Preliminary note: Most if not all of the other reporting out there on yesterday’s verdict does mot talk about what Apple’s consolidated countersuits (one over design patents, one over technical patents) were really about. In order to understand the reason why Apple sued over a product practically no one buys, one has to understand the indirect ramifications for Masimo’s U.S. import ban on Apple Watches with a pulse oximetry feature. Only the indirect implications matter in this case. The short version is that if Masimo couldn’t have continued to sell its own smartwatch, they’d have lost a legally required basis for preventing Apple from selling smartwatches.
Context: Medical device maker Masimo won a limited exclusion order (i.e., U.S. import ban) against the pulse oximetry feature of certain Apple Watches from the United States International Trade Commission (USITC, or just ITC) that was temporarily stayed, but became enforceable again as Apple remains free to sell its smartwatches without that particular functionality (January 17, 2024 ip fray article). Customers who buy an Apple Watch with that feature disabled may even get it in the event of a successful appeal, or upon expiration of the relevant patent rights (March 12, 2024 ip fray article). The United States Court of Appeals for the Federal Circuit declined to expedite Apple’s appeal, but will hear it at some point in the coming months.
What’s new: Yesterday, a jury in the District of Delaware handed down a mixed verdict, awarding Apple the $250 in statutory (i.e., nominal) damages that it was seeking, but only over the infringement of two design patents by the “original” versions of Masimo’s smartwatch and charger, deciding the vast majority of all claims, among them all utility (technical) patent claims, in Masimo’s favor. In an official statement, Masimo touted the fact that this does not provide Apple with a basis for seeking an injunction against Masimo’s current products.
Direct and indirect impact: Apple lost for the most part, but it lost only an opportunity (and what is chump change for the company):
- This case never was about Masimo competing with Apple in the smartwatch market. Its unit volume is negligible.
- Masimo made those products only to fulfil the ITC’s domestic industry requirement. What Apple really wanted was either to obtain an injunction so that it would have an argument for lifting Masimo’s import ban or at least a legal fight over whether Apple should get an injunction, in which case the fact that Masimo’s sales are negligible would have come up.
- If Apple had managed to sue Masimo out of the U.S. market, it would have created (but has failed to create) another independent reason to lift the Apple Watch ban. A product that cannot be made and sold in the U.S. would arguably not have justified an import ban under Section 337. But Masimo’s current designs weren’t found to infringe Apple’s asserted design patents, and no infringement of technical patents was found.
- Apple gets limited psychological mileage out of this verdict: in addition to arguing (as it has for some time) that Masimo didn’t actually have a product in the marketplace or in production (only some CAD drawings) when it filed its ITC complaint, Apple can now say that even the first generation of Masimo’s smartwatch could be made only by infringing on Apple’s design rights. That fact further discredits those products that Masimo made solely for the purpose of satisfying the domestic industry requirement, but it is not formally part of the domestic industry requirement that a product must be 100% non-infringing.
As the preliminary note indicated, news agencies and the technology press struggle with litigation strategies that are complex, multidimensional, and sometimes very subtle.
Masimo’s smartwatch sales are somewhere between non-existent and negligible. For example, Statista’s overview of eHealth tracker and smartwatch market shares in the U.S. doesn’t even mention them.
In order to understand what this jury trial was really about, and why Apple got only limited psychological mileage out of yesterday’s verdict but failed to win the grand prize, one has to ask the following question:
What does this mean for the Apple Watch ban?
Now, some may wonder why Apple wouldn’t just explain this agenda to the world. The answer is: they couldn’t do so without shooting themselves in the foot.
This is, to put it differently, a non-genuine infringement lawsuit over non-genuine products. If you want, you can replace “non-genuine” with “fake.” But the lawsuit exists, as do the product, just that the products weren’t really made to sell products and the lawsuit wasn’t really brought to stop an infringement.
Apple wanted to obtain an injunction from a U.S. court. To get there, they must satisfy the eBay v. MercExchange test established by the Supreme Court in 2006. That is a reasonably high hurdle even for a patent holder operating in the relevant market. If Apple had prevailed on the merits against Masimo’s current products, Apple would have to argue that Masimo’s products cause irreparable harm. Masimo’s negligible sales would be an argument against irreparable harm to Apple (eBay factor 1), but in the end if is also about a balance of the hardships (eBay factor 3), where Masimo’s ultra-low sales volume (and the fact that Masimo is actually medical device and not consumer electronics maker) would have weighed in favor of an injunction.
If Apple had said that the only reason it wanted to obtain an injunction was to do away with Masimo’s domestic industry, that would simply have been outside the scope of patent injunctions under eBay. The purpose of a patent injunction is not to get rid of another patent injunction (or, in this case, a U.S. import ban, which is an injunction by any other name).
Masimo would also have been restricted in what it could say. If Masimo’s lawyers had argued that the company’s sales are negligible, thus Apple isn’t entitled to an import ban, Apple would have used those statements against Masimo in the appeal of the Apple Watch ban.
Apple’s most important argument on appeal relates to Masimo’s alleged failure to satisfy the domestic industry requirement and the fact that the ITC effectively gutted that requirement (April 6, 2024 ip fray article). Apple also has other arguments, but the domestic industry requirement is the strategically most important pone. Not only is Apple fighting over this in court, but they are also lobbying U.S. lawmakers to ensure that the domestic industry requirement is given meaning again.
ip fray‘s position is in the middle:
- The ITC has gone too far, and the Apple Watch case is indeed an example of an overly expansive definition of what constitutes a domestic industry.
- But the ITC’s Sec. 337 investigations are an important part of U.S. patent enforcement, so lawmakers should not throw out the baby with the bath water.
Apple portrays the ITC as an agency that is out of control, and in this regard points to the Supreme Court’s recent Loper Bright decision that subjects a government agency’s interpretation of its governing statute to stricter judicial review (July 20, 2024 ip fray article).
The verdict and the patents-in-suit
Here’s the verdict, followed by a summary:
- U.S. Design Patent No. D883,279 (“Electronic device”): valid, but not infringed (neither by Masimo’s original nor current smartwatch)
- U.S. Design Patent No. D947,842 (“Electronic device”): valid, and infringed only by Masimo’s original design, not the newer “Wave” design
- U.S. Design Patent No. D735,131 (“Charger”): asserted against, and infringed by, Masimo’s original charger, but apparently they’re now steering clear of infringement of that one
Now the utility (i.e., technical, not design) patents:
- U.S. Patent No. 10,627,783 (“Wearable electronic device”), claim 16: valid, but not infringed
- U.S. Patent No. 10, 987,054 (“Wearable electronic device with electrodes for sensing biological parameters”), claim 1: valid, but not infringed
- U.S. Patent No. 11,474,483 (“Wearable electronic device”): invalid, and not infringed anyway
Originally, there were two separate lawsuits (one over design patents, one over utility patnets), both of which were then consolidated for the purposes of a single jury trial.
What can Apple do now after, with and about this verdict?
For Apple, a company that prides itself on being a major innovator, it’s obviously a bit of a disappointment when it can’t prevail on a single smartwatch utility patent. And chances are that Apple disagrees with the jury to a large extent.
Theoretically, the federal judge presiding over the case could overrule the jury or set the verdict aside and order a retrial. The hurdle for both is reasonably high, but not insurmountable. More likely, though, Apple will have to appeal a final judgment from the district court to the Federal Circuit.
This cuts both ways, of course: theoretically, Masimo could also convince the judge to overrule the jury with respect to the parts it decided in Apple’s favor.
Let’s assume the most likely outcome, though, which is that the final judgment by the district court will be consistent with the jury verdict.
The Federal Circuit will hear Apple’s appeal of the ITC import ban soon (though it has not yet been definitively scheduled). Unless the district judge overrules the jury and then also orders an injunction, such as over a technical patent, Apple is not going to be able to tell the Federal Circuit at the time of the hearing that Masimo is no longer selling smartwatches.
What Apple can say on the basis of the jury verdict is what was explained further above: they can argue that even Masimo’s original smartwatch, which was sold only after the filing of its ITC complaint, couldn’t have been made without infringing Apple’s design rights. But the key legal question is going to be whether Masimo satisfied the domestic industry requirement with some CAD drawings that existed when it filed its complaint, or whether Masimo was close enough to already making an actual product.
So the relevance of those design patent infringements, with Masimo having adopted new designs in the meantime, is merely psychological.
Was it worth it?
The $250 award of statutory damages is much less than the hourly rate of any of the lawyers who represented Apple in this case. Apple just wanted to simplify things for the court and the jury. If Apple had sought anything other than nominal damages, there would have been a need for expert testimony, which would have slowed down the proceedings and potentially made it harder for the jury to award Apple anything.
For Apple, this was worth spending millions of dollars on because it could have worked. Apple could have sued Masimo out of the U.S. market, and could then have asked that the import ban be lifted simply on the basis of Masimo not being able to sell the products based on which it claimed to meet the domestic industry requirement.
It just didn’t work out that way. Maybe they will get there through a post-trial decision by the judge, which would be unusual but not unprecedented. Maybe they will get there on appeal, but that will take time and at some point those Masimo patents will expire anyway. Apple might still want to revive an invalidated patent claim. So most likely there will be an appeal, even though the likelihood of this case still benefiting Apple is fairly low after yesterday’s verdict.