Legal challenges force Apple to halt holiday watch sales

Apple Inc. finds itself in a legal predicament as it complies with a regulator’s order to cease online sales of its smartwatch just four days prior to Christmas.

The company has known for nearly two months that the International Trade Commission ban would take effect on Dec. 25 unless it persuaded the Biden administration to intervene — or settle with Masimo Corp., a medical device maker that accused it of copying patented technology for measuring blood oxygen levels.

The iPhone maker is now racing to make software fixes to get the product back on the market next year and save its $17 billion smartwatch business. The company’s preparations to pull the big money maker off the market during the busy holiday season show that its chances of being freed from the ban are diminishing.

Intellectual property lawyer James Gagen said it was striking that Apple, in its long-running dispute with Masimo, had not started the process of approving alternative models sooner or made other arrangements to avoid halting sales.

“Typically, we’d like to have a back-up to ensure continued supply,” said Gagen of Allen & Overy LLP.

Patent disputes between Masimo and Apple in 2020 are typically resolved before they reach the point where the other party faces a possible sales ban. In this case, Masimo’s allegations of wrongdoing went deeper than patents: The Irvine, Calif.-based company accused Apple of poaching its employees and stealing billions of dollars worth of trade secrets — which the iPhone maker denied. This year’s jury trial ended in a deadlock.

Apple could still make a deal with Masimo, though that’s a route the Cupertino, California-based giant doesn’t usually like to take.

Bloomberg Intelligence has estimated that after gaining leverage with its victory at the Commerce Commission, Masimo could negotiate with Apple for a multi-year license with annual royalties of between $60 million and $300 million.

Apple has proposed a redesigned smartwatch for inspection by a branch of the U.S. Customs Service, according to November legal filings. But BI industry analyst Tamlin Bason has said that Apple’s requests to the ITC to suspend its decision and an expedited statement on the blood-oxygen sensor redesign were long shots.

Apple and Masimo representatives did not respond to requests for comment.

Apple has said that the ITC’s decision is wrong and that it plans to appeal.

The ban “shows that even the most powerful company in the world must obey the law,” Masimo has said. Its CEO Joe Kiani has said that Apple has been testing updated Masimo technology that, if licensed, could resolve the patent infringement.

Apple has a few days to get the White House to overturn the ITC ban, but such vetoes are rare. There has only been one in the past decade, when the Obama administration halted an iPhone ban stemming from a patent dispute with Samsung Electronics Co.

The fact that the White House’s only veto in a decade was in Apple’s favor may have given the company the impression it could score a political victory after a legal defeat, said Nicholas Matich, a former acting attorney at the US Patent and Trademark Office. .

“Apple might feel a little bit invincible,” said Matich, who now works at the law firm McKool Smith PC.

However, Matich does not believe that Apple is at a dead end. The software workaround seems like a viable strategy to save the product without making concessions to Masimo, he said.

“The patent application is just as well for a specific feature of an Apple product,” he said. “Apple can remove the feature, making it non-infringing.”