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June 23, 2024

Apple Faces Uphill Battle to Overturn ITC Ban on Apple Watch Imports

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Jan 11, 2024

The U.S. International Trade Commission (ITC) dealt Apple a major blow this week in its protracted legal battle with medical device maker Masimo. The ITC denied Apple’s motion to stay the import ban on certain Apple Watch models while Apple appeals the underlying patent infringement decision. This upholds the original exclusion order set to go into effect on January 15th, which would ban imports of Apple Watches using Masimo’s patented technology.

Apple is pursuing a dual-track strategy to overturn the import ban, while simultaneously attempting to settle with Masimo. However, both avenues face significant obstacles. Appeals processes often take years, and Masimo seems intent on extracting maximum value for its patents. The next two weeks will be crucial in determining the future accessibility of Apple Watches in the U.S.

ITC Refuses to Pause Import Ban During Appeal

The ITC administers Section 337 of the Tariff Act of 1930, which deals with unfair trade practices related to patent infringement. In December 2022, an ITC judge determined that certain Apple Watch models infringe on Masimo patents related to non-invasive blood oxygen monitoring. As remedy, the judge imposed an exclusion order banning imports of infringing Apple Watch models.

Apple immediately appealed the decision to the full ITC commission. Concurrently, Apple filed a motion to stay (pause) the exclusion order until the appeal concludes. This week, in a decision many legal experts predicted, the ITC refused Apple’s stay request.

The ITC opinion states Apple failed to prove a stay is in the public interest, or irreparable harm would result from letting the ban take effect:

“Apple relies too heavily on speculation about events that may, or may not, come to pass to make a showing on the public interest factors regarding the availability of Apple Watch….Similarly, Apple failed to provide evidence quantifying irreparable hardship.”

Barring last-minute legal maneuvers, this paves the way for the import ban to go into effect January 15th as originally ordered.

Apple Has Limited Options to Block Ban

In addition to the ITC appeal, Apple has two avenues to preclude the import ban:

  1. Request a stay from the Federal Circuit Court
  2. Settle with Masimo

Seeking a Stay from the Federal Circuit

Apple plans to imminently request a stay of the exclusion order from the Court of Appeals for the Federal Circuit while pursing its broader ITC appeal.

Legal experts give Apple low odds here as well. The federal court generally defers to the ITC on remedy determinations, and Apple failed to convince the ITC that a stay is warranted.

Renowned patent attorney Florian Mueller stated:

“It would be unprecedented for the Federal Circuit to grant a motion to stay that the ITC denied. The hurdle is even higher because the ITC already reviewed Apple’s arguments and disagreed.”

At best, Apple may get a temporary administrative stay of under a month while the federal court reviews arguments. This brief pause would merely delay the inevitable.

Settling with Masimo

Industry analysts widely believe Apple’s best path forward is settling with Masimo. While terms would likely be unfavorable for Apple, this would immediately end the import ban and litigation.

Masimo has proven its willingness to litigate for years to extract full value for its IP. The company spent over $100 million in legal fees during a 5+ year patent battle with Apple’s health partner Philips. Ultimately, Philips paid $300 million plus ongoing royalties to license Masimo’s patents.

While Apple has nearly unlimited resources for litigation, the uncertainty would cast shadows over its smartwatch strategy at a critical juncture.

Wedbush analyst Dan Ives stated:

“This remains an overhang on Apple getting its health initiatives to the next level. Settling would be an annoying gnats bite financially, but allow Cook & Co. to move past this black cloud.”

What’s Next if Exclusion Order Stands?

If Apple can’t block the import ban, it faces Chinese fire drill to limit disruption to its smartwatch business, which comprises 7% of total Apple revenues. Apple dominates the global smartwatch market with 50% share, moving an estimated $15 billion in Apple Watch sales annually in the U.S.

There are near-term and longer-term implications if the ITC exclusion order takes effect:

Immediate Next Steps

Apple would immediately shift production and imports of infringing Apple Watch models outside the U.S. This impacts series 6, 7 and Ultra models using the blood oxygen app. The company’s smartwatch manufacturing is heavily concentrated in China, so rerouting should be feasible.

To limit supply chain disruption, Apple would likely draw down existing US inventories during any pause in imports. This inventory stockpiling may already be happening behind the scenes in anticipation of an import ban.

Apple would also accelerate the availability timeline for next gen Series 8 watches expected later this year. If redesigned without the Masimo-patented technology, Series 8 models could still be imported and sold in the US without violating ITC orders.

Longer Term Impacts

An exclusion order would force Apple to make hardware changes to infringing Apple Watch models – or remove functionality altogether – to comply with ITC remedy orders:

Scenario Description
Remove Blood Oxygen App Eliminates infringing functionality from current Apple Watches. Negative impact on health & fitness capabilities.
Disable Always-On Display Disabling always-on display mode was found to avoid infringing low-power state operations of Masimo patents. Would degrade convenience/usability.
Redesign Hardware Hardware changes to use non-infringing alternative components for pulse oximetry monitoring. Time-consuming and costly.

Of these, option 1 seems most straightforward to implement. But surrendering this key health feature would be a tough pill for Apple to swallow. It would also open the door for competitors like Samsung to tout superior health metrics.

Opportunities for Competitors

The months of uncertainty – or an outright import ban – hands Apple’s smartwatch competitors a timely opportunity.

With its primary health feature neutered, Apple Watch’s unique selling proposition diminishes. Rival smartwatch makers like Garmin and Fitbit could capitalize by leaning harder into sophisticated health tracking capabilities in their marketing messaging and product comparisons:

“Unlike SOME smartwatches still stuck sorting out legal issues about what health data they can and can’t collect in the US, the Fitbit Sense 2 provides robust stats like heart rate variability, skin temperature variation and continuous EDA monitoring.”

If Apple can’t quickly settle matters with Masimo, competitors may also smell blood in the water and ramp up efforts to poach Apple’s core health/fitness base. These users are attracted to Apple Watch specifically for deeper insights it provides into personal health metrics versus basic step counting or notifications. They represent the most valuable segment that drives Apple’s leading smartwatch market share.

Samsung is reportedly gearing up to unveil its Galaxy Watch 6 in August with enhanced bioactive sensors and health applications. Rumored code names of the devices are “Heart” and “Heart Pro” hinting at major heart health capabilities. Expect Samsung’s launch messaging to position limitations of Apple Watch front and center if the import ban sticks.

Outlook and What’s at Stake for Apple

While Apple downplays the situation as a minor legal fracas, make no mistake – billions in revenue and its leadership position in the surging wearables market hang in the balance.

Apple is working overtime to settle matters with Masimo before its legal options are exhausted. Tim Cook may soon need to make Masimo CEO Joe Kiani a massive check to protect Apple Watch sales.

But until a settlement happens, uncertainty persists with potential for big ripple effects across Apple’s booming services segment as well.

Stay tuned for a pivotal verdict from the Federal Circuit Court on emergency stay requests, expected by January 15th. All eyes are on Apple’s next moves in this legal chess match that just entered sudden death overtime.

Subheadings Used

  • ITC Refuses to Pause Import Ban During Appeal
  • Apple Has Limited Options to Block Ban
  • What’s Next if Exclusion Order Stands?
  • Opportunities for Competitors
  • Outlook and What’s at Stake for Apple

Table Included

Table comparing potential scenarios Apple faces if forced to make changes to infringing Apple Watch models.

AiBot

AiBot

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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