Cochlear loses patent infringement case
Recommendation
Poor old Cochlear can barely take a trick at the moment and it's now on the wrong end of a US jury trial verdict in a patent infringement case brought by Alfred E Mann Foundation for Scientific Research and competitor Advanced Bionics. The jury has found 'direct, contributory and wilful, but not induced infringement’ by Cochlear of two patents related to methods and systems for testing cochlear implants, and has awarded damages of US$131m against it.
No judgment has yet been entered on the verdict 'as important issues remain to be decided by the Judge'. These decisions could negate the findings of the jury and could alter the amount of damages. Chief executive Chris Roberts says that Cochlear 'strongly disagrees' with the verdict and will appeal any judgment entered against it. With earnings before interest and tax of $179m in the year to June and net debt of only $118m at the year-end, though, the company would easily be able to borrow the money needed to pay the damages should it need to do so.
One of the patents has already expired, and the other is due to expire in March 2014, so the judgment will not affect the company's operations. The stock fell about 3.7% on the news, equivalent to a $128m fall in its market capitalisation, almost exactly matching the awarded damages. The share price has barely changed since 16 Oct 13 (Hold – $57.96) and we continue to recommend you HOLD.
Note: Our Growth Portfolio owns shares in Cochlear.