A few years ago, U.S. District Judge Fernando Olguin of the Central District of California seemed to be on Cochlear Ltd.’s side.
Although a jury awarded $131 million against the Australian hearing implant giant in 2014 for infringing four patent claims, Olguin ruled post-trial that three of the four claims were invalid. He also granted a new trial on damages and rejected the jury’s finding that the award was willful.
Now, after a trip to the U.S. Court of Appeals for the Federal Circuit, a change in the law of willfulness from the Supreme Court, and a re-examination proceeding that seems to have irked the judge, Olguin has come down on Cochlear hard. He’s not only reinstated the $131 million infringement award, he’s doubled it for willfulness. The total comes to $268 million with supplemental damages.
Considering the jury verdict and the “high level of culpability of Cochlear’s conduct” both before and after the verdict, “doubling the damages is sufficiently punitive for Cochlear’s egregious conduct in this case,” Olguin wrote in a 72-page order issued Sunday.
The win goes to the Alfred E. Mann Foundation for Scientific Research and its licensee, Advanced Bionics. A Morgan, Lewis & Bockius team led by partner Michael Lyons represented both. “The Court provided a thorough and nuanced analysis explaining in detail its rationale for enhancing damages and concluding ‘Cochlear’s conduct was more flagrant than most,’” Lyons said in a written statement.
Morgan Lewis partners Thomas Peterson, Jason Gettleman and Michael Carr were among those also providing support.
Cochlear was represented by Sheppard, Mullin, Richter & Hampton. “We are surprised by the decision and do not agree with the reasons given by the judge,” Cochlear CEO Dig Howitt said in a written statement. “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 Australian company is the undisputed worldwide leader in hearing implants. But that leadership faced a challenge in the 1990s when the Mann Foundation patented an implant based on back telemetry technology and a method for testing it. Advanced Bionics incorporated the technology into its Clarion implant in 1996. “In the blink of an eye, the newly introduced Clarion took a significant 30 percent of Cochlear’s market share,” Olguin wrote in his order.
Cochlear responded by updating its Nucleus implant with similar technology. It wasn’t until 2003 that the Mann Foundation formally raised concerns with Cochlear about infringement. The foundation sued in 2006.
Following the jury verdict, Olguin ruled that both of the implant claims and one of the testing claims were invalid for indefiniteness. The Mann Foundation didn’t come close to proving willfulness, because Cochlear had raised objectively reasonable—though unsuccessful—non-infringement defenses. That was all that was required at the time under the Seagate standard to defeat a willfulness claim.
While the case was pending on appeal, the Supreme Court replaced the Seagate standard with less rigid rules for proving willfulness. And though the Federal Circuit agreed with Olguin that the implant claims were indefinite, the appellate court found both of the testing claims valid.
In the meantime, Cochlear had filed for an ex parte re-examination of the testing patent in June 2014, after the jury had rendered its verdict after the patent had expired. “In its petition, Cochlear raised the exact same arguments the jury rejected,” Olguin wrote, “and apparently attempted to block plaintiff’s trial counsel from participating in the re-examination.” The Patent Office ultimately confirmed that the patent claims were indeed valid.
This maneuver clearly did not sit well with Olguin. “Cochlear makes no effort to explain why it filed the re-examination petition seven years after the case was filed or why it did not file one earlier,” he wrote. The re-examination “did nothing more than distract and raise the costs for plaintiff to continue litigating this case.”
Olguin noted that when determining willfulness, an infringer’s conduct can be considered both before and after trial. He also took into account Cochlear’s $5 billion market capitalization versus the foundation’s $45 million endowment. He described Cochlear as the type of “egregious infringer” that can only be deterred by the threat of enhanced damages, as described by Sen. Jon Kyl during debate over the America Invents Act.
“While the jury’s $130 million verdict is significant and may sound large in the abstract,” Olguin wrote, “it may not be enough without enhancement to deter infringing conduct given the context of this case.”