Context: The Biden Administration declined to veto a U.S. import ban on certain Apple Watches over patents held by a company named Masimo (previous article on this dispute), letting the measure enter into force and effect yesterday (December 26).
What’s new: As expected, Apple has filed with the United States Court of Appeals for the Federal Circuit an emergency motion for an interim stay. Theoretically, that motion could be granted any moment now. The motion furthermore indicates that U.S. customs may make a determination on January 12, 2024 that modified product versions steer clear of infringement, in which case U.S. sales and imports of the affected Apple Watches would no longer be disrupted by Masimo’s patent enforcement regardless of how the appeal goes.
Direct impact: Apple raises multiple serious issues with the ITC decision, but the hurdle for an immediate interim stay is high and the Federal Circuit may prefer not to interfere with enforcement prior to full briefing on the issues. The January 12, 2024 determination on its workaround, however, is reasonably likely to do away with the import ban. It would then formally stay in force, but wouldn’t matter commercially anymore.
Wider ramifications: If Apple’s workaround is approved (i.e., held to be non-infringing indeed), it may encourage other defendants in other technology patent cases to opt for workarounds rather than license-based settlements. And it may serve as a lesson for those who form their opinions here based on a “David v. Goliath” narrative rather than legal, technical and economic facts.
ip fray already said in the previous article on this dispute that an emergency motion by Apple could result in a stay of the enforcement of the ITC import ban. The motion has now been filed:
In procedural terms, it is important to understand the difference between an interim stay, an actual stay and a reversal:
- Reversal: If Apple’s appeal succeeds after a year or so, the limited exclusion order (that’s the formal term for the kind of ITC import ban in question) will be overturned. Theoretically it could be reinstated by the Supreme Court, but that is unlikely. So, normally, if the Federal Circuit agrees with Apple (after a hearing to be held in about a year from now, further to extensive briefing in the meantime), Masimo has lost the case.
- Stay pending appeal: The appeals court may stay the enforcement of the import ban until it has had the benefit of full briefing and a hearing. That decision by the appeals court will be based on its assessment of Apple’s likelihood of success, harm to the parties and the public interest. The Federal Circuit has previously recognized that there is a public interest in patent enforcement, but that part of the analysis will go beyond just that one consideration. So, if the Federal Circuit stays enforcement until it has decided, the ban will go away for about a year, possibly more like a year and a half, before possibly being reinstated should Apple’s appeal fail.
- Interim stay: While briefing for a motion for a stay is much quicker than for the actual appeal and a hearing isn’t required, it can still take the court a month or so to decide on the motion for a stay. In some cases, it is intolerable to let enforcement continue even for that limited amount of time. That’s why there is the procedural possibility of what can be labeled a micro-stay: a stay for the time that it takes the court to decide on the motion for the longer stay.
Apple already requested a stay from the ITC, but whether one seeks a stay from the ITC or from a district court, one usually needs help from the appeals court. That’s because a court or agency that makes a decision is highly unlikely to acknowledge that its decision might be overturned on appeal.
In the stay motion that Apple already filed with the ITC, it raised various issues, and in its emergency motion it summarizes some of its key arguments for the Federal Circuit:
- In order for a company to obtain a U.S. import ban, it has to satisfy (among others) the domestic industry requirement. That is because the ITC is a trade agency, not a patent court, and the original idea of those ITC patent cases (from which the agency’s practice has drifted very far) was to protect domestic product makers from illegal (thus unfair) imports. The standard is far more permissive now and patent holders don’t have to actually make products in the United States that implement (“practice”) the invention protected by a given patent in order to win an import ban over that patent. But the domestic industry requirement still exists in some (albeit largely vitiated) form. Apple says Masimo failed to show that “an actual article that practices the patent.” Apple says the ITC judge (with the approval of the Commission, i.e., the political appointees who make the final decisions there and in this case approved the determination by the Administrative Law Judge) based the domestic industry part of the ruling on “improper speculation” and “circumstantial evidence.”
- Apple says the ITC incorrect imposed a certain requirement on the prior art (earlier inventions) that Apple presented in order to prove that Masimo’s patents should never have been granted. Apple criticizes the ITC for having rejected the prior art in question because it allegedly didn’t enable blood oxygen measurements on the wrist as opposed to elsewhere on the body. Apple says the focus on wrist-based use is legally wrong and that the Federal Circuit has rejected that type of reasoning in other cases.
- Apple also raises a “patent laches” defense, which is about unreasonable and prejudicial delay in enforcement. Apple says “Masimo waited over a decade after it filed its original provisional [patent] applications, only to file the new applicatoins that became the supposedly infringed patents just a week after Apple launched the first of the accused Apple Watch products.” To put it differently, Apple says that Masimo hasn’t acted like a genuine and good-faith innovator but just opportunistically awaited the launch of the Apple Watch to then optimize the actual (as opposed to provisional) patent applications for a case over that product.
It won’t be easy for the Federal Circuit to arrive very quickly at the conclusion that the ITC made a mistake. It’s not impossible that the appellate judges will look at Apple’s arguments and get the impression that the appeal may very well be meritorious, but they will be reluctant to lift in a matter of days a decision that took the ITC more than a year. Apple’s argument that Masimo can always get compensated with money (patent infringement damages) is a reasonable one and might succeed if this was about a court ruling rather than an ITC import ban. The ITC has only one remedy: import bans (everything else that it has basically just serves to make those import bans work, but the ITC can’t award damages).
The most important and interesting part is this: Apple claims that it already has a motified Apple Watch ready against which no one can make “any colorable infringement argument going forward.” According to Apple’s filing, the redesign works arond the patent in such a way that it “place[es] the redesigned products outside the scope of the remedial orders” (i.e., the ITC import ban just doesn’t apply to the new Apple Watch version).
Apple argues that the Federal Circuit should grant the motion for an interim stay at least (Apple obviously takes the position that a stay would be warranted anyway) in light of the fact that U.S. Customs and Border Protection (CBP) will decide on January 12, 2024 (that’s in less than three weeks) whether the modified Apple Watches indeed work around the patent. If so, CBP would allow shipments of such Apple Watches to enter the U.S. market and Apple could resume sales at that point.
Apple points to a 2017 case involving Cisco in which the Federal Cicuit granted a stay in order to enable a workaround “to enter the country without being blocked by the [ITC] order under review.”
In the public redacted version of Apple’s filing, no details are provided regarding what makes the new Apple Watches technically so different from the previous ones that the import ban doesn’t apply to them. However, ip fray considers it rather likely that Apple has indeed been able to work around the patent claims in question:
- The patents do not appear sufficiently broad to monopolize all ways in which a smartwatch can measure the blood oxygen level.
- Even if Apple could not measure blood oxygen at all, it might just have decide to remove that feature in order to sell the Apple Watch. However, that is less likely than Apple being able to achieve the same result by different technical means. A patent covers a specific technical solution as opposed to a broad and vague idea.
- Above all, Apple’s behavior strongly suggests that its lawyers aren’t engaging in hyperbole but that the company is very confident of its ability to navigate around the patent claims in question. Otherwise Apple would likely have tried to work out a license deal with Masimo.
At this point there is considerable risk for Masimo that the bottom-line impact of its patent enforcement action against Apple will simply have been some headlines, but no money in its pockets. It may in the end be sitting on high legal bills without earning a cent as a result of all of this.
ip fray disagrees with some of the public commentary, which appears to be less than rational and may be driven by the psychological impact of a “David v. Goliath” situation that is detached from the legal, technical and economic merits. Make no mistake: Apple is indeed a company that likes to capitalize on a resource advantage. It often does abuse its market power in ruthless ways, infamously squeezes suppliers and app makers. But if Apple’s workaround is cleared by U.S. customs and demand for the Apple Watch is unaffected, then the merits of Masimo’s innovations may simply have been overestimated by a lot of people, including some of the decision makers. The same applies if one or more of Apple’s appellate arguments succeed: in that case it may even turn out that Masimo should never have been granted the patents in question, or that they never met the domestic industry requirement for a U.S. import ban.