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Next week the Federal Circuit will hear oral argument in an en banc patent case, EcoFactor, Inc. v. Google LLC. In this case, the court will consider whether a patentee’s reliance on supposedly comparable licenses resulted in an artificially inflated damages award. This is our argument preview.

In its order granting en banc rehearing, the Federal Circuit requested the parties “to file new briefs, which shall be limited to addressing the district court’s adherence to Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), 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.”

In its opening en banc brief, Google argues that the damages expert’s calculations failed to comply with Rule of Evidence 702 for two reasons. First, Google claims, the damages expert’s opinion was not based on a sufficient factual foundation and did not reflect a reliable methodology. Google argues the expert ignored “operative license provisions that disclaimed the use of any royalty rate” and instead relied on assertions by EcoFactor that lump-sum amounts reflected a royalty rate. Google further argues the damages expert’s opinion was based on “nothing more than speculation.” Second, Google claims, the expert did not reliably apportion the value of the disputed patent. Google argues that, rather than analyzing the value of the disputed patent, the expert applied “vague ‘upward’ and ‘downward’ adjustments . . . that conveniently happened to cancel each other out.” Google argues the expert’s methods were not based on the facts of the case. In the absence of proper testimony, Google argues, the jury was left with no way of assessing the value of the disputed patent.

After Google filed its opening brief, the Federal Circuit released an order explaining that “[t]he court granted rehearing en banc ‘limited to addressing the district court’s adherence to Federal Rule of
Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), 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.’” The order goes on to say that “Google’s argument at pages 41–58 of its brief exceeds the scope of the court’s en banc rehearing, as its footnote 11 all but recognizes.” Thus, the court explains, “EcoFactor should not address this argument in its response brief.”

Subsequent to this order, EcoFactor filed its en banc response brief. In it, EcoFactor argues the panel applied the proper standard and properly recognized the expert’s opinions to be tied to the facts of the case. First, EcoFactor argues Google cannot challenge the admission of the expert witness’s testimony because, on appeal, Google allegedly did not address whether the trial court’s error was harmless. Moreover, EcoFactor contends Google “cannot” show harmful error “because it cannot show that the jury’s verdict was based on the challenged testimony.” Additionally, “[e]ven if the Court reaches the Rule 702 question raised in this appeal,” EcoFactor argues, “the only appropriate result is to affirm.” According to EcoFactor, the expert’s “opinion about applicable license rates was based on the widely accepted methodology of analysis of comparable licenses under the rubric of the hypothetical negotiation under the Georgia Pacific factors.” Moreover, it says, “[c]harging district courts with adding a new ‘credibility of the evidence relied upon’ test to Rule 702 would conflict with Rule 702, with the precedents of the Supreme Court, and with the Seventh Amendment to the Constitution.” Interestingly, EcoFactor also indicated it “objects to this en banc proceeding as improper under both 28 U.S.C. § 46 insofar as at least one active member of this Court, Circuit Judge Newman, has been excluded from participation in this proceeding.” EcoFactor also argues her exclusion violates its “rights to due process.”

In its en banc reply brief, Google argues that EcoFactor’s position permits “district courts to abdicate their gatekeeping responsibility to ensure that the jury does not hear unreliable expert testimony.” First, Google argues, EcoFactor’s understandings of Rule 702 “boil down to the assertion that the admissibility of [the expert’s] testimony was a question of fact to be evaluated by the jury.” But, Google contends, that “would deprive Rule 702 of any force.” Google asserts, in particular, that “EcoFactor was unable to present any factual evidence of the critical premise it sought to establish,” the premise that “EcoFactor’s licensees applied” a particular royalty rate “to compute their lump-sum payments.” As a result, Google maintains, EcoFactor had its expert simply “testify that, as an expert, he had concluded that the licensees had applied the[] rate in the licenses.” But, Google says, the expert’s “opinion was based only on his client’s unsupported and unverifiable beliefs about what other parties agreed to and therefore lacked a reliable factual basis and any reliable methodology.” Google contends EcoFactor failed to meet its “burden of establishing that [his] opinion satisfied Rule 702’s reliability prerequisites.” Google further argues, because the district court “deferr[ed] those reliability questions to the jury, the court committed legal error.”

Five amicus briefs filed by the following entities support Google:

Three amicus briefs filed by the following entities support EcoFactor:

One amicus brief filed by the following entities support neither party:

This case will be argued on Thursday, March 13.

We will post an argument recap shortly after the argument.