This afternoon the Federal Circuit decided EcoFactor, Inc. v. Google LLC, an en banc patent case. In an opinion authored by Chief Judge Moore and joined by seven other judges, the court reversed a denial by the Western District of Texas of a motion for a new trial on damages. The Federal Circuit held the district court abused its discretion by failing to exclude expert testimony that prior licensees agreed to a particular royalty rate. Judges Reyna and Stark dissented in part. Here are the details.
Chief Judge Moore explained how the en banc court held that the expert, Mr. Kennedy, relied upon licenses that “were insufficient, individually or in combination, to support his conclusion that prior licensees agreed to” the particular royalty rate. As a result, “the district court abused its discretion in failing to exclude this testimony.”
She explained that “[t]he 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.” Furthermore, she continued, the “licenses, individually or in combination, do not support Mr. Kennedy’s opinion that the licensees were paying the $X rate, agreed to pay the $X rate, or agreed that the $X rate was a reasonable royalty.”
She also noted that, “[a]part from the licenses themselves, the only evidence upon which Mr. Kennedy relied was the testimony of EcoFactor’s CEO, Shayan Habib.” That testimony, however, “does not provide a sufficient basis for Mr. Kennedy’s testimony that Daikin, Schneider, and Johnson agreed to pay a royalty of $X per unit,” she explained.
The court indicated that “[t]he district court’s decision to admit Mr. Kennedy’s unreliable testimony was undoubtedly prejudicial.”
Notably, the court rejected EcoFactor’s “challenges the nature of this en banc proceeding.” EcoFactor had argued that, [b]ecause the en banc panel consists of fewer than all judges in regular active service, as required by 28 U.S.C. § 46(c), . . . this en banc court is statutorily improper and cannot alter the decision of the three-judge panel.” The court, however, disagreed.
Judges Reyna and Stark filed separate opinions disagreeing with the majority.
Judge Reyna suggested that “[t]he crux of its analysis focuses exclusively on its new theory that this case is about contract interpretation as a question of law.” This “sudden shift,” he argued, “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 admissibility under Rule 702 and Daubert.” He also disagreed with the majority’s conclusion “that Mr. Kennedy’s entire testimony should have been excluded.” He believes “Fifth Circuit law requires us to affirm under the harmless error doctrine.”
Judge Stark indicated he is “concerned that today’s opinion will be misinterpreted as constraining damages experts in a manner not called for by either Rule 702 or Daubert.” He also expressed fear “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.”
We will post a more fullsome opinion summary soon.