In EcoFactor, Inc. v. Google LLC, the en banc United States Court of Appeals for the Federal Circuit reversed a district court’s denial of a new trial on damages because EcoFactor’s expert’s opinion was unreliable under Fed. R. Evid. 702 and Daubert. 137 F.4th 1333, 1338 (Fed. Cir. 2025). The Federal Circuit held that “the existing licenses upon which [EcoFactor’s expert] relied were insufficient, individually or in combination, to support his conclusion that prior licensees agreed to the $X royalty rate and therefore the district court abused its discretion in failing to exclude this testimony.”
At trial, EcoFactor’s expert estimated a reasonable royalty by employing the hypothetical negotiation framework, which the Federal Circuit affirmed “is a sound approach, well supported in our precedent.” The analysis attempts to ascertain the royalty that a willing licensor and willing licensee would have agreed upon in a hypothetical negotiation just prior to infringement. The expert heavily relied upon an amount that he believed the alleged infringer would pay as a willing licensee, which may be shown by royalties received by the patentee for licensing the patent at issue. Such licenses are often deemed highly probative, and EcoFactor’s expert relied on three licenses between EcoFactor and three different licensees to support his opinion on the reasonable royalty rate.
The Federal Circuit found that the plain language of the licenses did not support the expert’s opinion of a particular royalty rate. First, the Federal Circuit affirmed prior holdings concluding that lump-sum licenses (such as the three the expert relied upon) are fundamentally different from running-royalty agreements and require that the expert present “some basis for comparison” between a lump-sum license and a reasonable royalty rate. Second, the language in each of the licenses recited only what EcoFactor believed was a reasonable per-device royalty, while expressly rejecting that such lump sum was based upon sale or that it reflected a royalty. In addition, the Federal Circuit noted that in the licenses’ “whereas” clauses, where EcoFactor believed the lump-sum reflected a reasonable royalty, the licensee expressly disavowed that it was a reasonable royalty. Accordingly, because the plain language in the license only recited the royalty rate of what a willing licensor might accept, the Federal Circuit held that the licenses did not support the expert’s opinion that the licenses reflected a royalty rate agreed to by a willing licensee. The Federal Circuit also rejected as insufficient other evidence the expert relied upon, which included testimony from EcoFactor’s CEO that the lump-sum amounts in the three licenses were based on a per-unit royalty rate multiplied by past and future sales. Because the CEO’s testimony was not supported by any record evidence and the expert admitted that he had not seen any licensee sales data that went into the calculation of lump-sum amounts in the licenses, the Federal Circuit concluded that the CEO’s testimony “amounts to an unsupported assertion from an interested party.” Thus, the testimony failed to “provide a sufficient factual basis for [the expert] to provide a reliable opinion.”
EcoFactor further attempted to identify other record evidence as supporting the expert’s opinion, but the Federal Circuit rejected this evidence, because courts must only examine the evidence the expert relied upon. In his trial testimony, EcoFactor’s expert had not referenced this other evidence EcoFactor identified.
Judge Reyna and Judge Stark each submitted dissenting opinions and joined each other’s dissent. Judge Reyna noted that the majority’s analysis of the licenses involved contract interpretation, which was outside the scope of the appeal. He also disagreed that the expert’s testimony should have been wholly excluded, because even if one factor of the reasonable royalty analysis was flawed, the expert could and did offer opinions on other factors. Judge Stark, opined that a reasonable jury could have sided with the expert’s interpretation that EcoFactor’s licensees agreed to the payments based on a particular rate, and he further criticized the majority for acting as a factfinder on the license’s provisions.
For all patent litigants, the case highlights the importance of rigorously analyzing license terms and language found in all parts of a patent license when advocating for a particular reasonable royalty. The case also underscores the importance of the expert identifying all evidence, including documentation, sales figures, and licenses, that supports the expert’s opinion on damages. For clients entering into patent licenses, often as the result of a settlement in the form of a lump-sum payment, the case shows that the license may have reduced value to show a reasonable royalty in future litigation if the licensee does not agree the amount is a reasonable royalty.