In Ecofactor, Inc. v. Google LLC, [2023-1101] (June 3, 2023), the Federal Circuit affirmed the the denial of Google’s motion for summary judgment that claim 5 of U.S. Patent No. 8,738,327 was invalid under 35 U.S.C. § 101; the denial of Google’s motion for judgment
as a matter of law of non-infringement of the ’327 patent; and the denial of Google’s motion for a new trial on damages.

The ‘327 patent relates to the operation of smart thermostats in computer networked
heating and cooling systems to reduce strain on the electricity grid during a period of expected high demand through adjustments to the user’s thermostat settings. The district court denied Google’s motion for summary judgment on Section 101, and submitted step two of the Alice inquiry to the jury, which found Google failed to meet its burden. Google filed a post-trial JMOL motion repeating its § 101 arguments, which the district court denied.

Google appealed the order denying summary judgment but not the jury verdict of ineligibility. The Federal Circuit said that the denial of Google’s motion for Summary Judgment was not appealable, disposing of the eligibility issue.

On the issue of infringement, the claims required a thermostat “that receives temperature
measurements from inside the structure.” Google argues that because metal, plastic, and/or glass housings, they cannot directly measure the surrounding ambient temperature “inside the structure” like other thermostats. Google argues that its thermostats can only derive an estimate of the ambient temperature by measuring only the temperature within the thermostat housing itself, which is not “inside the structure.” As a result, Google argues that the jury’s verdict of infringement is unsupported by substantial evidence.

EcoFactor’s infringement expert testified that the accused thermostat products meet
the claimed limitation because the thermostats measured temperature of the structure and not just the temperature within the thermostat housing. 26:20–327:6). EcoFactor’s expert supported his conclusion with several forms of evidence. EcoFactor’s expert relied on website guides maintained Google for the benefit of software engineers who develop applications for use with Nest thermostats. One website page states that the Nest thermostats measure the “[a]mbient temperature,” defined as the “temperature measured near the thermostat”—not just within the thermostat. Another website page explains that the temperature sensors of certain Nest products measure ambient room temperature.

The Federal Circuit concluded that the jury’s infringement verdict that the accused Nest thermostat products satisfy the claim language of “receives temperature measurements from inside the structure” is supported by substantial evidence.

On the issue of damages, Google argued for a new trial because EcocFactor’s damages expert should have been excluded. Among other things, Google asserted that his proposed royalty rate was “plucked . . .out of no where.” However the Federal Circuit said that far from plucking the $X royalty rate from nowhere, Mr. Kennedy based this rate on the following admissible evidence: three license agreements and the testimony of
EcoFactor’s CEO, Mr. Habib. Ultimately, the Federal Circuit noted, the jury returned a verdict of $20,019,300, which represents significantly less than Mr. Kennedy’s proposed damages amount of $Y that would have resulted from applying the $X royalty rate to Google’s past sales.

Google also attacked the lack of apportionment, since the licenses relied upon were for EcoFactor’s entire patent portfolio. The Federal Circuit explained that damages owed to the patentee must reflect the value of only the patented improvement—called apportionment. If a sufficiently comparable license is used for determining the appropriate reasonable royalty rate, further apportionment may not be required because the comparable license has built-in apportionment. Built-in apportionment effectively assumes that the negotiators of a comparable license settled on a royalty rate and royalty base combination embodying the value of the asserted patent.” Id. (citation omitted). For built-in apportionment to apply, the license must be sufficiently comparable in that principles of apportionment were effectively
baked into the purportedly comparable license. The Federal Circuit found that Mr. Kennedy sufficiently showed, for purposes of admissibility, that the three license agreements were economically comparable to the hypothetically negotiated agreement.

Judge Prost dissented from the damages portion of the opinion, stating that Google argues that (1) Mr. Kennedy, EcoFactor’s damages expert, calculated an $X royalty rate2 from the Schneider, Daikin, and Johnson lump-sum licenses in an unreliable way; and (2) the $X rate in any event did not reflect the value of the ’327 patent (as distinct from that of other patents covered by those licenses). Google is right on both counts. The district court therefore, in my view, abused its discretion by not granting a new damages trial given Mr. Kennedy’s flawed testimony.