Patent Damages on Tap as Full Federal Circuit Hears Google Case

The nation’s highest patent court will rehear a case Thursday asking it to restrict the kinds of evidence expert witnesses can describe to juries while litigants argue over patent-infringement damages.

The issue is before the US Court of Appeals for the Federal Circuit in a rare en banc rehearing of Google LLC‘s appeal of its loss in smart-thermostat patent owner EcoFactor Inc.'s infringement suit. EcoFactor’s damages expert told jurors in Waco, Texas, about settlement deals the company reached in other suits over the patents, and Google’s appeal turns on non-binding language used to calculate the royalty rate he said Google owed for every sale of an infringing Nest-branded smart thermostat—$20 million in total.

A split three-judge panel affirmed EcoFactor’s win over a dissent that said the majority’s opinion “at best muddles our precedent” on apportioning damages “and, at worst, contradicts it.”

Even an incremental change to the damages evidence allowed in patent cases could have major financial implications in the high-stakes universe of infringement verdicts that frequently climb to eight- or nine-figures. The technocratic appeals court’s first en banc utility patent case since 2018 attracted amicus briefs from companies, trade groups, academics, and lawyers who represent both rights holders and frequent defendants.

The Federal Circuit has for more than a decade endorsed litigants’ use of comparable licensing agreements, or comparables, when determining appropriate royalty rates. But the Google-EcoFactor dispute homes in on a subcategory of that evidence: non-binding language in the “whereas” sections of agreements.

Google contends EcoFactor’s damages expert cherry-picked “self-serving” language from several lump-sum settlement agreements to reach an inflated royalty rate.

EcoFactor counters that Google is in effect arguing, “Damages for committing torts should be minimal.” It said its expert considered much more than the “per-unit amount recited on the face of the licenses” and “did exactly what this Court has repeatedly demanded” by calculating a “reasonable royalty specifically tied to the facts of this case.”

Judge Pauline Newman, who is protesting her suspension from hearing cases, didn’t participate in the decision to take the case en base. Her lawyer argued in a brief that her exclusion from the proceedings violates a federal statute. Judge Tiffany P. Cunningham also didn’t participate.

Value Debate

Lawyers supporting both sides acknowledge pinpointing the value of infringed patents is a tricky endeavor.

“It’s hard to say if most cases get it wrong or right in the end, but there are certainly risks of error and getting the damages number woefully wrong,” said Tom Cotter, a professor at the University of Minnesota Law School. Cotter has written extensively about patent damages and joined an amicus brief urging the court to tighten the rules around the use of comparable licenses.

The case provides an opportunity for the appeals court to “combat district judges’ temptation to avoid engaging with complex legal and evidentiary issues on patent damages by simply throwing everything to the jury,” said Paul Gugliuzza, a law professor at Temple University who also joined the amicus brief.

The court, though, should resist calls to encroach on jurors’ role, said Kristen Jakobsen Osenga, a dean and professor at the University of Richmond School of Law.

Beyond keeping “junk-science conclusion” away from jurors, US Supreme Court precedent leaves it “up to the jury to determine the credibility and believability” of experts, she said.

Osenga also leads the Inventors Defense Alliance, a group that fights for patent owners’ rights and filed an amicus brief urging the court not to adopt “overly rigid” standards for admitting damages evidence. That would drive up “litigation expenses” and impede “innovators’ access to the resources they need to vindicate their intellectual property rights,” it argued.

“The remedy for ‘shaky’ evidence is vigorous cross-examination, not second guessing by an appellate court,” the Alliance of US Startups & Inventors for Jobs, another patent-rights group, said in a separate amicus brief.

Licensing Activity

Fallout from the court’s decision could reach beyond trial evidence to license and settlement negotiations, predicted Betty Chen, a Desmarais LLP partner.

Settlements are “easier to obtain when a patent owner can say, ‘We want to put in this whereas clause’” that might help it in future litigation against a bigger target, she said, allowing the licensee to make that concession rather than paying a more expensive fee.

A ruling limiting the use of such language in jury trials could dampen licensing activity, Chen said, particularly for negotiations between patent owners and companies with relatively low sales numbers.

“But we have to focus on what’s right,” she added. “Made-up numbers in ‘whereas’ clauses shouldn’t be admissible.”

Russ August & Kabat represents EcoFactor. Google is represented by Keker, Van Nest & Peters and Munger, Tolles & Olson.

The case is EcoFactor Inc. v. Google LLC, Fed. Cir., 23-1101.