SCOTUS Passes on Chance to Rein in CAFC’s Heightened Evidentiary Standard for Damages Experts

Today, the U.S. Supreme Court issued an order list denying a petition for writ of certiorari filed by patent owner EcoFactor to challenge this May’s en banc ruling from the U.S. Court of Appeals for the Federal Circuit (CAFC) granting a new damages trial in EcoFactor’s infringement case against Google. In dismissing EcoFactor’s cert petition, the Supreme Court avoided ruling on whether the Federal Circuit has created a heightened Daubert standard for expert testimony on patent infringement damages and leaves patent owner EcoFactor without recourse for its due process claim against the Federal Circuit’s introduction of unbriefed contract interpretation theories in its en banc decision.

EcoFactor: SCOTUS Should Reverse CAFC for Reweighing, Omitting Evidence

Last September, the full bench of the Federal Circuit granted Google’s request for rehearing of a precedential decision entered by a CAFC panel that June affirming the Western District of Texas’ denial of Google’s motion for new trial. In that ruling, the CAFC panel majority found that EcoFactor’s expert witness on patent damages properly apportioned the value of the patented technology from portfolio-level license agreements based on Google’s internal profit and survey data. Circuit Judge Sharon Prost dissented, arguing that the license agreements were too broad to reliably reflect the value of EcoFactor’s asserted patent, a line of reasoning that the full Federal Circuit largely adopted in rendering this May’s en banc ruling.

As EcoFactor’s petition for writ points out, the Federal Circuit’s en banc ruling itself received harsh dissents from Circuit Judges Jimmie Reyna and Leonard Stark. Judges Reyna and Stark each joined the others dissent, with Judge Reyna writing that the Federal Circuit’s de novo treatment of contract interpretation issues strayed outside the limited grant of en banc review to address the Federal Rule of Evidence (FRE) 702 and Daubert issues raised by Google, depriving EcoFactor of notice and an opportunity to be heard. Judge Stark wrote separately to voice concerns that the appellate court was using FRE 702 to resolve factual disputes raised at the trial level.

By reweighing the evidence presented to the jury and coming to its own credibility determinations, the Federal Circuit disregarded fundamental principles of deference to jury verdicts from several Supreme Court cases, according to EcoFactor. In Lavender v. Kurn (1946), for example, the Court emphasized deference to jury findings even when there is evidence of the impossibility of certain events leading to that finding, stating that “[i]t is no answer to say that the jury’s verdict involved speculation and conjecture.”

The Federal Circuit’s reweighing of evidence from the case is even more problematic because of what the en banc ruling omitted, EcoFactor contended in its petition. In particular, EcoFactor noted that its email exchange with Johnson Controls, one of the portfolio licensees used by EcoFactor’s damages expert, showed that Johnson had accepted the per device royalty rate that the en banc CAFC found wasn’t established by the portfolio license agreements, each of which contained recitals that the agreed-upon rate “is not based upon sales and does not reflect or constitute a royalty.” Such de novo reweighing of evidence by the appellate court improperly substitutes the jury’s judgment leading the Supreme Court to reverse such rulings in cases involving negligence, causation or damages, EcoFactor argued.

Heightened Evidentiary Standard for FRE 702 Expert Testimony Likely to Remain

Tracing case law on the application of FRE 702 by six circuit courts of appeal, EcoFactor’s petition argued that every other circuit court has taken a highly deferential approach that conflicts with the rigid evidentiary standard developed by the Federal Circuit. By contrast, the Federal Circuit has used its rigid evidentiary requirements for FRE 702 to wipe out major patent infringement verdicts including a more than $350 million jury award in Lucent Technologies v. Microsoft (2009). By focusing on whether jury verdicts were influenced by expert testimony, the Federal Circuit has removed jury deference from the harmless error standard in a way that will have an outsized impact on patent litigants given the CAFC’s specialized subject matter jurisdiction, EcoFactor contended.

EcoFactor’s petition also raised the constitutional due process violation envisioned by Judge Reyna’s dissent to the CAFC’s en banc ruling. The contract interpretation issues upon which the en banc ruling turned were never raised by Google in the district court, nor were they briefed by either party on appeal, leaving EcoFactor with no opportunity to present evidence or develop arguments and depriving it of a fair trial on damages, the petition argued.

EcoFactor noted that the Court has intervened several times in the past to prevent “patent-specific distortions of general legal principles” in cases like eBay v. MercExchange (2006) and Octane Fitness v. ICON Health & Fitness (2014). EcoFactor’s petition urged the Supreme Court to grant cert in this case to restore the Seventh Amendment’s guarantee of a jury verdict in cases involving patent damages, which are among the most highly contested and economically significant cases across all federal litigation.

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