Reliably Determining Reasonable Royalty Rates From Lump-Sum Licenses

Written by: Susan E. Pratt, Ph.D. & Nathan D. Reeves

ECOFACTOR, INC. V. GOOGLE LLC

Before Lourie, Prost, and Reyna.  Appeal from the United States District Court of the Western District of Texas.

Summary:  License agreements containing a lump-sum payment “based on” a royalty rate may provide reliable evidence of a reasonable royalty rate for the licensed patent.

EcoFactor sued Google for patent infringement over Google’s smart thermostat products. At trial, the jury found Google infringed the patent and awarded EcoFactor damages. Google moved for a new trial on damages, arguing that the opinion of EcoFactor’s damages expert should have been excluded from trial for being speculative and unreliable. The district court denied the motion, and Google appealed.

The Federal Circuit affirmed the district court’s decision to deny Google’s motion for a new trial. On appeal, Google argued that the expert’s royalty rate was “plucked . . . out of nowhere” and that the damages testimony lacked comparability and apportionment. The Federal Circuit noted that the challenged expert’s testimony was based on three comparable licenses that contained lump sum payments “based on … a reasonable royalty calculation” at a particular rate and held that these licenses, along with corroborating evidence, adequately supported the rate. The Federal Circuit also held that the three licenses were economically comparable to the hypothetically negotiated agreement and properly apportioned because the expert accounted for the difference in scope between the licenses in analyzing the hypothetical negotiation. Consequently, the Federal Circuit concluded that the expert relied on sufficiently comparable licenses and that the expert’s opinion adequately apportioned the value of the patent. Thus, the damages opinion was admissible and the district court did not abuse its discretion when it denied Google’s motion for a new trial.

Editor: Sean Murray