Last week, in EcoFactor, Inc. v. Google LLC, the Federal Circuit issued its first en banc decision in a utility patent case in several years. The case involves the gatekeeping function of district courts vis-à-vis expert testimony and the line between questions of admissibility (for the court) and questions of weight and credibility (for the jury). The en banc majority held that the district court abused its discretion in admitting an expert’s damages testimony that relied on certain allegedly comparable licensing agreements. Two dissenting judges warned that the majority decision carries the risk of entangling admissibility disputes with factual ones unless the decision is confined to its unique factual context.
Background
EcoFactor sued Google in the U.S. District Court for the Western District of Texas, alleging that Google’s Nest thermostats infringed a patent directed to the operation of smart thermostats. EcoFactor’s damages expert proffered a reasonable royalty theory based on the well-established “hypothetical negotiation” framework. In that framework, the royalty rates paid by prior licensees for the use of patents comparable to the patent-in-suit can be an important part of a reasonably royalty analysis. The expert’s theory relied in part on a $X/unit royalty rate (the figure itself is sealed) identified in “whereas” recitals of three lump-sum settlement licenses that EcoFactor had negotiated to settle previous lawsuits. For example, one such recital stated “WHEREAS, Ecofactor represents that it has agreed to the payment set forth in this Agreement based on what Ecofactor believes is a reasonable royalty calculation of $[X] per-unit for estimated past and Daikin’s projected future sales of products accused of infringement in the Litigation.” EcoFactor’s expert opined “that [this rate] would be both the starting point and the outcome of a hypothetical negotiation between EcoFactor and Google.” He also relied on testimony from EcoFactor’s CEO stating that the royalties of those agreements were calculated using that rate. The district court admitted EcoFactor’s expert testimony, and the jury awarded EcoFactor $20 million. Google moved for a new trial on damages, which was denied. A Federal Circuit panel affirmed, prompting Google to seek en banc review.
Analysis
The en banc majority (Judge Moore joined by seven judges) reversed the denial of a new trial on damages. The majority’s analysis focused on the gatekeeping role of the trial judge under Rule 702 and Daubert. But notably, at the outset, the majority classified as a question of contractual interpretation the expert’s analysis of whether the prior licenses reflected an agreement between the settling parties to the $X/unit rate. This shifted the analysis from an issue of fact to one of law, resulting in the court applying a de novo standard of review.
Factual issues showed lack of reliability. The majority found that plaintiff’s expert opinion lacked a factual basis because the contracts themselves did not state that the licensees agreed to a per-unit royalty, and in fact, two explicitly disavowed that interpretation. For example, one stated, “[s]uch [a lump-sum] amount is not based upon sales and does not reflect or constitute a royalty.” The majority found the testimony of EcoFactor’s CEO was unavailing, as it referenced no evidentiary support and came from an interested party. EcoFactor also pointed to other evidence on the record, but the majority stated that only facts upon which the expert based his opinion (here, the licenses themselves and the CEO’s testimony) were to be considered in this query. These findings of factual inadequacy led the court to rule that the district court had abused its discretion in allowing the jury to hear the expert testimony. The majority noted that it was also an abuse of discretion that the district court “gave no rationale for ruling that the expert testimony was admissible or denying Google’s motion for a new trial on damages.” Further, the majority stated that it could not “be sure” that the jury was not influenced by the expert’s error. It therefore reversed the district court’s denial of Google’s motion for retrial and remanded for a new trial on damages.
Gatekeeping vs. Fact-Finding. The court emphasized the difference between a trial judge’s role in determining admissibility and the jury’s role in weighing credibility. The majority emphasized that its “analysis does not usurp the province of the jury, nor does it involve this court deciding disputes of fact.” They explained that this was “not a case where the relevant evidence can reasonably support competing conclusions.” Rather, “[w]here as here, the relevant evidence is contrary to a critical fact upon which the expert relied, the district court fails to fulfill its responsibility as gatekeeper by allowing the expert to testify at trial.” In other words, in the majority’s view, the evidence indisputably contravened the factual basis of the expert’s testimony—namely, the proposition that EcoFactor and its licensees had agreed to an $X/unit rate reasonable royalty.
Notable Dissents. This decision prompted two notable dissents.
Judge Reyna (joined by Judge Stark) argued that the majority improperly recast the question at issue as one of contract interpretation, which exceeded the scope of the en banc briefing order. He contended that plaintiff’s expert testimony was supported by the record, and the majority’s “mishandle[ing] or ignor[ing]” of evidence other than the terms of the three licenses “lays bare that the en banc court has chosen to believe one version of the facts over the other.” Further, Judge Reyna indicated that a new trial was not warranted because Google had not carried its burden to show that the admission of plaintiff’s expert testimony affected its substantial rights.
Judge Stark (joined by Judge Reyna) presented practical problems he believed the majority’s holding would cause. Its approach, he argued, risked turning minor evidentiary questions into grounds for retrial, undermining the discretion of district courts. Further, he expressed concern that the majority’s opinion would be “misinterpreted as constraining damages experts in a manner not called for by either Rule 702 or Daubert.” He attempted to clarify that: “today’s decision only governs where an expert’s testimony is undoubtedly contrary to a critical fact upon which the expert relies.” He acknowledged that the lower court could have created a better record for review but did not go so far as to say that this deficiency was an abuse of discretion that warranted reversal. Here, he found that the issue in dispute turned on a credibility determination, which falls within the province of the jury, and that a reasonable jury could have sided with EcoFactor’s expert’s interpretation of the disputed facts.
Takeaways
- Elevated Factual Scrutiny for Reliability: Ensure expert opinions are backed by sufficient facts, not just plausible logic or industry knowledge.
- No Deference to Unsubstantiated Assertions: Even established damages frameworks (like hypothetical negotiation) must be grounded in verifiable data; subjective or unsupported assertions will not suffice.
- Record Must Show Reasoning: When preparing for appeal, note that district courts should make explicit findings when admitting expert testimony—omitting these can itself be reversible error.
- Not a Jury Question: Expert’s opinion that rests on a demonstrably false or unsupported factual premise will likely be excluded before reaching the jury.
Special thanks to 2025 Summer Associate Minji Kwak for contributing to this article.
