EcoFactor Responds: Defending the Federal Circuit’s Damages Ruling Allowing Qualitative Apportionment

by Dennis Crouch

This is my third post focusing on Google’s en banc challenge to ‘loose’ damages testimony. The patentee, EcoFactor, has now filed a responsive brief in the ongoing smart thermostat patent dispute which resulted in a $20 million jury verdict against Google.  A 2-1 Federal Circuit panel affirmed the verdict and, as you might expect, EcoFactor’s en banc response defends the decision, arguing that the case presents a straightforward application of established precedent.  At core, EcoFactor argues that Google and amici are seeking to impose new, rigid rules that go beyond existing Federal Circuit precedent.  Although some say that hindsight is 20/20, anyone who has undergone a hypothetical damages analysis will understand that the process always involves some degree of guestimation and uncertainty — adding additional precision and calculation is unlikely to provide any true certainty or predictability.

• EcoFactor En Banc Response Brief
• Dennis Crouch, Defense Side Amici Support for Tighter Reins on Damages Expert Testimony, Patently-O (Aug. 2024).
• Dennis Crouch, Degrees of Disagreement: Google Petitions En Banc on Smart Thermostat Patent Damages, Patently-O (July 2024).

In the case, the majority, led by Judge Jimmy Reyna, upheld the district court’s admission of EcoFactor’s damages expert testimony and denied Google’s motion for a new trial on damages. Judge Prost dissented, arguing that the expert testimony was fatally flawed and should have been excluded under Daubert. Google’s petition for en banc review focused on two main issues:

1. Whether the damages expert improperly relied on self-serving recitals in license agreements to derive a royalty rate. Here, the patentee had signed lump-sum license agreements with smaller accused infringers, but included a recitation of an equivalent royalty rate. That royalty rate recitation was very likely designed to be used against ‘major’ players like Google in order to allow the royalty to scale linearly.
2. Whether the expert failed to properly apportion the value of the asserted patent from other patents in the comparable licenses — since the comparable licenses  were portfolio licenses (a bundle of patents) rather than for the single-patent that the Google was infringing.

EcoFactor’s response, drafted by Reza Mirzaie and his team at Russ August & Kabat, makes several key arguments for why en banc review is unnecessary.

1. Deferential Review: EcoFactor argues that the panel majority correctly applied the highly deferential abuse of discretion standard in reviewing the district court’s evidentiary rulings and denial of a new trial.  This starting point means that there needs to be clear error or a meaningful legal error in order to overturn the district court’s decision.

2. Expert Testimony Was Sufficiently Reliable: In any event, EcoFactor maintains that its damages expert provided a sufficiently reliable methodology based on comparable license agreements and other evidence. The response highlights that Mr. Kennedy’s opinion was “based on unrebutted testimony establishing that these licenses have ‘built-in apportionment’ because of the close comparability of the licensed products and features in the licenses and the comparable scope of the licensed patents” with one being infringed by Google.  This is important — typically a portfolio license will include a few key patents of interest and a bunch of additional fluff that serves as peace-of-mind insurance.  Note here that I have not reviewed the  evidence testimony to understand the extent this was shown in the expert report.

3. No Strict Apportionment Requirement.  The response quotes from Bio-Rad Labs., Inc. v. 10X Genomics Inc., 967 F.3d 1353 (Fed. Cir. 2020) (“there is no blanket rule of quantitative apportionment in every comparable license case.”) (emphasis in original).  Here, the expert did more of a qualitative analysis – noting the apportionment issue and stating that would place downward pressure on the license rate.

4. Distinguishing Apple v. Wi-LAN: EcoFactor takes pains to distinguish its case from Apple, Inc. v. Wi-LAN, Inc., 25 F.4th 960 (Fed. Cir. 2022), which Google had heavily relied upon in its briefing.  EcoFactor notes that unlike in Apple, where there was no evidence of built-in apportionment to specific technology, here “the record confirms that the asserted patents spelled out in each license are the key patents for comparison.”

5. Additional Corroborating Evidence: As is common in cases like these, EcoFactor  argues that Google has unduly simplified the expert testimony that actually included further supporting evidence, including Google’s own survey data and profit information.

In a prior post, I also talked through the strong set of amici briefs supporting Google’s petition.  EcoFactor’s brief attempts to (1) discredit the amici – characterizing them as “Google’s business partners or their lawyers” and (2) argues that they largely repeat Google’s arguments while misrepresenting the record and panel opinion.  But, I want to keep in mind that the sheer number of high quality amici supporting Google’s position underscores the significance of this case to the broader tech industry.

For me, the most interesting aspect of EcoFactor‘s argument is its reliance on an expanded “built-in apportionment” concept from Bio-Rad; Elbit Sys. Land and C4I Ltd. v. Hughes Network Sys., LLC, 927 F.3d 1292 (Fed. Cir. 2019); and CSIRO v. Cisco Sys., Inc., 809 F.3d 1295 (Fed. Cir. 2015).  This approach suggests that when comparable licenses are sufficiently tied to the specific technology at issue, courts need not require a separate, quantitative apportionment analysis. If accepted, this could provide a pathway for patentees to simplify their damages cases in certain circumstances.