Some Apple Watches are about to be banned in United States

Some Apple Watches are about to be banned in United States. What will happen next?

Some Apple Watches are about to be banned in the United States. What will happen next?

Two weeks ago, the U.S. International Trade Commission (ITC) issued a ruling to stop the import of certain Apple Watches into the United States, marking a significant victory for medical device manufacturer Masimo after years of patent battles with the world’s most valuable company, Apple.

For Masimo’s founder and CEO, Joe Kiani, this is a major milestone. Masimo had been in legal disputes with Apple over patents and trade secrets related to pulse oximeters (a blood oxygen sensor, which has become a significant feature in high-end smartwatches and fitness trackers), with legal expenses amounting to over $65 million.

Some Apple Watches are about to be banned in the United States. What will happen next?

The ITC supported Masimo’s position, finding that Apple had infringed on two patents related to pulse oximeters. Therefore, the ban will prevent the import of certain Apple Watches with this sensor function (introduced in the Apple Watch Series 6 in 2020) into the U.S. The ban also includes an order to stop unfair competition and prevent the sale of infringing products already imported into the U.S. This ban is currently under a 60-day presidential review period, and if the Biden administration does not intervene, it will go into effect on December 25. Apple has stated its intention to appeal this decision, but it won’t immediately affect the sale of Apple Watches.

Kiani told Forbes that he hopes the ITC’s decision “expedites the process” and leads to a settlement between Apple and its $42 billion challenger. However, he mentioned that he would not accept a patent licensing deal proposed by the tech giant, worth $2.7 trillion, to continue selling its existing pulse oximeter products. Kiani stated that Apple either needs to integrate Masimo’s technology into their watches, or he will collaborate with them on their technology until it’s good enough to entrust Masimo’s reputation to them.

According to legal documents, Kiani first met with Apple in 2013 when 28 companies, including Masimo, were discussing the possibility of including health sensors in future versions of Apple Watches. Kiani alleged that since that meeting, Apple poached his employees, stole trade secrets, and infringed on Masimo’s patents. Apple denied all these allegations.

Unless Apple can persuade the Biden administration to veto this decision in the next two months, the ban will come into effect during the federal court appeal process. Fred Sainz, a spokesperson for the company, said, “Masimo is wrongly trying to use the U.S. International Trade Commission to prevent millions of American consumers from buying a product that could save lives while clearing the way for their own imitation of Apple Watch.”

John Presper, a lawyer at Foster, Murphy, Altman & Nickel, stated, “This is significant for Masimo, and Apple cannot sweep it under the rug.” Presper was not involved in this lawsuit but has represented other clients in ITC-related cases. “Masimo is now in a better position,” he said, as Apple’s previous strategy of trying to convince the Patent Trial and Appeal Board to declare Masimo’s core patent invalid in this dispute had failed.

In the meantime, Masimo is also trying to enter the consumer tech market, including selling its own watches with blood oxygen measurement functionality. However, Wall Street is not optimistic about the shift in Masimo’s core market direction, as the company has primarily sold its technology to large healthcare systems, which yields higher profit margins than general consumer tech sales. Today, Masimo’s market value is only a quarter of its peak in 2021, over $16 billion.

Kiani was once listed among the world’s billionaires in 2022 (the threshold was $1 billion), and Forbes estimates his current wealth to be approximately $840 million. Kiani declined to comment on this figure, only saying that he agrees his wealth is “less than before.”

Presper mentioned that a presidential veto of the ITC’s decision is extremely rare. The most recent veto occurred during President Obama’s term in 2013, involving a dispute between Apple and Samsung, ultimately in Apple’s favor. According to an analysis in the Cornell Journal of Law and Public Policy, the last time a U.S. president intervened in an ITC decision was during the Reagan and Carter administrations.

This is the second time in less than a year that the ITC has issued an import ban related to Apple Watches. Previously, the startup company AliveCor, based in Silicon Valley, obtained a ban in December 2022, using artificial intelligence and sensors for continuous heart rate monitoring. Although President Biden did not intervene, the ban was later stayed because Apple had managed to invalidate the related patents. Both Apple and AliveCor have appealed to federal courts. Priya Abani, the CEO of this $850 million startup, told Forbes that AliveCor’s case “represents every small company at risk of being crushed by giants and all future innovation.”

Given that the Biden administration did not intervene in the previous AliveCor case, Kiani, who has regularly donated to Democratic political action committees, believes the same may happen here. According to Federal Election Commission records, Kiani and his family contributed at least $2 million to committees affiliated with President Biden’s campaign in 2019 and 2020. “I love our president,” Kiani told Forbes but denied that his political donations pose a conflict in this case. “I think the government has been trying to contain large tech companies.”

Presper pointed out that Apple Watches can continue to be sold during the review process, and the ITC has not required Apple to post a bond, although it can do so in certain circumstances. He said that, apart from reaching a settlement, Apple has another option, which is to disable the pulse oximeter function on Apple Watches or redesign a product that doesn’t infringe on Masimo’s patents.

Earlier this year, the ITC asked Apple how difficult or easy it would be to remove the infringing feature from its watches and whether the company was working on a product redesign. However, in a legal filing submitted in June 2023, Apple’s legal team’s response was heavily redacted, with only one sentence remaining: “We cannot determine what action Apple may take regarding a redesign until the ITC issues its final determination.” An Apple spokesperson did not respond to further inquiries.

Kiani stated that if Apple redesigns the product rather than settling, he is open to it, claiming that “it’s not all about financial interests.” However, he quickly added that his company would still seek financial compensation in federal court to make up for the losses incurred by Masimo due to infringement.

Horace Dediu, the founder of Asymco and a tech analyst, mentioned that patent wars have hurt big tech companies in the past, and based on his previous experience, he believes that reaching a settlement is the most likely outcome. He said the possibility of a redesign is “very low.” Perhaps Apple can disable the function through software updates, but changing the hardware would take several years. “No one wants to negotiate in court, and no one wants to negotiate through the ITC, but sometimes you have to because both sides are very stubborn,” Dediu said.

At the same time, this case raises a core strategic issue for Apple: does the company want to sell regulated healthcare products or focus on consumer products? According to Dediu, the answer is clear – Apple doesn’t want to be constrained by the complex regulations of medical devices and will continue to focus on consumer tech products.

Dediu said, “The design of Apple Watch considers both functionality and fashion. Health and fitness features are great add-ons, but ultimately, people buy Apple Watches because they look good.”

In May of this year, a trade secrets case filed by Masimo against Apple concluded with a judgment of invalidity, with a retrial expected in California in October 2024. After that case was filed, Apple countersued in Delaware, accusing Masimo of infringing its Apple Watch patents. Masimo countersued, claiming that Apple’s actions violated antitrust laws. “I think the damages should be high,” Kiani said. “The greater the losses, the more they will rein themselves in.”

However, patent litigation is often time-consuming. Kiani had won about $1.1 billion in his battles with Nellcor and Philips involving patents, and he said he is prepared for a protracted battle that could take six to seven years. “I always plan for the long term,” Kiani said. “I think as long as the shareholders have patience, they will get a good return.”