I. Overview
The Federal Circuit rarely decides cases en banc. For example, in 2024, the Court only heard one en banc case.[1] Stunningly, on September 25, 2024, the Federal Circuit granted Google’s petition for rehearing en banc in the case EcoFactor Inc. v. Google LLC.[2] The re-hearing, which is scheduled to take place on March 13[3], will be focused on the issue of whether “the district court[] adhere[d] to Federal Rule of Evidence [(“FRE”)] 702 and Daubert v. Merrel Dow Pharmaceuticals…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.”[4] Essentially, the Court is reconsidering the admissibility of expert testimony regarding the calculation of patent damages.

II. Background and Procedural History
EcoFactor owns US Patent No. 8,738,327 (“’327 patent”), which generally relates to “the operation of smart thermostats.”[5] EcoFactor sued Google in 2020, alleging that Google’s Nest Thermostats infringed the ’327 patent.[6] By statute, patent owners are owed a reasonable royalty as compensation for patent infringement.[7] Generally, a reasonable royalty is calculated using the hypothetical negotiation approach, which “attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.”[8] In calculating a reasonable royalty rate of $X[9] in the present case, EcoFactor’s expert, Mr. Kennedy, used the hypothetical negotiation approach.[10] Mr. Kennedy based his damages calculation on (1) three license agreements between EcoFactor and third-party smart thermostat manufacturers and (2) testimony from EcoFactor’s CEO.[11] At trial, Google moved to exclude Mr. Kennedy’s testimony under FRE702, arguing that his opinion was unreliable and not supported by sufficient factual evidence.[12] The judge denied Google’s Daubert motion, and the jury found that Google did infringe the ’327 patent and awarded EcoFactor $20 million in damages.[13]

On appeal, the Federal Circuit upheld the damages award, holding that EcoFactor’s expert’s damages calculations were “sufficiently reliable for admissibility purposes,” and that “his opinion sufficiently apportioned the value of the ’327 patent for the issue to be presented to the jury.”[14] As such, they concluded that the district court judge did not err in admitting Mr. Kennedy’s testimony. However, just three months later, the Federal Circuit vacated its original decision.

III. Google’s Arguments for Inadmissibility
In its opening brief, Google argues that FRE 702 is a rule of admissibility, and that the court must play a “gatekeeping” role and exclude expert evidence that is unreliable rather than allowing the jury to decide the reliability of the evidence.[15] Google proffers two arguments for why the district court erred in admitting Mr. Kennedy’s evidence.

Google’s first argument is that Mr. Kennedy based his opinion on insufficient factual evidence. An expert’s opinion must be based on “sufficient facts and data” in order to be admissible.[16] In the present case, Google argues that Mr. Kennedy based his damages opinion “solely on EcoFactor’s unilateral assertions that the licenses’ lump-sum amounts were based on the NRR rate.”[17] This is because Mr. Kennedy ignored the fact that (1) all three of the license agreements settled litigation between the parties and (2) the parties agreed that the settlement amount did not “reflect or constitute a royalty.”[18] Instead, Mr. Kennedy should have relied on the terms of the license agreements or external market factors, rather than on EcoFactor’s own belief of what the patent was worth.[19]

Google’s second argument is that Mr. Kennedy did not properly apportion the X reasonable royalty rate used in the three licenses agreements to the ’327 patent.[20] Generally, patent damages must be awarded only for “the value of the patented invention.”[21] In the three license agreements that Mr. Kennedy based his opinion on, EcoFactor “granted [the licensee] a license to its entire current and future patent portfolio, including the patents asserted against [the licensee];” the ’327 patent was one of several asserted against the licensees of those agreements.[22] Because Mr. Kennedy did not calculate how the lump sum payments in the license agreements (which covered EcoFactor’s entire patent portfolio) corresponded to the ’327 patent, his opinion did not properly apportion the X reasonably royalty rate. Google argues that as a result, Mr. Kennedy’s opinion should not have been admissible.

IV. EcoFactor’s Arguments for Admissibility[23]
In response, EcoFactor argues that the 2023 amendments to FRE 702 shifted the burden of proving admissibility to the proponent and did not allow judges to determine the credibility of the underlying facts of the expert’s opinion.[24] As a result, EcoFactor argues that they proved that Mr. Kennedy’s opinions were based on sufficient factual evidence.[25]

EcoFactor disagrees with Google’s characterization of the evidence Mr. Kennedy relied on to form his opinion. First, according to EcoFactor’s technical expert, the three license agreements were “technically comparable to a license that would result from the hypothetical negotiation” between EcoFactor and Google and were close in time to the hypothetical negotiation date.[26] Second, the language in the agreements that the settlement amount did not “‘reflect or constitute a royalty’” could be interpreted to mean that the licensees did not concede that the settlement amount was a royalty rate and not that a royalty rate was not used to calculate the settlement amount.[27] Lastly, Mr. Kennedy “addressed the fact that the licenses were settlements of litigation and included all of the patents in EcoFactor’s portfolio,” and the effects of these two circumstances effectively cancelled each other out.[28]

Eco Factor argues that this is enough evidence to prove that Mr. Kennedy’s opinion was based on sufficient facts and data, and that the district court properly admitted his opinion.[29] 

V. Takeaways
Ultimately, patent damages are a very fact-intensive issue, and the Court’s decision will not be published for a few months. Regardless of how the Court rules, experts and patent owners will likely have a new legal framework to consider when calculating patent damages.