Masimo Corp. has long contended that Apple Inc., the world’s most valuable publicly traded company, stole its technology.
The Irvine-based maker of medical devices (Nasdaq: MASI) last week won a crucial first round in its trade case that Apple’s watches illegally used Masimo’s technology for pulse oximetry.
Monica Bhattacharyya, an administrative law judge for the U.S. International Trade Commission, on Jan. 10 ruled that the light-based pulse oximetry functionality and components of some watches made by Apple (Nasdaq: AAPL) violated a Masimo pulse oximeter patent.
“Today’s decision should help restore fairness in the market,” Masimo co-founder and Chief Executive Joe Kiani said in a statement. “Apple has similarly infringed on other companies’ technologies, and we believe today’s ruling exposes Apple as a company that takes other companies’ innovations and repackages them.”
The ruling is the latest in a series of intellectual property victories for Masimo and its legal team, led by Steven Jensen and Joseph Re of the Irvine-based Knobbe Martens. In the past two decades, Masimo has successfully sued and won hundreds of millions of dollars from large multi-nationals like Royal Philips Electronics NV and Medtronic PLC.
The judge ruled there were no violations on four other Masimo patents, something that won’t affect the potential for an import ban on Apple watches, Jensen told the Business Journal.
“The most important part is that there was a finding of a violation,” Jensen said. “We’re happy with this milestone to hold Apple accountable.”
Import Ban
The legal quarrel is centered on Masimo’s pulse oximetry products, devices that can precisely monitor a person’s blood for oxygen saturation levels, which is useful for tracking a variety of health issues.
In the trading session after the decision was released, shares of Masimo rose 2.2% to $156.76 and an $8.2 billion market cap. Shares of Cupertino-based Apple climbed 2.1% to $133.49 and a $2.1 trillion market cap.
A potential settlement, if reached, could boost Masimo’s stock by $25 to $50 a share, according to Needham analyst Mike Matson, who estimated Masimo would receive between $60 million to $120 million a year in royalties.
Apple is expected to sell about 59 million watches this year, up from 50 million in 2021 and 40 million in 2020, Matson said.
Jensen said Masimo’s policy isn’t to comment on any potential negotiations. He added a negotiated settlement isn’t the goal of the lawsuits against Apple.
“Our goal is to bring some accountability to Apple for use of Masimo’s intellectual property,” Jensen said.
The trade commission will now consider whether to implement an import ban of these Apple Watches. If upheld, President Joe Biden will have 60 days to reverse the potential ban on watches. Kiani has been a longtime political supporter of Biden.
If Apple loses, it can appeal to the U.S. Court of Appeals. “We think that import ban could force Apple to enter a settlement and pay MASI royalties for the oximetry technology in the Apple Watch,” analyst Matson wrote in his note to investors.
Apple, which accused Masimo of copying its watch, said it’s seeking a full review by the trade commission.
“At Apple, our teams work tirelessly to create products and services that empower users with industry-leading health, wellness and safety features,” the company said in a statement. “Masimo is attempting to take advantage of these many innovations by introducing a device that copies Apple Watch and infringes on our intellectual property, while also trying to eliminate competition from the market.”
Efficient Infringement
The dispute dates to 2013, when Apple executives called Masimo to inquire about its technology being applied to the tech giant’s products.
“We got excited,” Kiani recalled during a 2021 interview with the Business Journal at the company’s headquarters. “I revered them. I thought they were a great company and was eager to work with them.”
However, Apple backed out and instead began hiring Masimo employees such as its chief medical officer, Michael O’Reilly. Apple promised to stop poaching employees but didn’t, ultimately hiring 20 Masimo employees, according to Kiani.
He believes Apple uses a strategy called “efficient infringement,” where it’s cheaper to infringe rather than buy companies they like, Kiani said.
One of the key employees to join Apple was Marcelo Lamego, who was being groomed to become Masimo’s chief technical officer.
In November, Masimo won a court ruling against Lamego, who worked at Apple in 2014 before leaving to launch his own company, True Wearables, which created a wireless, wearable pulse oximeter device.
The court ordered Lamego to abandon at least 12 patent applications containing Masimo’s trade secrets and to return all confidential information and documents.
Masimo has a separate lawsuit pending against Apple, which is currently set for trial in March in an Orange County courtroom, alleging that Apple, through former Masimo employees, misappropriated Masimo’s trade secrets in developing certain physiological monitoring features of the Apple Watch.
Consumer Oriented
Both companies’ CEOs have ambitious goals in delivering their health-focused products to more consumers.
Apple’s Cook has stated that the Cupertino’s company’s greatest contribution to the world will ultimately be in health, and the company’s health-related features in its smartwatch are among the most visible examples of its focus there.
Masimo’s products have largely been used in hospital settings, but last year it rolled out its watches with hospital-grade technology.
Masimo notes that it’s a medical device maker that is taking its technology made for hospitals and putting them into watches and other devices while competitors are tech companies trying to install medical technology in their products that often give faulty data.
“We are happy that the administrative law judge recognized Apple’s infringement of Masimo’s pulse oximetry technology and took this critical first step toward accountability,” Kiani said in the statement.
