Shares of MASI ticked up more than 5% at $85.26 apiece by midday trading today. MassDevice’s MedTech 100 Index — which includes stocks of the world’s largest medical device companies — fell slightly.
The ITC recommended a limited exclusion order for infringing Apple Watches with light-based pulse oximetry functionality. It found that Apple violated U.S. laws by incorporating this patented technology in its products, Masimo said. The exclusion goes into effect after a 60-day presidential review period, according to a news release.
“Today’s ruling by the USITC sends a powerful message that even the world’s largest company is not above the law,” said Joe Kiani, founder, chair, and CEO of Masimo. “This important determination is a strong validation of our efforts to hold Apple accountable for unlawfully misappropriating our patented technology.”
Masimo says two dozen academic institutions, leading antitrust and IP scholars, physicians, investors, nonprofits and members of Congress filed comments to support the public’s interest in the exclusion order. The company says these comments aimed to “protect innovation” like Masimo’s technology.
In order to protect innovation and public health, they highlighted the need to preserve innovation incentives. They also seek to protect IP and fair competition, Masimo said.
“There is no greater offense to both the antitrust and intellectual property law than when a dominant firm infringes the patent of a smaller rival, who is an actual or potential competitor,” the Consumer Federation of America said in a statement. “In this case, as in the other cases involving Apple’s egregious abuse of market power, the harms far outweigh the benefit. In fact, because competition will swiftly replace any services or products that Apple is no longer able to deliver because of the remedy, there will be little harm and a great deal of benefit for consumers and the economy.”
The history behind the Masimo-Apple patent spat
Masimo develops its SET pulse oximetry technology. Its uses include reducing blindness in neonatal ICU patients and monitoring post-surgical patients on opioids. It also offered remote patient monitoring for COVID-19. Masimo has debuted its own W1 smartwatch that provides continuous health data.
In January 2020, Masimo accused Apple of poaching its employees and infringing 10 of its patents to improve the health monitoring functions of the Apple Watch. The court sought to determine whether Apple misused confidential information from Masimo related to the technology used to measure health data.
Earlier this year, a U.S. Administrative Law Judge in Washington, D.C. ruled in the company’s favor in a patent spat with Apple.
The judge ruled that Apple violated Section 337 of the Tariff Act of 1930 by importing and selling certain Apple Watches in the U.S. These watches featured light-based pulse oximetry functionality and components. However, the judge also ruled that Apple did not violate four other patents belonging to Masimo.
In May, a federal judge in California declared a mistrial after jurors could not come to a unanimous verdict. At the time, analysts said the mistrial “suggests Masimo will most likely not come away victorious” in its battle with Apple.
A similar spat over IP went on between AliveCor and Apple. It ended in February when the final determination rule favoring AliveCor cleared presidential review.
The analysts’ view
BTIG analysts Marie Thibault and Sam Eiber continue to rate Masimo as “Buy” in the wake of this latest development.
“This is a significant win in our view and perhaps one that could position MASI more favorably at the negotiation table for potential settlements. We think there remains upside potential for the stock for settlements, royalty payments, or other monetary-based agreements.”
According to the analysts, an expert told them the most likely outcome from the presidential review is that the administration takes no action to prevent the exclusion order from going into effect. They said a vetoed exclusion order only happened twice in the past three decades or so. If President Biden opts to take no action, the orders would go into effect immediately.
They said Apple can appeal in the federal court circuit, a process that can take anywhere from 15-18 months. The exclusion order would remain in place during that period if Apple chose to appeal.
Thibault and Eiber listed five potential outcomes if Biden takes no action:
- Apple does nothing, and the exclusion order goes into effect.
- The two parties reach a settlement.
- Apple de-features the watch by removing or disabling the pulse-ox feature.
- Apple has a design around (unclear to us if they have one).
- We see the two parties enter into a partnership.
