Context: A U.S. appeals court granted a short-term stay of a USITC exclusion order (import ban) on the Apple Watch (December 27 article by ip fray). Complainant Masimo engaged in questionable conduct taking advantage of U.S. patent prosecution rules (previous article on this dispute).
What’s new: As ip fray presumed, Apple was rightly confident of its ability to continue importing the product into the U.S. market based on a workaround. A filing by Masimo with the Federal Circuit states that U.S. customs cleared Apple’s modified product on Friday (January 12, 2024). According to the filing, the accused feature (pulse oxymetry) was removed.
Direct impact: Masimo would now like the Federal Circuit to unstay the import ban as Apple can’t claim irreparable harm. Apple is rather likely to still seek a further stay (during the entire appellate proceedings), presumably arguing that the removal of the feature is harmful enough, not only to Apple but also to customers who will not receive warnings of certain health issues. In that case, the Federal Circuit’s decision will be heavily dependent on whether Apple has shown a likelihood of success on appeal.
Wider ramifications: Masimo’s leverage over Apple is limited either way. Short of a lowball licensing offer, it is unlikely that Apple will cave. Apple may also have an interest in getting the Federal Circuit (and potentially the Supreme Court) to hold that Masimo’s conduct was abusive.
There are two kinds of patent workarounds:
- those where end users get the same (or at least roughly the same) functionality as before, just that the inner workings of a product have been changed so as to navigate around the scope of the otherwise-infringed claim(s); and
- those where a feature is simply removed in order to keep clear of infringement.
When Apple won a U.S. import ban against Samsung over four patents, it was the former: end users didn’t notice anything, so the exclusion order was inconsequential. In Masimo v. Apple, it’s the latter.
U.S. customs cleared Apple’s modified Apple Watch on Friday, January 12, 2024, and according to Masimo, the workaround product comes without pulse oximetry:
Pulse oximetry is a nice-to-have but not must-have feature for a smartwatch. Actually, “nice to have” understates its potentially life-saving role as there are certain acute health conditions where pulse oximetry may give patients a warning at just the right time when they need medical help. But from a commercial point of view, it is hard to imagine that demand for the Apple Watch is reduced to any non-negligible extent by the removal of that feature.
ip fray stated on prior occasions that Apple is hardball litigant, but perfectly rational. It was a safe assumption that Apple would not take a multi-billion dollar risk and that the submission of a workaround to U.S. Customs and Border Protection (CBP) was made on a basis where Apple was able to rely on a positive outcome.
Masimo is right that Apple’s case for a longer-term stay has been weakened, but if the Federal Circuit’s prima facie analysis is that the ITC got the law wrong, then that assessment combined with the fact that people might die just over the enforcement of Masimo’s patents during the appeal could still enable Apple to win a stay for the duration of the entire appellate proceedings.
At this point Apple is still free to import the Apple Watch even with the accused functionality. Presumably Apple will do so unless and until the import ban is reinstated, at which point Apple will then switch to the modified product based on last week’s CBP determination.
Apple has more options than Masimo
Apple may also submit another version of the Apple Watch to CBP for review. That version could come with pulse oximetry, but with an implementation that Apple would argue does not fall within the scope of the ITC’s exclusion order. That would be a workaround where end users are not impacted. Such a workaround may take a little longer to implement (also considering the logistical implications of potentially modified hardware that has to be manufactured first), but Apple will have that time now. They may be able to import and sell the original implementation for another year so (if they win a stay for the duration of the entire appellate proceedings), and if it comes to worst, they can temporarily ship Apple Watches without that feature and, after a few months or so, offer a workaround that brings pulse oximetry back but based on a new technical implementation. Apple could then offer customers to exchange their watches for free if they bought the version without pulse oximetry (and only a limited numgber of customers would even bother to swap).
Masimo’s ability to extract substantial license fees from Apple is now gone. If they make Apple an attractive offer, they may get a deal, but even that is not guaranteed as Apple may be interested in a chance to ask the Federal Circuit and potentially the Supreme Court to hold that Masimo’s patent filing tactics were abusive.
It is certain now that the Apple Watch is not going to disappear from U.S. shelves and online stores over Masimo’s patents. There are different scenarios now for how this dispute can evolve, but all that “excitement” was unnecessary.