EcoFactor, Inc. v. Google LLC, decided May 21, 2025

Court: United States Court of Appeals for the Federal Circuit (En Banc)

Judges: Moore, Chief Judge (Opinion for the court), Lourie, Dyk, Prost, Taranto, Chen, Hughes, Stoll, and Stark, Circuit Judges. Reyna, Circuit Judge, concurring in part and dissenting in part, joined by Stark, Circuit Judge. Stark, Circuit Judge, concurring in part and dissenting in part, joined by Reyna, Circuit Judge.

Date Decided: May 21, 2025 Patent-in-Suit: The case involves U.S. Patent No. 8,738,327, which relates to the operation of smart thermostats in computer-networked heating and cooling systems.

Procedural History: EcoFactor sued Google in the Western District of Texas. Google moved for summary judgment of invalidity under § 101, which was denied. Google also moved to exclude EcoFactor's damages expert under Rule 702 and Daubert, which was denied. The jury found infringement of claim 5 and awarded $20,019,300 in lump-sum damages. Google moved for JMOL of noninfringement and a new trial on damages, both denied by the district court. A panel affirmed the denial of JMOL and denial of a new trial on damages but the en banc court granted rehearing on the damages issue.

Outcome: Affirmed-in-part, Reversed-in-part, and Remanded. The Court reversed the district court's denial of Google's motion for a new trial on damages and remanded for a new trial on damages. It reinstated the panel opinion on other issues, affirming the denial of JMOL of noninfringement and holding that the denial of summary judgment of invalidity was not appealable.

Summary:

This en banc decision by the Federal Circuit primarily addresses the admissibility of expert testimony on patent damages under Federal Rule of Evidence 702 and the Supreme Court's decision in Daubert v. Merrell Dow Pharmaceuticals, Inc. The Court reversed the district court's denial of Google's motion for a new trial on damages, finding that EcoFactor's damages expert, Mr. David Kennedy, relied on insufficient facts and data to support his opinion that prior lump-sum licenses reflected an established per-unit royalty rate. The Court's central finding was that the language of the license agreements contradicted the expert's assertion that the licensees had agreed to the specific per-unit rate. The Court also noted the district court's failure to provide reasoning for its admissibility decision as a potential ground for finding an abuse of discretion.

Main Themes and Important Ideas/Facts:

Admissibility of Expert Testimony (Rule 702 & Daubert): The core of the en banc review centers on the application of Rule 702 and Daubert to expert testimony in patent damages cases. The Court reiterates the trial judge's "gatekeeping role" to ensure expert testimony is not only relevant but also reliable, based on "sufficient facts or data" and reliable methodology reliably applied. The 2023 amendment to Rule 702 is noted as clarifying that the proponent of the expert testimony bears the burden of establishing its admissibility and that opinions must be reliably supported by the basis and methodology.

 "And where such testimony’s factual basis, data, principles, methods, or their application are called sufficiently into question, the trial judge must determine whether the testimony has ‘a reliable basis in the knowledge and experience of [the relevant] discipline.’" (Majority Opinion, pg. 7)

 "Judicial gatekeeping is essential” to ensure an expert’s conclusions do not “go beyond what the expert’s basis and methodology may reliably support." (Majority Opinion, pg. 9)

 The Court emphasizes that "Determinations of admissibility... are separate from determinations of weight and credibility, which are within the province of the jury..." (Majority Opinion, pg. 9)

 "Distinguishing 'the gatekeeping role of the judge' under Rule 702 from the fact finder’s role 'is particularly essential in the context of patent damages.'" (Majority Opinion, pg. 10)

Reliability of Damages Expert's Basis: The primary reason for reversing the damages award was the Court's determination that Mr. Kennedy's opinion regarding an established $X per-unit royalty rate based on three prior lump-sum settlement licenses was not supported by sufficient facts or data.

 "We hold the existing licenses upon which Mr. Kennedy relied were insufficient, individually or in combination, to support his conclusion that prior licensees agreed to the $X royalty rate and therefore the district court abused its discretion in failing to exclude this testimony." (Majority Opinion, pg. 12)

 The Court found that the "plain language of the licenses does not provide a basis for Mr. Kennedy to opine that the parties agreed to an $X per unit rate in agreeing to the lump-sum payment amounts." (Majority Opinion, pg. 12)

 The Daikin and Schneider licenses explicitly stated that the lump-sum amount "is not based upon sales and does not reflect or constitute a royalty," directly contradicting the expert's interpretation. (Majority Opinion, pg. 13, 14)

 The "whereas" clauses in the licenses only indicated EcoFactor's belief about the royalty rate, not the licensees' agreement to that rate. (Majority Opinion, pg. 12-15)

Insufficient Factual Basis from EcoFactor's CEO: The Court also found that the testimony of EcoFactor's CEO, Mr. Shayan Habib, was insufficient to support Mr. Kennedy's opinion. Mr. Habib's testimony that the lump-sum payments were calculated by multiplying the $X rate by estimated sales lacked evidentiary support, as neither he nor anyone at EcoFactor had access to the licensees' actual sales data.

 "Mr. Habib’s testimony amounts to an unsupported assertion on behalf of EcoFactor that the $X rate was applied to calculate the lump-sum payment amounts." (Majority Opinion, pg. 17)

 "His testimony referenced no evidentiary support. It did not include actual, projected, or even estimated sales figures. He relied entirely on his asserted 'general understanding of the space,'... without ever explaining how a general understanding informed him as to the missing sales data." (Majority Opinion, pg. 18)

 "In the absence of any evidence, Mr. Habib’s testimony amounts to an unsupported assertion from an interested party. His testimony cannot provide a sufficient factual basis for Mr. Kennedy to provide a reliable opinion that the licensees agreed to pay the $X rate." (Majority Opinion, pg. 18)

Role of Contract Interpretation: The Majority Opinion emphasizes that contract interpretation is a question of law to be answered de novo and finds the licenses unambiguous. This is presented within the framework of evaluating the sufficiency of the facts underlying the expert's opinion. The dissenting judges criticize this approach, arguing that contract interpretation was not the focus of the en banc order and that the Majority improperly resolved factual disputes under the guise of contract interpretation.

 "Contract interpretation—including whether the contract is ambiguous—is a question of law, which we answer de novo." (Majority Opinion, pg. 12)

 "This is not a case of contract interpretation. Neither party briefed or argued that any issue presented is one of contract interpretation subject to de novo review." (Reyna Dissent, pg. 7)

Harmless Error Analysis: The Court concluded that the erroneous admission of Mr. Kennedy's unreliable testimony was prejudicial, necessitating a new trial on damages. They stated that they could not be sure that the error "did not influence the jury or had but a very slight effect on its verdict." The dissenting judges argue that any error was harmless because the jury was presented with the $X rate through other, properly admitted evidence, including Mr. Habib's testimony and the licenses themselves, and that the jury awarded a lump sum lower than what the $X rate applied to Google's sales would suggest.

 "The district court’s decision to admit Mr. Kennedy’s unreliable testimony was undoubtedly prejudicial." (Majority Opinion, pg. 21)

 "On this record, we cannot be sure that the admission of Mr. Kennedy’s testimony did not influence the jury’s damages award." (Majority Opinion, pg. 22)

 "Assuming that the en banc court’s conclusion on contract interpretation is correct, Fifth Circuit law requires us to affirm under the harmless error doctrine." (Reyna Dissent, pg. 2)

 "This is not a case where but for expert testimony, the $X rate would not have been before the jury and thus any erroneous admission skewed the jury’s perspective." (Reyna Dissent, pg. 11)

District Court's Failure to Provide Reasoning: The Majority notes that the district court failed to provide a rationale for its decision to admit the expert testimony or deny the motion for a new trial on damages, suggesting this lack of reviewable reasoning "may be sufficient grounds for this court to conclude the district court abused its discretion." (Majority Opinion, pg. 6)

Scope of En Banc Review and Dissenting Opinions: The dissenting opinions raise concerns about the scope of the en banc review, arguing the Majority deviated from the issue of Rule 702 and Daubert application to focus on contract interpretation. They also express concern that the decision could be misinterpreted to require district courts to resolve factual disputes in the gatekeeping role and invite improper appellate factfinding.

 "But now, the en banc court abandons the scope of this proceeding that we officially set." (Reyna Dissent, pg. 2)

 "I fear, too, that the Majority may be misunderstood as inviting district judges, and future panels of this court, to resolve fact disputes under the guise of evaluating whether experts may testify at trial." (Stark Dissent, pg. 2)

Key Quotes:

 "We reverse the district court’s denial of Google’s motion for a new trial on damages and remand for a new trial on damages." (Majority Opinion, pg. 2)

 "An absence of reviewable reasoning may be sufficient grounds for this court to conclude the district court abused its discretion." (Majority Opinion, pg. 6)

 "Mr. Kennedy’s opinion that the licenses show industry acceptance of an $X per unit royalty rate is not based upon sufficient facts or data." (Majority Opinion, pg. 6)

 "While the credibility of an expert’s damages calculation is properly left to a jury, a determination of reliability under Rule 702 is an essential prerequisite." (Majority Opinion, pg. 9)

 "The plain language of the license agreements does not support Mr. Kennedy’s testimony that Daikin, Schneider, and Johnson agreed to pay the $X per unit royalty rate. In fact, the Daikin and Schneider licenses expressly disavow it." (Majority Opinion, pg. 15)

 "Mr. Kennedy’s reliance on the unilateral 'whereas' recital of each license as representing the licensees’ agreement to the $X rate was untethered from the licenses and unsupported by the evidence on which Mr. Kennedy relied." (Majority Opinion, pg. 20-21)

 "Where, 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." (Majority Opinion, pg. 21)

 "From the outset, this appeal has been about whether the district court abused its discretion by admitting Eco-Factor’s expert opinion on damages and denying Google’s motion for a new trial." (Reyna Dissent, pg. 1)

 "The en banc court’s sudden shift deprives EcoFactor of notice and an opportunity to be heard, and avoids what this appeal is really about, i.e., the extent to which district courts have discretion to decide fact-based questions of ad-missibility under Rule 702 and Daubert." (Reyna Dissent, pg. 2)

 "Notwithstanding the narrowness of the Majority’s holding, there is a risk that its opinion will be misread as requiring district judges, in pursuit of their gatekeeping re-sponsibilities, to invade the province of jurors and resolve fact disputes." (Stark Dissent, pg. 3)

 "A district court does not abdicate its gatekeeping role by allowing an expert to rely on disputed facts." (Stark Dissent, pg. 7)

Significance:

This en banc decision reinforces the importance of the trial court's gatekeeping role under Rule 702 and Daubert in assessing the reliability of expert testimony, particularly in complex patent damages cases. It provides guidance on the scrutiny required for expert opinions relying on prior licenses, emphasizing that the expert's interpretation must be supported by the actual terms of those agreements. The decision also highlights the potential for reversal if the district court fails to provide a sufficient record of its reasoning for admissibility decisions. The dissenting opinions underscore ongoing debates within the court regarding the balance between the judge's gatekeeping function and the jury's role in resolving factual disputes in expert testimony.