In an 8-2 en banc ruling, the Federal Circuit reversed the original panel’s ruling, holding that the district court abused its discretion in failing to exclude damages expert testimony and reversing the district court’s denial of a motion for new trial on damages. The majority found that EcoFactor’s expert testimony that the three lump-sum license agreements represented the licensee’s agreement to a certain royalty rate was “untethered from the licenses and unsupported by the evidence” on which the expert relied. The Federal Circuit clarified and reasserted the court’s gatekeeping duty, noting that when “the relevant evidence is contrary to a critical fact upon which the expert relied, the district court fails to fulfill its responsibility as gatekeeper by allowing the expert to testify at trial.”
Background
In January 2020, EcoFactor, Inc. (“EcoFactor”) sued Google LLC (“Google”) in the Western District of Texas, alleging Google’s Nest thermostats infringed its patents relating to the operation of smart thermostats. Before trial, Google moved to exclude testimony from EcoFactor’s damages expert (David Kennedy) under FRE 702 and Daubert, which was denied. Mr. Kennedy then testified that Google should pay a per-unit royalty rate of $X, which he opined was reflected in the lump-sum license agreements between EcoFactor and three other companies in the relevant industry. The jury found Google liable for infringement and awarded EcoFactor $20,019,300 in lump-sum damages. Google filed a motion for a new trial on damages arguing that Mr. Kennedy’s opinion should have been excluded. The district court denied the motion and Google appealed.
The original panel decision affirmed the district court’s denial of a new trial on damages “under the highly deferential abuse of discretion standard.” EcoFactor, Inc. v. Google LLC, 104 F.4th 243, 257 (Fed. Cir.). The original panel appeared to be wary of potentially setting the standard for admissibility too high, which could result in a court usurping the role of the jury. Id. (“If the standard for admissibility is raised too high, then the trial judge no longer acts as a gatekeeper but assumes the role of the jury.”).
En Banc Decision
The en banc panel underscored the necessity of a reliable expert testimony and the trial court’s gatekeeping role under FRE 702 and Daubert. The majority held that Mr. Kennedy’s opinion that the prior licensees agreed to a pay the $X royalty rate was not supported by the licenses. In fact, the majority noted that the plain language of the licenses directly contradicts any claim that the lump sum was based on any particular royalty rate, or that the licensees agreed to pay the $X rate or agreed that $X was a reasonable royalty. EcoFactor, Inc. v. Google LLC, No. 2023-1101, 2025 WL 1453149, at *5-*7 (Fed. Cir. May 21, 2025). The majority held that “Where, as here, the relevant evidence is contrary to a critical fact upon which the expert relied, the district court fails to fulfil its responsibility as gatekeeper by allowing the expert to testify at trial.” Id. at *9.
Additionally, the majority clarified that FRE 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.” Id. Accordingly, the majority rejected EcoFactor’s argument that additional record evidence supports a finding that at least one of the three licenses applied the $X royalty rate, which renders Mr. Kennedy’s testimony admissible. Id. The majority noted that Mr. Kennedy relied on the three licenses as collectively proving an established royalty rate—he did not suggest that any single license was indicative of an established rate. Id.