Cochlear Limited’s Shares Plunged On Unfavorable Outcome Of Ruling In USA Patent Infringement Case

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On 5 November 2018, Cochlear Limited (ASX: COH) announced that the United States District Court in Los Angeles has ruled against the company in the patent infringement lawsuit by the Alfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics LLC (AB). As per the company’s recent release, the damages totaling around US$268.1 million have been awarded to AMF and AB. The company has announced that it intends to appeal the judgement, though the outcome of an appeal is expected in approximately two years. Following this news, the share price of the company decreased by 2.189 percent. 

The company’s CEO Mr. Dig Howitt said that the company is surprised by the decision and they disagree with the reasons given by the judge. The company will continue to defend this case and the next step in the litigation process will be to appeal in the U.S. Court. The company will need to lodge a US$335 million insurance bond with the court within 14 days for the stay on the execution of the judgement pending the outcome of the appeal. Further, the company has confirmed that it has debt and other facilities available to cover the amount of the insurance bond.

This case has been running for a number of years and back in the year 2014 a jury found that the company infringed 4 claims across 2 patents, the infringement was willful and awarded US$131.22 million in damages, but AMF and AB asked the District Court judge to further add an additional amount for post-verdict infringement, and to increase those damages for willful infringement. The company asked judge to find non-infringement of the second valid claim, to hold a second jury trial on damages, and to decline to increase damages for willful infringement. However, the court granted AMF’s and AB’s request for entry of the prior jury verdict, upheld infringement of the second claim, added USD 2,812,214 for post-verdict infringement, increased damages based upon the jury’s verdict of willful infringement, and ordered AMF and AB prepare a judgment to be entered against Cochlear for US$268.1 million. The company has established a provision in FY 2014 based on the view of its independent damages expert’s assessment of the liability that could result from the dispute.

In FY 2018, the company reported a record net profit of $246m which is an increase of 10 percent from the previous year. The company is expecting to deliver reported net profit of around $265- $275 million in FY 2019 which is an increase of 8-12% on FY 2018. The company is planning to use its operating cash flows in activities which are aimed at building awareness and market access. In the last six months, the share price of the company decreased by 7.90 percent as on 2 November 2018. COH’s shares traded at $175.630 with a market capitalization of circa $10.36 billion as on 5 November 2018 (AEST 1:20 PM). Now, the impact from the above ruling is to be seen at the future financial performance.


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