On May 21, in EcoFactor, Inc. v. Google LLC, the Federal Circuit issued an en banc ruling in which the court remanded the case for a new trial on damages. In so doing, the Federal Circuit emphasized the role of the court in acting as a gatekeeper for expert damages testimony prior to submission to a jury. This decision serves as a caution to litigants to make sure their damages evidence is properly supported by facts and data and by reliable methodology to allow it to be considered at trial.
EcoFactor sued Google asserting infringement of a patent involving the operation of smart thermostats used in heating and cooling systems. Prior to trial, Google filed a motion to exclude testimony from EcoFactor’s damages expert under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc. Google asserted that the expert’s testimony regarding a royalty for the patented technology was not properly supported. The district court denied the motion and allowed the damages expert to testify.
Following trial, a jury found claim 5 of the patent to be infringed and awarded EcoFactor damages in an amount just over $20 million. The district court denied Google’s motion for judgment as a matter of law on infringement. It also denied Google’s motion for a new trial on the issue of damages, in which Google again asserted that the expert’s testimony was unreliable and should have been excluded. Accordingly, the district court upheld the jury determination of infringement and its award of damages.
On appeal, a panel of the Federal Circuit affirmed. The panel unanimously affirmed the denial of the motion for judgment as a matter of law of noninfringement. It also upheld the denial of the motion for a new trial on damages. The Federal Circuit granted Google’s petition for an en banc rehearing limited to the damages issue.
In the en banc rehearing, the Federal Circuit reversed and remanded for a new trial on damages. It found that the damage expert’s opinion was unreliable under Rule 702 and the Daubert decision. Initially, the Federal Circuit stated that the district court performs a gatekeeping role prior to the admission of expert testimony, including damages testimony. To be admissible, expert testimony must be based on sufficient facts or data and must be the product of reliable principles and methods that are reliably applied.
The Federal Circuit then addressed the damage expert’s testimony. It stated that the damages expert estimated a reasonable royalty in calculating damages. This estimate used a hypothetical negotiation, or willing licensor-willing licensee, approach, which involves determining what the parties would have negotiated as a reasonable royalty if they had entered into negotiations just prior to infringement. This general approach is a well-accepted methodology for the calculation of damages.
Next, however, the Federal Circuit determined that damages expert relied on three licenses that did not support his opinion. The licenses were lump sum settlement licenses between EcoFactor and three licensees. The damages expert testified that the three licensees each agreed to pay a per-unit royalty rate to EcoFactor. After considering the three licenses, however, the Federal Circuit determined that this testimony was not accurate. Each of the three licenses included a provision stating that EcoFactor believed that the lump sum amount of the license was based on a reasonably royalty calculation of $X per-unit, but there was no provision that the licensees themselves agreed to that per-unit amount. The Federal Circuit therefore found that the licenses did not support the expert’s testimony that the licensees agreed to pay a per-unit royalty rate. Further, two of the three licenses contained a provision expressly stating that the lump-sum amount in the license was not based on sales and did not reflect or constitute a royalty. This license provision further contradicted the expert’s testimony that the licensees agreed to pay a per-unit royalty rate.
The Federal Circuit determined that the expert’s opinion was contrary to a critical fact upon which the opinion relied. The assertion by the expert that prior willing licensees had agreed to the $X royalty rate was not supported by the licenses. “The licenses, individually or in combination, do not support [the expert’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.” Other evidence did not show that the licensees agreed to a $X royalty rate.
This decision reiterates the gatekeeper role performed by courts prior to the admission of damages testimony. Litigants should be careful to make sure that their damages testimony is based on sufficient facts or data and does not rely on erroneous factual premises. This decision may also provide support for litigants seeking to exclude damages testimony where they can show that certain facts or data supporting the opinion are incorrect.
