Context: The two appeals courts whose decisions ip fray follows most closely are the Court of Appeal of the Unified Patent Court (May 28, 2024 LinkedIn post by ip fray) and the United States Court of Appeals for the Federal Circuit (May 21, 2024 ip fray article).
What’s new: Today the Federal Circuit rendered a precedential 2-1 opinion (PDF) affirming a $20M damages verdict from the Western District of Texas (Judge Alan D. Albright) in EcoFactor v. Google, a case involving Google’s Nest thermostats. The appeals court rejected the ยง 101 patent-eligibility part because Google appealed from a summary judgment of a matter actually put before the jury, disagreed with Google’s invalidity argument and also declined to deem the plaintiff’s damages expert’s testimony unreliable. The damages part gave rise to a dissent by Circuit Judge Prost. If it stands, the decision serves as a blueprint for how to proceed in patent licensing negotiations and, especially, what to put into the recitals of license agreements with a view to damages claims in future trials.
Direct impact & wider ramifications: A further appeal by Google is easily imaginable. Judge Prost’s dissent effectively invites Google to challenge the majority opinion, and reasonable people can indeed disagree with the reasoning not only as far as an alleged market rate is concerned, but also with a view to apportionment when license agreements cover much more than the patent-in-suit.
The patent-in-suit is U.S. Patent No. 8,738,327 (title: “system and method for using a network of thermostats as tool to verify peak demand reduction”). The appeal involves two simple merits-related and two more difficult damages-related questions.
Judge Albright had denied Google’s motion for summary judgment of invalidity. The analysis reached Alice step 2, and Judge Albright put that one before the jury, which upheld the patent. The Federal Circuit threw out the invalidity-related part of Google’s appeal simply because when summary judgment just allows a case to proceed to trial, it isn’t appealable. Google would have to appeal the validity-related jury verdict.
Google’s non-infringement argument also failed. Google argued that its Nest thermostats measure a temperature within a housing. But its marketing materials talk about temperatures near the device, which means room temperature.
Even the dissent does not disagree with the majority on the merits.
The damages-related controversy involves two questions over which Google argued Judge Albright should have thrown out the plaintiff’s damages expert’s testimony:
- The damages expert argued that a certain per-unit royalty ($X) was validated by prior license agreements with Johnson, Daikin and Schneider, as well as email correspondence between EcoFactor and Johnson. And he additionally concluded, based on the profitability of the accused products, that $X would have been a reasonable starting point. But Google said the related agreements and correspondence did not prove that the $X per-unit rate was actually the outcome of those negotiations.
- The damages expert didn’t perform a specific apportionment to account for the fact that the patent-in-suit was not the only patent to be subject to those license agreements.
On apportionment, Judge Prost would have wanted EcoFactor’s damages expert to do his homework. The majority (Circuit Judges Lourie and Reyna), however, believed that it could be left to the jury, and noted that the jury indeed awarded “significant less.”
The question of whether there was real-world evidence for the $X per-unit royalty is the more interesting one, especially with a view to what other parties may now want to put into correspondence and license agreements. There were references in the recitals to what the patent holders “believe[d]” to be the correct per-unit royalty, and also some positions to the contrary voiced by licensees (who may have done so with a view to other cases in which they could find themselves on the receiving end of thermostat patnet assertions). Judge Prost did not consider those recitals to be of probative value, particularly not when there are contradicting recitals in place. The majority, however, considered the recitals meaningful, and attached particular weight to an email chain between EcoFactor and Johnson, in which the licensee itself wrote that it applied that rate to a calculation.
ip fray agrees with the dissent on the significance of recitals expressing unilateral beliefs. That said, it could be that EcoFactor’s damages expert’s alternative approach (based on the profitability of the accused product line) was sufficient even if one disagreed that the recitals proved anything.
Patent license negotiators may find the part of the Federal Circuit opinion (including the dissent) instructive. While this decision is not final yet, it’s interesting to see how EcoFactor managed to incorporate its per-unit royalty demand into license agreements with those other licensees and how EcoFactor’s damages expert then relied, in part, on those passages in the Google case.