2025 Federal Circuit IP Appeals: EcoFactor, Inc. v. Google LLC, 137 F.4th 1333 (Fed. Cir. 2025) (en banc) (Moore)

EcoFactor — the Federal Circuit’s first en banc decision in a utility patent case since 2018 — addressed the standard for admissibility of expert testimony on damages.

In June 2024, a split panel (Judges Lourie and Reyna, with Judge Prost dissenting) had affirmed the district court’s denial of Google’s motion for a new trial on damages. Google petitioned for rehearing en banc. It argued that the opinion of EcoFactor’s damages expert, David Kennedy, which arrived at a per-unit royalty rate based on settlement agreements between EcoFactor and three competitors, was unreliable and therefore inadmissible. The court granted Google’s petition and ordered briefing limited to “the district court’s adherence to Federal rule of Evidence 702 and Daubert … in its allowance of testimony from EcoFactor’s damages expert assigning a per-unit royalty rate to the three licenses in evidence in this case.”

As an initial matter, the Federal Circuit (applying Fifth Circuit law) held that the district court abused its discretion in failing to explain its reasoning for rejecting Google’s Daubert challenge to Mr. Kennedy’s opinion. The court went on to conclude that the trial court also failed to satisfy its Rule 702 “gatekeeping role” by admitting Mr. Kennedy’s damages opinion because “the relevant evidence [was] contrary to a critical fact upon which the expert relied.”

Mr. Kennedy had offered a reasonable royalty opinion based on a hypothetical negotiation under the well-accepted Georgia Pacific framework, which “attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.” Mr. Kennedy considered three lump-sum settlement licenses involving the asserted patents between EcoFactor and licensees Daikin, Schneider, and Johnson, and concluded that the lump-sum amounts in those three licenses reflected an $X per unit rate applied to each of the licensee’s sales.

The en banc majority concluded that these licenses were insufficient to support Mr. Kennedy’s conclusion. For one, each of the licenses recited only that “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 [licensee’s] projected future sales of products accused of infringement in the Litigation.” The Daikin and Schneider licenses also stated that “[s]uch [a lump-sum] amount is not based upon sales and does not reflect or constitute a royalty,” and the Schneider license further stated that “nothing in this clause should be interpreted as agreement by Schneider that $[X] per unit is a reasonable royalty.” The Federal Circuit concluded that these latter passages “directly contradict[] any claim that the lump-sum is based upon any particular royalty rate or even that it is based upon sales volume” and that none of the licenses reflected the licensees’ agreement to pay the $X royalty rate.

The court rejected EcoFactor’s argument that other record evidence supported Mr. Kennedy’s opinion. EcoFactor’s CEO Shayan Habib had testified that the lump-sum payment for each license was based on the licensee’s past and future projected sales using the $X per unit rate. Mr. Habib had not seen any licensee sales data but explained that his conclusion was based on his “general understanding” of the relevant industry. The majority dismissed Mr. Habib’s testimony as “an unsupported assertion from an interested party” that could not serve as a “sufficient factual basis for Mr. Kennedy to provide a reliable opinion that the licensees agreed to pay the $X rate.” EcoFactor had also relied on the Johnson license, which applied the $X rate and lacked the language disavowing the $X rate from the lump sum amount. But the court dismissed this argument too because Mr. Kennedy relied on the three licenses collectively to provide a royalty rate, not any of the licenses individually. When evaluating the sufficiency of an expert’s opinion, the majority reasoned, a court must examine the evidence on which the expert relied, not the record evidence as a whole.

The majority also found that the admission of Mr. Kennedy’s testimony was not harmless error. The $X rate was “crucial to Mr. Kennedy’s damages analysis,” as (in his telling) it was both the starting point and end point of the parties’ hypothetical negotiation.

Judges Reyna and Stark both filed dissents on the damages issue (each of which the other joined).

Judge Reyna, who had authored the panel decision, believed the majority had exceeded the scope of the court’s grant of en banc review by focusing exclusively on contract interpretation. This changed approach deprived EcoFactor of notice and the opportunity to be heard. Judge Reyna also disagreed with the majority’s harmless-error analysis, reasoning that Mr. Kennedy’s opinion, even if inadmissible, was “wholly duplicative of properly admitted evidence,” such as Mr. Habib’s unobjected-to testimony regarding the $X rate as EcoFactor’s “baseline policy,” his understanding that each of the licensees accepted the $X rate, his testimony regarding the parties’ relative market share, and the licenses themselves. Finally, Judge Reyna contended that the entirety of Mr. Kennedy’s opinion need not be struck because the majority disagreed with but one portion of Mr. Kennedy’s overall analysis: Georgia-Pacific factor one, “[t]he royalties received by the patentee for the licensing of the patent in suit.” And the majority had acknowledged that the licenses showed the rate that EcoFactor sought as a willing licensor.

Judge Stark wrote to emphasize the narrow scope of the majority’s holding and to reiterate that it is within the jury’s purview to decide disputed facts. He explained that the majority’s holding is limited to situations where “the relevant evidence is contrary to a critical fact upon which the expert relied.” Judge Stark stated that, if an expert relies on disputed facts in rendering an opinion, that opinion is not necessarily insufficient — it merely shows that there is a factual dispute that requires resolution by the “proper factfinder.”

Judge Stark also disagreed that the district court’s failure to provide its rationale for admitting Mr. Kennedy’s testimony was an abuse of discretion. And Judge Stark believed that, even if the district court had erred on that front, Judge Stark believed that the proper remedy “would be to vacate and remand for a better explanation from the district judge, not order him to conduct a new trial.”

Related:

Rex Medical, L.P. v. Intuitive Surgical, Inc., 156 F.4th 1289 (Fed. Cir. 2025) (excluding damages expert’s testimony about a license for failure to apportion and affirming nominal damages award because the record lacked evidence to support the jury’s award).

This article appeared in the 2025 Federal Circuit IP Appeals: Summaries of Key 2025 Decisions report.