Context: Despite a limited exclusion order (U.S. import ban) that the U.S. International Trade Commission (USITC or just ITC) ordered in October 2023 further to a complaint by medical technology company Masimo over pulse oximetry patents, Apple keeps importing the Apple Watch into, and selling it in, the U.S. market. The reason is that U.S. Customs and Border Protection cleared a workaround version that would apparently make it possible for Apple to activate pulse oximetry by means of a simple software update should it prevail on appeal or, in the alternative, in late August 2028 upon expiration of Masimo’s rather old patents (March 12, 2024 ip fray article).
What’s new: On Friday (April 5, 2024), Apple filed its appellate opening brief with the Federal Circuit. It raises the arguments known from the recent stay proceedings, now with an unmistakable emphasis on the two prongs (technical and economic) of the domestic industry requirement. Apple also makes invalidity and non-infringement arguments, and bookends its brief with a reference to prejudicial delay in prosecution, where even the ITC’s chairman would agree with Apple on at least two of the five relevant claims. One of Mr. Johanson’s predecessors in office, Deanna Tanner Okun, is on Apple’s appellate team, as is Weil’s Mark Perry, who successfully defended Apple against Epic Games’ App Store antitrust appeal. Most of the work appears to be done by Mark Selwyn’s WilmerHale team, though.
Direct impact: In response to Apple’s argument that Masimo had no actual domestic industry (just CAD software and some spreadsheets made for litigation) and opportunistically filed a new patent application within a week of the launch of the Apple Watch, Masimo’s argument will be that Apple poached its key developers and stole trade secrets (a theory that has not succeeded in district court so far, with a retrial scheduled for October 2024). Masimo’s greatest risk is at the start and at the end of Apple’s argument: there are different reasons, any one of which would be sufficient in its own right, to overturn the domestic industry finding and resolve the case in Apple’s favor; and the prosecution laches argument (waiting over a decade to then file a patent application to capture the Apple Watch) raises an interesting question that also has potential. Apple’s invalidity arguments aren’t weak, but there are two patents at issue and it won’t be easy for Apple to persuade the Federal Circuit to hold both invalid.
Wider ramifications: In addition to fighting hard in this appeal, represented by an all-star legal team, the New York Times reported last month that Apple is lobbying to limit the ITC’s ability to order U.S. import bans.
Unlike virtually all other commentators, ip fray has been rather skeptical of Masimo’s patent enforcement efforts against Apple (and of Masimo’s narrative). Apple’s appeal has, in ip fray‘s estimate, at least a 40% chance of success, but even in the other event, it appears that Masimo is not going to gain leverage to extract more than a settlement for a symbolical amount. Contrary to widespread misbelief, and irrespective of whether there may be other cases where Apple (known for such practices as “sherlocking”) has not treated small companies the way most of us would like to see them threated, the pulse oximetry functionality of the Apple Watch does not appear to be a “stolen” feature. Much to the contrary, Masimo’s opportunistic patenting raises a serious policy question about abusive patent prosecution tactics.
Here’s Apple’s opening brief:
The domestic industry requirement limits the ITC’s jurisdiction. The original idea behind the ITC was to prevent infringing goods from entering the U.S. market where they would unfairly compete with local manufacturers, potentially driving them out of business. It was also about U.S. jobs. But over time, and especially since the Supreme Court’s 2006 eBay v. MercExchange ruling that makes it much harder to obtain patent injunctions in U.S. federal court, the ITC has evolved into (not exclusively, but overwhelmingly) a specialized patent court that gives patent holders swift and sharp relief. The domestic industry requirement is now interpreted in ways that even non-practicing entities, provided that they make some investment in licensing (and litigation) in the U.S., will get benefits that lawmakers originally wanted to grant only to manufacturers.
If not for the domestic industry requirement, the ITC would simply be a rocket docket for patent injunctions against importers. Patentees couldn’t seek damages there (which is why most ITC complaints are accompanied by a lawsuit that the district court will routinely stay once the ITC agrees to investigate), but they could just run there and get the equivalent of an injunction, provided that the products they target are imported.
The domestic industry requirement has a technical and an economic prong. The technical prong is like an infringement analysis, except that everyone is allowed to practice their own patents, so it’s about mapping the claims to a product that the patentee makes (or to products that others make with a license). The economic prong relates to the actual investment.
Apple argues that Masimo has failed, for various reasons, to satisfy either prong of the domestic industry requirement, and warns that “[i]f the [ITC]’s decision is affirmed, the door of the agency’s ‘trade forum’ will be opened to complainants who lack an actual domestic industry but possess pleading creativity and CAD software.”
At the time of its complaint, Masimo didn’t really have a Watch. It only claims to have had drawings. It was in the medical device market, not in the one for consumer electronics, and then said it would start to market a Masimo Watch during the course of the ITC investigation.
Apple has a strong argument that a patent holder with a hypothetical product should not have access to the ITC just based on the argument that at some point it would actually practice the patent claims at issue. That would mean the implementation of the claimed inventions couldn’t even be analyzed. The latter is what Apple says: the ITC didn’t have direct evidence of Masimo practicing those patent claims.
Looking at it from the outside, Apple’s version of the story is far more plausible than Masimo’s:
- It is more than suspicious that Masimo used a 12-year-old patent application to file new (continuation) applications within a week of the launch of the first Apple Watch with pulse oximetry, which it then asserted as fast as possible.
- It’s just not realistic that Masimo, a company in the medical device market, would seriously consider itself a competitive new entrant into the smartwatch market. Even if Masimo could monopolize pulse oximetry, there is no way that a significant number of customers would then buy a Masimo Watch because of that feature instead of a multifunctional smartwatch from the likes of Apple, Google and Samsung. It appears far more likely that the “Masimo Watch” is merely a vehicle for obtaining an import ban against Apple, and it is a mystery why so many commentators fail (or for ideological reasons refuse) to see that fact.
There are David vs. Goliath stories where David is right. There are also some where that is not the case. The trade secret claims have already been put before a jury, and all juror but one wanted to find for Apple (resulting in a hung jury, thus a mistrial). That makes it unlikely that those claims are strong. In the end, all that Masimo can accuse Apple of is the hiring of some of its former employees, but competition in the labor market is actually desirable from a policy perspective. Maybe Masimo could have motivated those employees to stay by giving them more stock options. Just this week, Elon Musk talked publicly about improving compensation for its AI developers after OpenAI hired some away.
The ITC, with Masimo on its side, will try to defend the decision. It has a strong institutional interest in broad jurisdiction, and Masimo wants leverage over Apple, though even if this appeal failed, Masimo still might not get anything (or just a small amount of money compared to what the company presumably thought it could extract).
All of that talk a few months ago about an Apple Watch sales ban was much ado about nothing. Hardly any consumer is dissuaded from buying the Apple Watch because of that feature being disabled, and they will apparently get that feature sooner or later (either after a successful appeal or upon expiration of those fairly old patents).