “the type of data on which experts in economics would reasonably rely”).  The brief notes a high risk of potential abuse in patent litigation in situations where repeat-patentees often structure licensing agreements to generate spurious “comparable” licenses for use in future lawsuits. US*MADE argues that no reasonable economist seeking to gauge the true value of a patent would rely on such self-interested and unverified data.

US*MADE’s brief was authored by Joseph Matal of Clear IP who is former Acting Director of the USPTO.

Apple Amicus Brief:  Like the other briefs, Apple argues that robust enforcement of Daubert is crucial for patent damages opinions, especially as products become increasingly complex. The brief contends that without proper apportionment, companies are unfairly be forced to pay damages not only for their own innovations but also for prior-art technology, non-patented features, and other contributions.  Apple writes:

Absent proper enforcement of Daubert, jurors face unreliable, unapportioned, and prejudicial damages theories they are ill-equipped to evaluate. Their confusion is worsened by the limited trial time they have to assess complex technology and unfamiliar patent-law principles.

The brief argues that experts must reliably explain how their damages theories satisfy comparability and apportionment requirements.

Apple’s brief provides examples from its own litigation experiences, particularly describing patentees’ experts often manufacture running-royalty rates from licenses not involving Apple and then apply those rates to Apple’s much much larger sales volume, resulting in inflated damages claims.

The brief was authored by a team from Wilmer Cutler Pickering Hale and Dorr, led by William Lee, a prominent intellectual property litigator.

Conclusions: The briefs here are well written and argued, but I do think it is important to consider their context. They are all filed by prominent defense-side  parties — aiming to make it more difficult for patentees to obtain large damages awards.  I also recognize that EcoFactor has already prevailed in this case. Given their victory, they may choose not to respond to Google’s petition and simply wait-out the potential denial.