A new ruling to stop some Apple Watch imports could help medtech company Masimo reach a settlement with the $2.7 trillion tech giant after a years-long patent battle.
By Katie Jennings, Forbes Staff
The International Trade Commission issued an order to halt the importation of certain Apple Watches into the United States last week, handing a major win to medical device-maker Masimo in a years-long patent battle with the most valuable company in the world.
It’s an important bargaining chip for Masimo founder and CEO Joe Kiani, who said his company has spent upwards of $65 million related to ongoing patent and trade secret litigation with Apple over its pulse oximeter, a blood oxygen sensor that has become a selling point for premium smartwatches and fitness trackers.
The Commission sided with Masimo that Apple infringed on two patents related to the pulse oximeter, and the ban would prohibit certain Apple Watches that include the sensor (first introduced in the Series 6 in 2020) from being imported into the United States. It also includes a cease-and-desist order that stops sales of infringing products already in the country. The import ban is now subject to a 60-day presidential review and, barring intervention by the Biden Administration, is slated to go into effect on December 25. Apple said it plans to appeal the decision, which does not immediately affect Apple Watch sales.
Kiani told Forbes he hopes the ITC decision “might speed things up” and push Apple towards a settlement agreement with its $4.2 billion market cap challenger. But he said he won’t accept a check for a licensing deal from the $2.7 trillion tech giant to keep selling its existing pulse oximeter product as-is. Kiani said Masimo’s technology either needs to be incorporated into the Apple Watch, or he would work with Apple on “theirs till it's good enough to have Masimo’s reputation behind it.”
Kiani first met with Apple in 2013 as one of 28 companies discussing the possibility of including health sensors in future versions of the Apple Watch, according to legal filings. He has alleged in lawsuits that since that meeting, Apple poached his employees, stolen trade secrets and infringed on Masimo’s patents; Apple has denied all of these allegations.
“It is a big deal for Masimo because this is not something Apple can just sweep under the rug or ignore.”
But unless Apple can convince the Biden administration to veto the ruling in the next two months, the ban would go into effect while the appeals process plays out in federal court. “Masimo has wrongly attempted to use the ITC to keep a potentially lifesaving product from millions of U.S. consumers while making way for their own watch that copies Apple,” spokesperson Fred Sainz said in a statement.
“It is a big deal for Masimo because this is not something Apple can just sweep under the rug or ignore,” said John Presper, counsel at Foster, Murphy, Altman & Nickel, who isn’t involved in the litigation but represents clients before the Commission. “Masimo is in a much stronger position now,” he said, because one of Apple’s previous tactics – trying to convince the Patent Trial and Appeal Board to invalidate Masimo’s patents central to this dispute – has already failed.
The move comes as Masimo has been making its own push into the consumer tech market, including selling its own watches with blood oxygen-measuring capabilities. Wall Street hasn’t embraced the change in direction from Masimo’s core market, which has historically sold its technology to large health systems for a higher profit margin than a typical consumer tech sale. Today Masimo’s market cap is a quarter of its more than $16 billion peak in 2021. Forbes estimates Kiani, who joined the ranks of the world’s billionaires in 2022, is now worth around $840 million. Kiani declined to comment on the number, other than to say he agreed that “it's less than it was before.”
A presidential veto of an International Trade Commission ruling is exceedingly rare, said Presper. However, the most recent veto by then President Barack Obama in 2013 involved a dispute between Apple and Samsung that was decided in Apple’s favor. Before that, the last time a president intervened was during the Reagan and Carter administrations, according to an analysis in the Cornell Journal of Law and Public Policy.
This is the second time in less than a year that the Commission has issued an import ban related to Apple Watches. Mountain View-based AliveCor, which uses artificial intelligence and sensors for continuous heart rate monitoring, secured a ban in December 2022. President Joe Biden declined to intervene, but the ban was put on hold because Apple had managed to get the underlying patents invalidated. Apple and AliveCor have both filed appeals cases winding through federal court. Priya Abani, CEO of the $850 million startup, told Forbes AliveCor’s case “represents every small company and every future innovation that is at risk of being suppressed by a goliath.”
Given the Biden Administration didn’t intervene in the AliveCor case, Kiani, a prolific Democratic donor, believes it won’t in this case either. Kiani and his family gave at least $2 million to political action committees affiliated with President Biden’s election campaign in 2019 and 2020, according to Federal Election Commission filings. “I really love our president,” Kiani told Forbes, but he dismissed the idea that his campaign donations posed a conflict. “I think the administration has been trying to curb in Big Tech.”
The case gets to the heart of a bigger strategic question for Apple: Does the company want to sell regulated healthcare products or stick with consumer products?
Apple Watch sales can continue during the review period, said Presper, and the Commission isn’t making Apple pay a bond, which it does in some cases. And there is another alternative to reaching a settlement agreement, he said. Apple could also disable the pulse oximetry function or create a redesign that doesn’t infringe on Masimo’s patents.
The Commission had asked Apple “how easily” the infringing features could be removed from its watches and if the company was working on a redesign earlier this year. The response from Apple’s legal team in a June 2023 legal filing was almost entirely redacted, apart from: "It is impossible to say with certainty what actions Apple would take with respect to a redesign” before the Commission issues its final ruling. An Apple spokesperson did not respond to a request for further comment.
Kiani said he would also be “fine” with Apple instituting a redesign, rather than a settlement agreement. “Not everything is about financial gain,” he said. He quickly clarified, however, that his company would still pursue a financial settlement in federal court to recoup Masimo’s losses for past infringement.
Horace Dediu, founder and technology analyst at Asymco, said he believes a settlement agreement is the most likely outcome given his experience covering patent battles that have ensnared Big Tech companies. The chances of a redesign are “extremely low,” he said. There might be a software fix to disable the functionality but changing the hardware would take years. “You don't want to negotiate in the court. You don't want to negotiate through the ITC, but sometimes you're forced to because the sides are so entrenched,” said Dediu.
But the case gets to the heart of a bigger strategic question for Apple: Does the company want to sell regulated healthcare products or stick with consumer products? For Dediu, the answer is obvious – Apple doesn’t want to get tied up in all of the onerous regulations around medical devices and will remain focused on consumer tech.
“The Watch has always been at the intersection between function and style,” said Dediu. The health and fitness functions are nice to have add-ons, but at the end of the day people are buying Apple Watches “because they look good,” he said.
Masimo’s trade secrets case against Apple, which ended in a mistrial this past May, is scheduled to be retried in California in October 2024. After that case was filed, Apple filed a lawsuit accusing Masimo of infringing on its Apple Watch patents in Delaware. Masimo countersued and also alleged antitrust issues. “I think the damages should be large,” said Kiani. “Hopefully, the more it stings, the more they won't do this anymore.”
But patent litigation is expensive and time-consuming. Kiani, who has won previous patent fights against Nellcor (a division of Medtronic) and Philips worth around $1.1 billion, said he’s hunkering down for a six- or seven-year battle. “I always play the long game,” said Kiani. “I think as long as shareholders are patient, they'll be well rewarded.”