EcoFactor and Alternate Expert Theories

Hello world! I've finished my (long) stint as an administrator and suddenly find myself with time to do the things I used to do, like writing blog posts. It's been slow around here, but I am glad Written Description is alive and kicking. I hope to blog on a regular basis going forward - I've missed it.

For my first post in a while, I thought I would tackle EcoFactor v. Google, the first en banc utility patent case heard by the Federal Circuit in many years. With the help of a firm in Texas, I filed one of only two substantive amicus briefs in favor of EcoFactor. I'll discuss the case a bit, what my position was, and my take on the ruling.

The case itself was a run-of-the-mill patent infringement case. EcoFactor won, and presented expert testimony on a reasonable royalty for damages. Google did not present an expert. A key evidentiary problem is that all the prior actual licenses were lump sum, and they were for multiple patents. The expert used recitals in the contract as well as an EcoFactor witness to extrapolate a per unit royalty. He testified that the licenses agreed to an $X royalty [note that I'm not waffling, the actual amount has been kept secret for some reason.]. The expert also testified that the addition of other patents didn't really affect the rate because the technology was all the same.

A divided panel affirmed the infringement and the damages. The en banc court vacated and asked for briefing on the court's role as gatekeeper for expert testimony under the Daubert case. Google and amicii submitted briefs on this, and also argued that apportionment was improperly done. The Federal Circuit instructed parties to leave the apportionment question aside, and I think rightly so (as discussed in my paper on patent portfolios and by Parchomovsky and Wagner here: the value of any given patent in a portfolio is zero, and in the aggregate is basically the royalty rate).

Google and its amicii argued, unsurprisingly, that Daubert requires the judge to ensure that all damages calculations follow the law, and that obviously hadn't been done here. Parties favoring neither side emphasized that courts should not exclude experts just because facts are disputed. I won't discuss these much more - there are plenty of summaries around. They all basically say the same thing (when not focused on policy), with the variation being how strict people think the court should be in determining reliability of damages opinions.

I tend to agree with most of the legal arguments folks made. It is hard not to - there are decades of precedent on admission of expert testimony, at least at the general level. The primary dispute was really on the facts and how those rules should apply to this case. And so I decided to file a brief based in part on my paper (Un)Reasonable Royalties, which discusses the history of royalty remedies as well as a discussion of expert witnesses.  Our argument, pretty simply, was that the opinion was well within the norm of reliability. Experts often extrapolate royalties from lump sums, the language in the agreements at least supported what a willing buyer would want, and there was other evidence in the record (not mentioned in the expert report) that supported the royalty.

The en banc court ruled, 8-2, that the expert testimony should have been excluded. One ground for reversal was that the court didn't explain the ruling admitting it (why it was reliable). This is important for future courts. The second ground, which we'll discuss here, was that the expert's testimony that the royalty rate agreed to in the contracts was $X was not supported by contract interpretation (as a matter of law), and therefore the opinion was unreliable (and non-salvageable by other evidence in the case, which was a primary point of contention with the dissent). In reaching this decision, the Court cited a lot of precedent on Daubert, all of it

My thoughts on the case are below.

Oswald: Do trade secret injunctions last forever?

An injunction in a trade secret case should generally end when the trade secret does. But new empirical research by Professor Lynda Oswald sheds new light on the actual lifetime of these injunctions. The results are surprising. Oswald finds that in the vast majority (~80%) of cases in her dataset, courts simply grant an open-ended injunction without a fixed term. While defendants could in theory move to dissolve the injunction when the trade secret ceased to exist, Oswald found no evidence this happened.  In effect, the injunctions appear to have remained in effect indefinitely.

Lynda Oswald is the Louis and Myrtle Moskowitz Research Professor of Business and Law at University of Michigan's School of Business. Professor Oswald's article, An Empirical Analysis of Permanent Injunction Life in Trade Secret Misappropriation Cases, has now been published in the Iowa Law Review.

OpenEvidence v. Pathway: The Legal Battle Over AI Reverse Engineering

Can generative AI models like ChatGPT be "reverse engineered" in order to develop competing models? If so, will this activity be deemed legal reverse engineering or illegal trade secret misappropriation?

I have now written a few articles exploring this question, including Trade Secrecy Meets Generative AI and Keeping ChatGPT a Trade Secret While Selling It Too. But when I first asked this question a year and a half ago, I was getting responses purely in the negative. I asked a panel at a trade secret conference at Georgetown in 2023, "Can ChatGPT be reverse engineered?" Several members of the panel laughed.  I would talk to AI experts, and the answer I got was along the lines of: "it's not going to happen." 

This post is cross-posted on Patently-O.

Fagundes & Perzanowski: A new framework for conceptualizing the end of IP rights

 Dave Fagundes and Aaron Perzanowski have just posted a very interesting and thought-provoking paper draft on SSRN called "How Intellectual Property Ends."  

The paper, which follows up on their prior work on copyright abandonment, closely examines how IP rights come to an end through doctrines like "expiration," "forfeiture," or "abandonment." The paper seeks to provide a “taxonomy” for thinking about how IP rights end. The authors argue that imprecise or inconsistent uses of terms like "abandonment" and "forfeiture” deprives these terms of meaning and “obscures the underlying logic” of the doctrines as originally developed at common law (5). They instead posit a single unified framework for consistently conceiving of termination that can work across the four IP regimes. 

Buccafusco, Masur, & Varadarajan: Does Trade Secrecy Have an "Information Paradox"?

One of the key purposes of trade secret law is to address the "Arrow information paradox." The information paradox posits that there is a fundamental challenge in information exchange: It is difficult to assess the value of information without first sharing it, but once the information is shared, it becomes vulnerable to being copied, leaving the originator without compensation and without a competitive advantage.