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US litigant claims Cochlear Ltd (ASX:COH) can’t escape US$268 million fine

It’s widely regarded as one of the best healthcare businesses on the local market but Cochlear Ltd (ASX: COH) has taken a hit recently after a US District Court ordered it to pay US$268 in damages to US medical research organisations named the Alfred E Mann Foundation (AMF) and Advanced Bionics (AB).

The award was made after a court in January 2014 found Cochlear had infringed four claims made by the Mann Foundation across two patents.

However, on appeal in April 2015 a US district court in California found that 3 of the 4 patent claims were “invalid” and that “Cochlear’s violation of the remaining claim was not ‘wilful’. This means the court found that 3 of the 4 patent claims could not be violated as they were invalid in the first place probably because the technology ‘patented’ was not considered unique.

While for the fourth claim it was found Cochlear breached the patent, but not deliberately and generally in this instance a company would be liable for far lower damages, if any.

However, in November 2016 a court of appeal again ruled in AMF and ABs favour in suggesting that two patents had been breached.

Subsequently, the next court remanded to decide damages increased the total to US$268 million partly because its jury found that Cochlear had in fact “wilfully” breached one of the patents.

Cochlear claims it will appeal this verdict in a process that is likely to take at least a couple of years, with Cochlear required to lodge a US$335 million insurance bond to secure further due legal process.

However, the chief executive officer of The AMF has boasted to the The Australian that Cochlear’s “day of reckoning” is coming and that Cochlear has little chance of escaping its fine.

Clearly a lot is on the line now for Cochlear and its investors, as the compensation bill of US$268 million, if enforced, is more than an entire year’s net profit and not the kind of amount investors will just shrug off as a one off.

Elsewhere on the ASX today, healthcare shares are performing reasonably well with CSL Limited (ASX: CSL) up 2% to $191.90 and Nanosonics Ltd (ASX: NAN) also up 2% to $3.14.

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Motley Fool contributor Yulia Mosaleva owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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