Cochlear ordered to pay $268M for infringing hearing aid patents

A federal judge has doubled a patent infringement verdict to $268 million against medical device company Cochlear Corp., excoriating its American subsidiary for willful infringement and "egregious" conduct related to two hearing aid patents.

After over 10 years of litigation, Sunday's ruling by U.S. District Judge Fernando Olguin in Los Angeles is a win for plaintiff Alfred E. Mann Foundation, which was granted a motion for enhanced damages against the American subsidiary of Australia-based Cochlear.

A federal jury in 2014 determined Cochlear infringed on four claims related to two patents, awarding $131 million to the nonprofit Mann Foundation. Olguin, in clearing Cochlear of willful infringement liability, then threw out three of four patent claims and ordered a new trial.

The U.S. Court of Appeals for the Federal Circuit revived those three claims in 2016 in light of a U.S. Supreme Court decision and sent the matter back down to Olguin to decide willfulness.

"The court, having considered the ... high level of culpability of Cochlear's conduct, finds, in the exercise of its discretion, that doubling the damages is sufficiently punitive for Cochlear's egregious conduct in this case," Olguin ruled.

The judge said the company infringed the patent for at least 11 years after receiving a notice of infringement. In addition, Olguin said enhanced damages were warranted as a result of the company using the design to maintain a competitive edge over the nonprofit.

The judge pointed to evidence that said Cochlear's infringing products produced $1.8 billion in revenue with profit margins between 75 and 92 percent.

"While the jury's $130 million verdict is significant and may sound large in the abstract, it may not be enough without enhancement to deter infringing conduct given the context of this case," Olguin ruled.

Daniel Grunfeld, who took the case on behalf of the Mann Foundation in 2010 when he was leading Morgan Lewis & Bockius LLP's West Coast practice, said the decision has been a long time coming.

"It's a heartening and significant decision in a longstanding case, and once again highlights the points of protecting intellectual property and the costs to entities that forgot that," Grunfeld said.

Morgan Lewis attorneys who prevailed in Sunday's ruling include Jason E. Gettleman, Michael J. Lyons and Michael Carr.

In a prepared statement, Cochlear said it would appeal the decision in a prepared statement. The company's attorney, Bruce Chapman of Shepard, Mullin, Richter & Hampton LLP, could not be reached for comment.

In a statement, Cochlear President Dig Howitt said, "We are surprised by the decision and do not agree with the reasons given by the judge. We will continue to defend this case and the next step in the litigation process is our appeal to the U.S. Court of Appeals. The case is likely to take years to finally resolve."

The company said the infringement "relates to a long-expired patent and has no ongoing impact to Cochlear's business."

The Federal Circuit court reversed Olguin's ruling on the first jury verdict in part because of the U.S. Supreme Court's decision in Halo Electronics v. Pulse Electronics. That decision gave district courts discretion to award willful infringement damages by up to triple the amount. Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923.

"What changed was Halo lowered the standard," said John Petrovich, the Mann Foundation's CEO and general counsel.

Petrovich said any appeal would pertain to damages and not liability because the Federal Circuit ruled on liability and the company previously stipulated to $1.8 billion in sales as the base of royalties.

"The best they can hope for is that the Federal Circuit remands for a new trial on damages," Petrovich said.

Both the Mann Foundation and Cochlear produce technology related to cochlear implants, which are devices surgically inserted within a person's inner ear to restore hearing ability.