Intellectual Property Expert’s Opinion on Specific Royalty Rate Deemed Unreliable
Posted on June 25, 2025 by Expert Witness Profiler
EcoFactor, Inc. (EcoFactor) owns U.S. Patent No. 8,738,327, which relates to the operation of smart thermostats in computer-networked heating and cooling systems.
In January 2020, EcoFactor sued Google in the Western District of Texas, alleging Google’s Nest thermostats infringed claims of the ‘327 patent, among other patents.
Before trial, Google filed a motion to exclude the testimony from EcoFactor’s damages expert, David Kennedy, under Federal Rule of Evidence 702 and Daubert. The district court, however, held that Kennedy’s testimony that $X is an established royalty for the patented technology was indeed supported by reliable methodology.
Google appealed the district court’s denial of the motion to exclude Kennedy’s testimony. Google argued that the district court abused its discretion in denying a new trial on damages because Kennedy’s expert opinion was unreliable.
Intellectual Property Expert Witness
David A. Kennedy is an expert in intellectual property valuation and negotiating the economics of patent sales and licensing agreements. He has been acknowledged as one of the World’s Leading IP Strategist by Intellectual
Asset Management for each of the last 11 years.
Kennedy has bought and sold patent portfolios and negotiated license agreements in commercial transactions and helped clients establish royalty rates for individual patents and large portfolios of implementation and standard essential patents.
Discussion by the Court
As part of his analysis, Kennedy considered lumpsum settlement licenses between EcoFactor and three licensees: Daikin Industries, Ltd. (Daikin); Schneider Electric USA, Inc. (Schneider); and Johnson Controls Inc. (Johnson).
Kennedy offered his expert opinion on “the amount of patent damages in this case,” and ultimately concluded that Google LLC (“Google”) should pay damages based on a royalty rate of $X per unit. Kennedy’s testimony is also supported by license agreements between EcoFactor, Inc. (“EcoFactor”) and Johnson Controls, Inc. (“Johnson”), Daikin Industries, Ltd. (“Daikin”), and Schneider Electric, USA (“Schneider”).
Apart from the licenses themselves, the only evidence upon which Kennedy relied was the testimony of Eco-Factor’s CEO, Shayan Habib. Habib testified that the lump-sum payments for each of the three licenses was calculated by multiplying the licensee’s past and future projected sales by the $X per unit rate. Habib also testified about Google’s sales compared to the sales of Johnson, Daikin, and Schneider, and he concluded that “as it relates to the smart thermostat business, they’re actually either quite new or very small in our space specifically.”
Kennedy’s Opinion that the Licenses Showed Industry Acceptance of an $X per unit Royalty Rate was not Based on Sufficient Facts or Data
To estimate a reasonable royalty in this case, Kennedy’s damages opinion employed the hypothetical negotiation or “willing licensor-willing licensee” framework, which “attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.”
The Federal Circuit held that the existing licenses upon which Kennedy 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.
There is also evidence in the record supporting Google’s contrasting belief that none of Schneider, Daikin, or Johnson ever agreed to an $X rate. For example, the Schneider and Daikin agreements (though not the Johnson agreement) provided that the “[lump-sum] amount [paid by each licensee] is not based upon sales and did not reflect or constitute a royalty.”
In other words, the plain language of the Daikin, Schneider, and Johnson license agreements did not support Kennedy’s testimony that the licensees agreed to pay the $X per unit royalty rate.
The “whereas” recital of the Schneider license indicated that EcoFactor believes $X is a reasonable royalty, but it made it equally clear that Schneider did not agree that $X per unit is a reasonable royalty. Also, the “whereas” recital of the Johnson license indicated EcoFactor’s representation of its unilateral belief that $X constituted a reasonable royalty and did not provide a basis for Kennedy to testify that Johnson agreed to the $X rate. Same with Daikin.
Moreover, the federal circuit stated that Habib’s testimony did not provide a sufficient basis for Kennedy’s testimony that Daikin, Schneider, and Johnson agreed to pay a royalty of $X per unit.
Held
The Federal Circuit ruled that the district court should have granted Google a new damages trial because David A. Kennedy’s expert testimony—claiming the licenses proved the industry accepted an $X-per-unit royalty rate—lacked the solid facts and data that Rule 702 requires.
Key Takeaway:
The Court found that David Kennedy’s testimony that the licensees agreed to the $X per unit royalty rate was not supported by sufficient facts or data as required by Rule 702, rendering his opinion unreliable and inadmissible. The plain language of the licenses contradicted Kennedy’s assertion, and Habib’s testimony did not provide a sufficient factual basis. The Court held that the district court failed in its gatekeeping role under Daubert by allowing Kennedy to testify despite the lack of factual support for a critical premise of his opinion.
Case Details:
| Case Caption: | Ecofactor, Inc. V. Google LLC |
| Docket Number: | 6:20cv75 |
| Court Name: | United States District Court, Texas Western |
| Order Date: | May 21, 2025 |
