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  • Australian healthcare giant Cochlear (COH) has lost its appeal in a U.S. legal battle and will now cough up $439 million
  • The tussle began in 2014 when the Alfred E. Mann Foundation for Scientific Research took action against Cochlear for wilful patent infringements
  • In a six-year legal back-and-forth, Cochlear defended the claims
  • Finally, the US Court of Appeal affirmed the District Court’s decision which charged Cochlear with the hefty damages awards
  • Cochlear said the patent in question has since expired, however, so operations in the States will not be affected at all
  • Shares in Cochlear are currently sitting just under two per cent red and trading for $171.37 each

Australian hearing aid creator Cochlear (COH) has lost its appeal to a U.S. District Court and will now cough up US$268 million (A$439 million) for patent infringements.

The healthcare giant has been in a legal scuffle with the Alfred E. Mann Foundation for Scientific Research (AMF) since 2014 when the U.S. meditech company accused Cochlear of infringing on AMF patents.

What followed was over six years of verdicts, appeals, and overturned judgements.

Today, the U.S. Court of Appeals affirmed the District Court decision which will see Cochlear pay the hefty damages to AMF.

The decision shocked Cochlear CEO and President Dig Howitt, who said the amount of damages is far out of proportion to the allegations.

“This case relates to two patents that are long expired. The Court invalidated the first patent and the remaining patent was much narrower in scope,” Dig said.

“We believe the amount of damages awarded is out of proportion with the limited application of the patented feature. We are very disappointed with this decision, but inflated damages awards are a risk of patent disputes in the US,” he said.

Of course, AMF CEO John Petrovich chimed a different bell, hailing the court’s decision as a “great outcome” and claiming his company was always confident in its case against Cochlear.

“We are gratified at the speedy disposition of this matter by the Federal Circuit.  We felt confident in our position going into the appeal, and now we see that this confidence was justified,” John said.

A brief history of back-and-forth

The case began in January 2014 when AMF took action against Cochlear for “willfully” infringing on two AMF patents relating to cochlear implant technology.

The original jury found Cochlear guilty on four counts and the ASX-listed healthcare company was ordered to pay US$134 million in damages.

However, this judgement was overturned in April 2015. Three of the four infringements were dismissed, with the final being determined as being unwilful.

AMF would not go down without a fight, however, and cross-appeals were heard in the Court of Appeals for the Federal Circuit. The court then decided that three of the four infringements were, in fact, valid, and the issue was passed on to the District Court in late 2016.

Then in November 2018, the District Court reinstated the original US$134 million award against Cochlear and slapped another US$134 on to the charge when it was decided the fourth infringement was actually wilful.

Now, it was Cochlear’s turn to appeal the US$268 million in damages awards. Today, the Court of Appeals affirmed the District Court’s decision and for now Cochlear will have cough up the cash.

Of course, after so much devoted time and effort to the case by both parties, it would be remiss for Cochlear to simply accept the verdict and put the matter behind it. As such, the company said it is now seeking a full-court review by the Court of Appeals in a petition for a rehearing.

Poor timing

Today’s news comes just one day after Cochlear shares took a hammering on the back of a withdrawn earnings guidance. Yesterday, the company told shareholders that as hospitals around the globe postpone non-essential surgeries to relieve the pressure of the Covid-19 pandemic on healthcare systems, Cochlear management could no longer predict an accurate earnings outcome for 2020.

Interestingly, however, Cochlear shares are relatively unphased by today’s news. By early afternoon shares were trading almost five per cent higher, though at 2:10 pm AEDT they’ve slithered slightly into the red.

The company said the patent at the forefront of the legal scuffle has expired, and as such, the judgement will not affect company operations in the U.S.

Perhaps after yesterday’s 18 per cent decline, shareholders are happy to hold until the court matter is actually finalised. If the history of the case is anything to go by, of course, that could be a long time from now.

Shares in Cochlear are currently sitting 1.8 per cent red and trading for $171.37 each.

COH by the numbers
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