In late May, the Federal Circuit issued its en banc opinion in Ecofactor, Inc. v. Google LLC. In this case, Google appealed a judgment decided of the Western District of Texas, which denied its motion for a new trial on damages. In an opinion authored by Chief Judge Moore and joined by Judges Lourie, Dyk, Prost, Taranto, Chen, Hughes, and Stoll, the Federal Circuit reversed the district court and remanded the case for a new trial on damages. The Federal Circuit additionally reinstated the panel opinion as to issues other than damages. This is our opinion summary.
Chief Judge Moore began by outlining the procedural and factual background of the case:
EcoFactor, Inc. (EcoFactor) owns U.S. Patent No. 8,738,327, which relates to the operation of smart thermostats in computer-networked heating and cooling systems. . . . In January 2020, EcoFactor sued Google in the Western District of Texas, alleging Google’s Nest thermostats infringed claims of the ’327 patent, among other patents. . . . After discovery, Google moved for summary judgment that all asserted claims of the ’327 patent, including claim 5, were directed to patent-ineligible subject matter under 35 U.S.C. § 101 and were therefore invalid. . . . The district court denied the motion. . . .
Before trial, Google moved to exclude testimony from EcoFactor’s damages expert, David Kennedy, under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). . . . Specifically, Google argued Mr. Kennedy’s testimony that $X is an established royalty for the patented technology was unsupported by reliable methodology or sufficient facts. . . . The district court denied the motion. . . .
At trial, Mr. Kennedy opined that Google should pay damages in the amount of $X per allegedly infringing unit. . . . The jury found Google infringed claim 5 of the ’327 patent and awarded EcoFactor $20,019,300 in lump-sum damages. . . . Google filed a renewed motion for JMOL of noninfringement . . . and a motion for a new trial on damages, arguing Mr. Kennedy’s opinion should have been excluded from trial because it was unreliable . . . . The district court denied the motions, . . . and Google appealed.
A panel of this court unanimously affirmed the district court’s denial of JMOL of noninfringement and held the denial of summary judgment was not appealable. . . . On the denial of Google’s motion for a new trial on damages, the panel affirmed, but with a dissent. . . . Google petitioned for rehearing en banc, arguing the majority erroneously affirmed the denial of a new trial on damages because Mr. Kennedy’s damages testimony was unreliable and therefore inadmissible. We granted Google’s petition and ordered briefing and argument on the following damages issue:
The parties are requested 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 addition to the parties’ briefs, we received twenty-one amicus briefs. We heard oral argument on March 13, 2025. We have jurisdiction under 28 U.S.C. § 1295(a)(1).
Before beginning her analysis, Chief Judge Moore indicated the court agreed with Google that “the district court abused its discretion in denying a new trial on damages because Mr. Kennedy’s expert opinion was unreliable under Rule 702 and Daubert.” She explained that, “[i]n this case, the district court gave no rationale for ruling that the expert testimony was admissible or denying Google’s motion for a new trial on damages.” In addition, she said, the Federal Circuit “also conclude that the denial of Google’s motion was an abuse of discretion on this record because 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.”
Beginning her analysis, Chief Judge Moore emphasized the judge’s “gatekeeping role” under Daubert and Rule 702, explaining that “[j]udicial gatekeeping is essential” to prevent experts from offering conclusions unsupported by reliable methods. She distinguished between “determinations of admissibility, which fall within the gatekeeping role,” and “determinations of weight and credibility,” which are for the jury. While juries assess an expert’s credibility, she stressed, “a determination of reliability under Rule 702 is an essential prerequisite. She added that this distinction is “particularly essential in the context of patent damages.” She suggested the district court generally used a “sound approach” based on the “willing licensor–willing licensee” framework, but found the licenses relied upon were “insufficient, individually or in combination,” to prove that the licensees agreed to the $X rate. Therefore, she explained, the district court “abused its discretion in failing to exclude this testimony.”
Chief Judge Moore then examined each license in turn, finding that “[t]he plain language of the licenses [did] 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.” She found that two of the licenses “expressly disavow” an $X per unit rate, and that the licenses “do not, individually or in combination, provide support for Mr. Kennedy’s testimony that the licensees agreed to pay the $X rate or that the licensees agreed that $X was a reasonable royalty.”
Chief Judge Moore explained that, apart from the licenses, “the only evidence upon which Mr. Kennedy relied was the testimony of EcoFactor’s CEO, Shayan Habib.” She explained that Mr. Habib’s testimony “does not provide a sufficient basis for Mr. Kennedy’s testimony that Daikan, Schneider, and Johnson agreed to pay a royalty of $X per unit.” She said Mr. Habib’s testimony, “in the absence of any evidence,” amounted to “an unsupported assertion on behalf of EcoFactor that the $X rate was applied to calculate the lump-sum payment amounts.” As a result, it did not provide a reliable opinion that the licensees agreed to pay the $X rates. Chief Judge Moore addressed the dissents here, which she said suggest that “the $X royalty rate is supported by ‘[Mr. Habib’s] belief — developed with input from non-attorney advisors, who (unlike him) had access to his competitors’ confidential sales data and projections — that the lump-sum amounts were calculated based on an $X rate.” Chief Judge Moore believed this to be “inaccurate” since there was “no record evidence that Mr. Habib or Mr. Kennedy relied upon advisors who had access to licensees’ actual or projected sales data.”
Lastly, Chief Judge Moore addressed additional evidence in the record which EcoFactor argued “supports Mr. Kennedy’s opinion regarding the $X royalty rate.” Chief Judge Moore did not believe this additional evidence to be “relevant to the inquiry at hand.” She noted that “Rule 702 requires the expert’s relied-upon facts or data—not the record as a whole—to constitute a sufficient basis for the expert’s testimony.” She also addressed EcoFactor’s argument that additional record evidence supported a finding that “at least the Johnson license applied the $X royalty rate, which renders Mr. Kennedy’s testimony admissible.” Chief Judge Moore found that “Mr. Kennedy relied on the three licenses as collectively proving an established royalty rate,” and that he did not suggest “any single license was indicative of an established rate for the patented technology.”
For all these reasons, Chief Judge Moore explained that a fundamental premise of Mr. Kennedy’s testimony “was not based on sufficient facts or data, as required by Rule 702(b),” which renders that testimony “unreliable and therefore inadmissible.” As a result, Chief Judge Moore explained, “[t]he district court’s decision to admit Mr. Kennedy’s unreliable testimony was undoubtedly prejudicial,” and the district court “therefore abused its discretion by denying Google’s motion to exclude Mr. Kennedy’s testimony.”
Next, Chief Judge Moore summarized EcoFactor’s challenge to the nature of the en banc proceeding. She explained how EcoFactor argued the “en banc court is statutorily improper and cannot alter the decision of the three-judge panel” because the en banc panel consisted of fewer than all judges in regular active service. She explained that the court disagreed.
According to Chief Judge Moore, while 28 U.S.C. § 46(c) requires en banc hearings to include all active circuit judges, this must be read alongside the Judicial Conduct and Disability Act, which allows a Judicial Council to temporarily remove a judge from hearing “further cases.” She emphasized that “‘further cases’ . . . includes cases heard en banc,” and that “Congress did not limit the remedy of temporary suspension to apply only to panel cases.” Chief Judge Moore reasoned it would be “anomalous” to assume Congress permitted suspensions but excluded “cases of exceptional importance” like en banc matters. Finding no such inconsistency in the statutes, she concluded the en banc panel’s composition was proper and that the parties’ remaining arguments were unpersuasive.
As a result of her analysis, the Federal Circuit reversed the district court’s denial of Google’s motion for a new trial on damages and reinstated “the portions of the panel opinion that pertained to issues other than damages,” which included affirming the district court’s denial of Google’s motion for judgement as a matter of law on noninfringement.
Judge Reyna’s Opinion
Judge Reyna authored an opinion concurring in part and dissenting in part, joined by Judge Stark. Judge Reyna explained that he joined “the parts of the en banc court’s opinion (1) reinstating portions of the June 3, 2024 panel opinion and (2) holding that this en banc proceeding was proper.” He, however, said the court’s analysis focused “exclusively on its new theory that this case is about contract interpretation as a question of law,” and that this both deprived EcoFactor “of notice and an opportunity to be heard” and avoided addressing “what this opinion is really about.”
Judge Reyna first analyzed “the admissibility of Mr. Kennedy’s expert opinion and the en banc court’s departure from the question at hand.” He suggested Mr. Kennedy’s expert testimony was supported by sufficient facts and data, pointing to EcoFactor’s license agreements with Johnson Controls, Daikin, and Schneider Electric; testimony from EcoFactor’s CEO, Mr. Habib; and “undisputed market share data.” Judge Reyna additionally noted that Federal Rule of Evidence 702 “does not require that expert opinion be based on undisputed or dispositive facts or data,” that district courts have “broad discretion” in deciding admissibility, and that “appellate courts should not find error ‘unless the ruling is manifestly erroneous.'” Therefore, he said, “given the facts of this case, the correct standard under Rule 702, and the broad discretion of district courts, the inquiry should end here.”
Judge Reyna also criticized the en banc court by saying this “is not a case of contract interpretation.” He maintained the scope of the en banc proceeding was “limited” to “the district court’s adherence to Federal Rule of Evidence 702 and Daubert,” and that the en banc court’s “sua sponte transformation of this case into one of contract interpretation and resolution of that issue in favor of Google raises party presentation concerns and deprives EcoFactor of notice and an opportunity to be heard.”
Judge Reyna then addressed how he felt the en banc court “mishandles or ignores evidence other than the terms of the three licenses that independently support Mr. Kennedy’s testimony.” He suggested the en banc court “impermissibly” weighed the credibility of Mr. Habib’s testimony “in an effort to diminish its effect,” and that the court also failed to address “whether the undisputed market share data and Mr. Habib’s testimony about that data support Mr. Kennedy’s opinion.” Judge Reyna said that, “even if the en banc court were correct that Mr. Kennedy’s testimony under Georgia-Pacific factor one is not supported,” the court had not provided an “adequate rationale” as to why its “sole remedy is wholesale exclusion of Mr. Kennedy’s testimony.”
Judge Reyna next suggested that, under Fifth Circuit law, “the party moving for a new trial bears the burden to show that any error in admission is prejudicial,” and that Google made “no meaningful showing as to how Mr. Kennedy’s opinion that $X was a reasonable royalty rate” that affected its substantive rights. To support his opinion, Judge Reyna looked at the record. He said it showed that Mr. Kennedy’s testimony “was . . . put to the jury, without objection,” that “[t]he remainder of Mr. Habib’s testimony about the $X rate and the parties’ relative market share was also properly before the jury,” and “all three licenses that recite the $X rate” were also introduced without objection. Judge Reyna said that the majority “addresses none of this,” instead “excus[ing] Google for its failure to meet its well-established burden under Fifth Circuit law.”
Ultimately, Judge Reyna concluded, the en banc majority “confuses the questions at hand,” and at times it “unjustifiably and improperly exceeds the scope” of “appellate review of the district court’s gatekeeping role.”
Judge Stark’s Opinion
Judge Stark also authored an opinion concurring in part and dissenting in part, joined by Judge Reyna. In it, Judge Stark expressed concern that the majority “will be misinterpreted” as limiting expert testimony “in a manner not called for by either Rule 702 or Daubert.” He also expressed concern 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.” Lastly, Judge Stark disagreed that the district court’s “failure to create a better record for review” was enough of a deficiency to warrant reversal. He stated that, “if any remedy [was] required, it should be to vacate and remand for a better explanation from the district judge,” but ultimately believed that the district court’s decision should be affirmed.
Beginning his analysis, Judge Stark explained that, according to the majority, “the record is so completely one-sided” that it held that the district court here had failed to fulfill its responsibility as a gatekeeper by allowing an expert to testify at trial who relied on evidence “contrary to a critical fact.” Judge Stark stated that if he “shared this view of the record,” he would have joined the majority. He, however, disagreed with that characterization of the record.
Judge Stark noted that the majority opinion is “unapplicable” in the “vast majority of patent cases,” since it “only governs where an expert’s testimony is undoubtedly contrary to a critical fact upon which the expert relies.” Pointing to precedent and the Advisory Committee’s notes on Rule 702, Stark stressed that courts should not exclude expert testimony just because one side’s version of the facts is contested. He maintained the role of weighing conflicting evidence belongs to the jury, not the judge.
In Judge Stark’s view, “a reasonable jury could side with Mr. Kennedy’s interpretation of the disputed facts” and thereby find as a fact that “EcoFactor entered into lump-sum settlements with licensees who agreed to payments based on an $X rate.” Judge Stark noted that Mr. Kennedy’s interpretation was “supported by language in each of the disputed licensing agreements,” and that more support for his opinion could be “found in the Schneider Agreement” and “the testimony of EcoFactor’s CEO, Mr. Habib.” Because a jury “could reasonably have credited EcoFactor’s interpretation of the disputed evidence,” Judge Stark said that evidence “can constitute ‘sufficient facts and data’ under Rule 702.” Thus, he concluded, the parties’ dispute “over whether EcoFactor’s licensees actually agreed to an $X rate” does not “make Mr. Kennedy’s testimony inadmissible; it merely merely shows there was a fact dispute requiring resolution by a proper factfinder.” Judge Stark indicated the Federal Circuit should not be a factfinder, and said that, by “deeming there to be only one correct view of the contested evidence,” the appellate judges were “taking it upon themselves to resolve the fact dispute.” Judge Stark worried that, given this approach, “today’s opinion may encourage future panels of this court to engage in improper appellate factfinding.”
Lastly, Judge Stark expressed concern with “the district court’s failure to put its reasoning on the record,” noting that the district judge’s “lack of explanation makes our reviewing function unnecessarily difficult.” Judge Stark, however, said that, regardless, this was “not an abuse of discretion.” Even if it were, though, he said it “would not warrant the relief” the majority was granting. Judge Stark suggested the majority “relies principally on a treatise, not binding precedent,” in arriving at its conclusion that the district court abused its discretion. Judge Stark pointed out that “[n]either the Fifth Circuit nor Third Circuit cases” the majority cited “requires that we overturn a district court’s unexplained exercise of discretion.” He also pointed out that some of the cited cases “determined that an explanatory deficiency was harmless error.” Here, Judge Stark said, the majority had provided “no reasoning for why the district court’s failure to explain itself” was an abuse of discretion that could be “properly remedied only by an entirely new jury trial on damages.”