Apple’s latest quarrel with a competitor has rendered the tech giant unable to sell the newest versions of the Apple Watch in the United States. Since 2020, Apple has battled back and forth with Masimo, a U.S. medical technology company, over patents related to wearable medical devices. While the introduction of these new devices was estimated to generate around $5 billion, they would only account for around 1% of Apple’s total revenue. Regardless, Apple has been diligent in defending its watches in court.
Until now, the litigation between the two companies has not prevented Apple from selling its devices in the United States. However, a recent decision by the U.S. International Trade Commission prohibited Apple from importing devices using infringing technologies into the United States, raising concern over the Commission’s impact on patent disputes. To fully understand how Apple got to this point, it is useful to look at the history between the two companies and the complicated landscape of patent litigation.
Background
In 2013, the chief technology officer of Masimo’s sister company, Cercacor Laboratories Inc., left the biomedical technology company to work for Apple. While former-Cercacor CTO, Marcelo Lamego, only worked for Apple for a few months, Masimo argues that he gave Apple invaluable information about Masimo’s products. After hiring Lamego, Apple went on to hire about twenty other Masimo employees, including its former chief medical officer.
In 2020, Masimo initiated its first patent dispute against Apple. Masimo sued Apple in a California District Court for infringing on a number of patents, including a patent related to reducing power consumption of a pulse oximeter (the ’703 patent). Pulse oximeters measure blood oxygen levels and can be used to detect health conditions like asthma, pneumonia, and anemia, as well as assessing general wellness.
In its complaint, Masimo argued that Apple directly and contributorily infringed the ’703 patent by incorporating the technology in the Apple Watch Series 4. In addition to the patent claim, Masimo also alleged that Apple obtained trade secrets through misappropriation. Masimo asserted that Apple knew of the ’703 patent prior to incorporating the technology into the Apple Watches because the former Masimo employees Apple hired were privy to the specifics of the patent.
Apple subsequently filed a petition for inter partes review of the claims of the ’703 patent. An inter partes review is a trial proceeding conducted by the Patent Trial and Appeal Board (PTAB) to “review the patentability of one or more claims in a patent.” In this case, Apple argued that the claims of the ’703 patent were obvious, citing prior art related to pulse oximeter technology. The PTAB ruled in favor of Masimo, holding that Apple was not able to prove that the claims of the ’703 patent was unpatentable due to obviousness. Apple appealed the decision to the U.S. Court of Appeals for the Federal Circuit. In January 2024, the court affirmed the PTAB’s ruling.
This lawsuit was the first of many. In response to the 2020 lawsuit, Apple began filing numerous petitions for inter partes review for other Masimo patents as well as a patent lawsuit in Delaware. Masimo continued its fight against Apple, filing multiple appeals to the Federal Circuit and complaints to the International Trade Commission.
Credit: Nicole Poirot
Patent Infringement and Trade Secret Misappropriation
Patent Infringement
A patent is a form of intellectual property that grants the patent holder exclusive rights to an invention. This legal instrument allows the inventor to exclude others from making, using, selling, offering for sale, or importing the patented invention without their consent. Patents are granted for inventions that are new, non-obvious, and useful.
Patent infringement occurs when a party makes unauthorized use of a patented invention. This can happen in various ways, such as producing a product that embodies the patented invention, using a patented process without permission, or importing into a country a product covered by a patent in that country. Infringement can be direct, where the infringing act is clear and immediate, or indirect, where a party may contribute to or induce others to infringe a patent. Indirect infringement includes contributory infringement and infringement by inducement.
The determination of infringement typically involves a comparison of the accused product or process with the patent claims, which define the legal boundaries of the patent’s protection. If the accused product or process falls within the scope of the claims, infringement may be found. Remedies for patent infringement typically include injunctive relief to prevent further infringement, monetary damages to compensate for the patent holder’s lost profits or the infringer’s unjust enrichment, and in some cases, enhanced damages for willful infringement.
Trade Secret Misappropriation
A trade secret is a type of intellectual property that comprises information that is not generally known to the public, confers some sort of economic benefit on its holder because the information is secret, and is subject to reasonable efforts to maintain its secrecy. Trade secrets can include formulas, practices, processes, designs, instruments, patterns, or compilations of information. Trade secrets remain protected for an indefinite period as long as the secret is not legally disclosed or independently discovered.
Misappropriation of a trade secret occurs when someone acquires, discloses, or uses another’s trade secret without their permission and through improper means. Improper means can include theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means. Misappropriation can also occur when someone who lawfully acquires knowledge of a trade secret discloses or uses it without consent in a manner contrary to the terms of their agreement. Legal remedies for trade secret misappropriation can include injunctions to prevent further use or disclosure, and monetary damages to compensate for the economic harm caused by the appropriation.
Patent Litigation
There are various types of patent disputes, yet most typically adhere to a similar pattern. Initially, a patent holder asserts that an invention is infringing upon their patent rights and initiates a lawsuit for patent infringement in a federal district court. Subsequently, the defendant would likely counter, arguing that the patent in question is invalid. Should the patent be invalidated, the issue of infringement becomes moot.
To invalidate a patent, a defendant must file a petition for inter partes review. As stated above, during an inter partes review proceeding, the PTAB reviews the patentability of the patent by analyzing whether the claims of the patent were novel or obvious when compared to previously filed patents, otherwise known as prior art.
The International Trade Commission
An alternative and less widely recognized avenue for challenging patents is via the U.S. International Trade Commission (ITC). In 1930, Congress passed the Smoot-Hawley Tariff Act (the Tariff Act), granting the ITC the authority to adjudicate patent disputes. The Tariff Act was originally created to protect domestic industries from foreign competitors. Under the Tariff Act, it is illegal to import articles that infringe U.S. patents, trademarks, and copyrights. What sets the ITC apart in the patent adjudication process is its enforcement methods. If the ITC finds that a company is infringing on a U.S. patent, trademark, or copyright, the Commission files an exclusion order, preventing the importation of the product into the United States. In order to comply with the order, “a company must pull its products from the market or redesign them.”
Once the Commission issues an exclusion order, the President has sixty days to veto the order before the ban goes into effect. Presidents have rarely vetoed ITC decisions. The most recent example of this veto power was in 2013 when President Barack Obama vetoed an ITC ban on the import of certain iPhones. However, that case was brought by Samsung, a South Korean company. Given that the case was brought by an international company against a U.S. company, the decision to veto the ITC’s ban was driven by the protection of domestic interests, making it a strategic move for President Obama. In the case at hand, both Apple and Masimo are U.S. companies, so President Biden would not have the same motivations in vetoing the ban.
After the ITC issues an exclusion order against a company, there are a number of avenues the company can take such as moving to lift the ban, requesting that a redesigned product be certified for import, or asking the ITC to make modifications to the ban.
The ITC’s Apple Watch Ban
In 2021, Masimo filed a complaint with the ITC under the Tariff Act. On January 10, 2023, the administrative law judge assigned to the case issued the “final initial determination,” finding that Apple was infringing certain Masimo patents. On October 26, 2023, the ITC issued a limited exclusion order and a cease and desist order, initiating the sixty-day review period for President Joe Biden to veto the ban. After President Biden declined to veto the ITC’s decision, the ban went into effect on December 26, 2023.
Subsequently, Apple filed a motion to stay, pending appeal. On December 27, 2023, the Federal Circuit granted the motion and the ban was paused until the U.S. Customs and Border Protection decided whether Apple’s redesigns were significant to avoid infringement. However, the Federal Circuit lifted the stay on January 17, 2024 after the U.S. Customs and Border Protection determined that Apple’s redesigns did not comply with the ITC’s order.
On April 5, 2024, Apple filed a 916-page appeal of the ITC’s decision to the Federal Circuit. The appeal largely targets the text of the Smoot-Hawley Tariff Act. Among its many arguments, Apple claims that the ITC “exceeded its statutory authority” in deciding the case. It also argues that Masimo did not have an actual product for Apple to infringe at the time Masimo made the complaint.
Conclusion
It will take some time before the Federal Circuit reaches a decision on Apple’s appeal. However, the ITC’s ban has raised concerns for the tech superpower. Many of Apple’s competitors will likely pursue similar actions, filing complaints with the ITC in an effort to have more Apple products banned from import. If the ITC’s decision stands, both Congress and the White House will face critical decisions concerning patent disputes in the future.
*The views expressed in this article do not represent the views of Santa Clara University.