Has Cochlear got its “head in the sand” over potential $380 million legal bill?

The Alfred Mann Foundation is now demanding up to US$391 million from Cochlear.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Cochlear Ltd (ASX: COH) share price is down 4% to $205.54 this morning despite the hearing aid business reconfirming guidance for net profit between $290 million to $300 million over FY 2020, which would represent growth of 9%-13% over FY 2019.

The group also reiterated new products continue to sell well as it invests heavily in research and development to maintain its market-leading position in large addressable markets.

It also flagged that it’s making good progress in constructing a new manufacturing facility in Chengdu, China, that should help open up the huge Chinese healthcare market going forward. 

However, its chairman Rick Holliday-Smith also had a reminder for investors that the group still faces a potentially huge legal bill over a patent dispute with U.S. hearing aid researcher Alfred Mann Foundation.

Cochlear is currently appealing a court verdict that it pays US$268 million (c.$A389m) in damages to the Alfred Mann Foundation, with Goldman Sachs analysts also reporting the plaintiffs have asked for US$123m (c.A$178m) in pre-judgement interest. 

The initial claim quantum was based on the ruling that Cochlear had infringed on two patents across four claims, with an original US$131 million in damages being calculated as 7.5% in lost royalties on base sales of US$1.8 billion.

However, in November 2018 a US District court judge more than doubled the compensation to US$268 million due to a finding of “wilful infringement” by Cochlear. 

I’ve also had it confirmed by representatives of the Alfred Mann foundation that the total now being sought is around US$391 million (A$568 million on an FX-adjusted basis) when including ‘pre-judgement’ interest. 

However, I’d caution there’s zero guarantee Cochlear ever has to pay anything like this amount out.

At its AGM today it confirmed it has launched an insurance bond of US$335 million as part of the appeal process. 

Of course a U.S. appeal court may throw out Alfred Mann’s additional claim or its claim completely which would be a huge win for Cochlear investors. 

On the other hand the accusation that Cochlear has been understating its liability and overstating its grounds for appeal may prove watertight if Alfred Mann’s charge that Cochlear has “its head in the sand” over the court process proves correct. 

Tom Richardson owns shares of Cochlear Ltd and Dicker Data.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. 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.

More on Share Market News

Two hands being shaken symbolising a deal.
Mergers & Acquisitions

How many global mega deals involved ASX 200 shares in the first half of 2022?

Deal making among ASX 200 shares helped drive a 25.4% increase in M&A activity in Australia in the first half…

Read more »

Top 10 blank list on chalkboard
Share Market News

Here are the top 10 ASX shares today

Here are your top 10 biggest gainers in the ASX 200 on Wednesday.

Read more »

a man peers between two large piles of papers and files with a wide-eyed, wide-mouth look of dread at the amount of work he has to do.
Share Market News

Here are the 3 most heavily traded ASX 200 shares on Wednesday

We take a look at the most traded ASX 200 shares by volume today.

Read more »

workers stand over a large spool of copper pipe.
Share Market News

ASX copper shares in the red as copper price sinks to 19 month low

Copper prices fell in global markets overnight.

Read more »

Man with rocket wings which have flames coming out of them.
Share Market News

EML share price leaps 16% on Spanish government stimulus contract

EML shares are on fire on Wednesday...

Read more »

Share Market News

ASX 200 midday update: BHP and Fortescue sink, EML and ZIP jump

The ASX 200 is having a difficult day due to weakness in the mining sector...

Read more »

Business woman watching stocks and trends while thinking
Share Market News

5 things to watch on the ASX 200 on Wednesday

The ASX 200 looks set to have a tough day on Wednesday...

Read more »

Share Market News

Here are the top 10 ASX shares today

Here are your top 10 biggest gainers in the ASX 200 on Tuesday.

Read more »