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.
As about the only person who filed an amicus brief for EcoFactor on doctrinal (as opposed patent policy) grounds, I agree with the dissents. The opinion isn’t a bad one in my view. In reaching its decision, the Court cited a lot of precedent on Daubert, all of it uncontroversial in my view. That said, I just think it's not the right outcome on these facts. The opinion makes clear (and oral argument made even more clear) that the expert's, well, expert testimony that the contracts agreed to a royalty of $X was so at odds with contract interpretation that the parties did not agree to a royalty of $X gave an imprimatur of certainty that skewed all the remaining evidence. My view is that the other evidence supported the royalty, but I can see where the majority is coming from.
The opinion also rules on what I see are pretty narrow grounds that do not provide a lot of guidance. Judge Stark’s dissent seems to summarize the holding pretty well – if the expert opines relying on a fact that is wrong as a matter of law, then the opinion is not reliable. This leaves room for reliance on disputed facts, but cabins the way the expert can talk about them.
So what does that mean in practice? Some takeaways:
- This is based on contract interpretation, so one of the following might happen:
- There is no way to opine about how lump sum licenses convert to royalty rates (unlikely; even in this case the expert can probably work around)
- Full employment for lawyer experts with both licensing and IP experience (yay! I’m ready for hire)
- Experts will soften their opinions and find other ways to get the evidence in in the way that the dissents talk about (this is the most likely outcome)
- Expert opinion methodology and phrasing may now become even more high stakes than they were: basically, the expert must be sure of a fact before relying on it; if unsure, the expert must waffle or otherwise make clear which parts of the opinion depend on the fact being true and which parts are based on disputed facts. The key, it seems, is for experts to say "if true" after every factual assertion. If the jury rules in the expert's favor, those facts should be assumed to have been resolved in favor of the winning party unless, of course, the fact could not be true as a matter of law. And even then, the opinion should stand unless it rises or falls on that fact (there being no imprimatur, as there was in this case).
Thus, I think the biggest risk isn’t the use of disputed facts by experts, so long as they make clear the fact is disputed. The risk is that the court finds a fact the expert relied on undisputed as a matter of law contrary to the way the expert testimony came in. Experts will want to (as many already do) have multiple ways to get to the same/similar results, though as the dissents point out, the expert in this case did have alternate ways (the market share calculation) that the majority did not believe saved the opinion. How that shakes out in the future is what remains to be seen, but I would be surprised if EcoFactor is a seismic shift that many thought (hoped?) it would be.