On May 21, 2025, the U.S. Court of Appeals for the Federal Circuit, issued its first en banc decision in a utility patent case since 2018. See EcoFactor, Inc. v. Google, LLC, 127 F.4^th 1333 (Fed. Cir. 2025) (en banc). In an 8-2 decision, the court reversed a $20 million damages award, finding that the Western District of Texas had improperly admitted expert testimony regarding damages. This ruling could have lasting effects on patent litigation by reaffirming the role of courts as gatekeepers in scrutinizing expert opinions and methodology, especially when it comes to determining reasonable royalty rates.

District Court Proceedings

EcoFactor owns U.S. Patent No. 8,738,327, which pertains to the operation of smart thermostats. EcoFactor filed a lawsuit against Google in the Western District of Texas, claiming that Google’s Nest thermostats infringed the ‘327 patent (among others). Google filed a Daubert motion to exclude the testimony of EcoFactor’s damages expert, arguing that his methods were unreliable and unsupported under Rule 702. The district court denied the motion.

After a jury found in favor of EcoFactor on the infringement claims, Google renewed its motion for judgment as a matter of law (JMOL) on non-infringement and also requested a new trial on damages, asserting that the expert’s testimony should have been excluded. The district court rejected both motions. Google appealed, arguing that the district court had erred by denying its request for a new trial.

Federal Circuit’s Panel Decision

In the initial appeal, a three-judge panel of the Federal Circuit upheld the jury's finding on patent infringement and rejected Google's arguments related to the damages calculation. The panel concluded that the expert opinion was sufficiently reliable for the purposes of the trial. According to the panel, the lump-sum licenses he used to calculate the royalty rate were "comparable licenses," and his methodology appropriately apportioned the value of the ’327 patent.

In a dissenting opinion, Judge Prost took issue with the approach of EcoFactor’s expert, pointing out that the lump-sum agreements did not establish a clear link to a per-unit royalty rate.

En Banc Review: Court’s Focus on Daubert and Rule 702

Google petitioned for a rehearing en banc, which the Federal Circuit granted. The en banc review centered on whether the district court properly adhered to the requirements of FRE 702 and Daubert when allowing EcoFactor's expert testimony on damages.

In its en banc ruling, the court vacated the panel’s decision and determined that the district court had erred in admitting the testimony of EcoFactor’s expert. The majority held that the expert’s opinion was not based on sufficient facts or data, as required by FRE 702. This was particularly concerning because the expert relied heavily on “whereas” clauses in the license agreements that the court found only reflected EcoFactor's unilateral belief about a reasonable royalty rate, not the licensees' agreement.

The court emphasized the importance of ensuring that expert testimony meets the rigorous standards of admissibility, which include not only the relevance and reliability of the data but also the proper application of the expert’s methodology.

Critical Analysis of the Evidence

The Federal Circuit's en banc opinion closely examined the key evidence EcoFactor’s expert used to form his expert opinion:

• The License Agreements: EcoFactor’s expert relied on three lump-sum agreements (Schneider, Daikin, and Johnson) to calculate the $X per-unit royalty rate. However, the court found that these licenses did not substantiate the $X rate. Specifically, the “whereas” clauses in the licenses, which stated that EcoFactor believed $X was a reasonable royalty, were found to be insufficient to support the conclusion that the licensees had agreed to pay that rate. The court observed that the Daikin license, for instance, specifically noted that the lump sum payment was not tied to sales and did not constitute a royalty. Additionally, the Schneider license explicitly stated that the $X per-unit rate was not agreed upon by both parties. Given these issues, the court found that the expert’s reliance on these clauses was unsubstantiated.

• The CEO's Testimony: EcoFactor’s CEO testified that the lump sums were based on the $X royalty rate and projected sales figures. However, the court found this testimony lacking in support, especially since the CEO did not have access to the sales data necessary to verify his calculations.

Judge Reyna and Judge Stark’s Dissent

Judges Reyna and Stark each filed partial concurrences and dissents. Judge Reyna argued that the en banc court had overextended its analysis by focusing on contract interpretation and that the exclusion of Mr. Kennedy's testimony should not have been a blanket decision. He suggested that, even if the majority’s contract interpretation was correct, the error would be harmless, as the contested evidence was duplicative of other admissible evidence.

Judge Stark also expressed concerns about the potential implications of the majority’s decision, arguing that it could unnecessarily constrain damages experts in ways that were not required by Daubert or Rule 702. He also believed that the district court should have been given the opportunity to provide a fuller explanation rather than having the case remanded for a new trial.

Key Takeaways

As Judge Stark noted, the holding in this case appears to be relatively narrow. The Federal Circuit examined the contractual provisions of the lump-sum licenses and determined that they did not adequately support the expert’s conclusion that the licenses represented a per-unit reasonable royalty to which both parties would have agreed. On its face, the Court’s decision serves as a cautionary reminder to licensors to draft settlement and license agreements with precision and to explicitly state when a lump-sum payment is intended to reflect an underlying royalty based on sales. Experts relying on such agreements must likewise take care not to attribute implications beyond the express terms of the contracts. This decision may, in turn, complicate efforts to negotiate lump-sum settlements where the licensor seeks to preserve a consistent royalty rate for litigation purposes.

Judge Stark also warned that the decision could have a broader impact on district courts’ gatekeeping role when evaluating motions to exclude expert testimony. The Federal Circuit’s discussion underscores that courts must more rigorously assess whether expert opinions are grounded in sufficient facts and data. Rather than defaulting to admitting expert testimony and leaving questions of weight and credibility to the jury, courts may increasingly adopt a stricter approach. Consequently, litigants may place greater emphasis on third-party discovery to substantiate the assumptions underlying comparable licenses.