Apple can temporarily sell smartwatches after US appeals court win

[December 28, 2023]  By Blake Brittain and Jaspreet Singh

(Reuters) -Apple can for now resume sales of its flagship smartwatches, after a U.S. appeals court on Wednesday paused a government commission's import ban on the devices imposed in a patent dispute over its medical monitoring technology.

The tech giant had filed an emergency request asking the U.S. Court of Appeals for the Federal Circuit to halt an order from the U.S. International Trade Commission (ITC), which had ruled that Apple had infringed the patents of Irvine, California-based Masimo.

A final decision could cost either company millions of dollars and potentially force a settlement or some kind of technological workaround by Apple, analysts said. Ultimately, though, any financial hit for Apple is likely to be dwarfed by the bad publicity the lawsuit is generating, they said.

Masimo shares closed 4.6% lower at $115.11 following the decision on Wednesday, and Apple shares closed flat at $193.15.

"We are thrilled to return the full Apple Watch lineup to customers in time for the new year," Apple said in a statement. "Apple Watch Series 9 and Apple Watch Ultra 2, including the blood oxygen feature, will become available for purchase again in the United States at Apple Stores starting today and from apple.com tomorrow by 12 pm PT."

Masimo declined to comment on the court decision.

The ITC barred imports and sales of Apple Watches with technology for reading blood-oxygen levels. Starting with its Series 6 model in 2020, Apple included a pulse oximeter feature in its smartwatches.

Masimo has accused Apple of hiring away its employees, stealing its pulse oximetry technology and incorporating it into Apple Watches. Apple has countersued, calling Masimo's legal actions a "maneuver to clear a path" for its own competing smartwatch.

"Apple can easily develop their own blood monitoring software, it is just a matter of time ... The software development costs are not something that will be too concerning for a company as wealthy as Apple," said Stuart Cole, chief macro economist at Equiti Capital.

"The bigger issue is that this is not very good PR for Apple, suggesting as it does that Apple is stealing technology from competitors rather than developing its own. Apple is fighting this lawsuit more with an eye on what it means for their future health-wearable products rather than this specific blood oxygen monitoring piece of software," he said.

An Apple smartwatch is displayed as customers visit the Apple store in New York, U.S., December 26, 2023. REUTERS/Eduardo Munoz

In a four-paragraph ruling on Wednesday, the appeals court said it would halt the ban while it considers Apple's motion for a longer-term pause during the appeals process. The court gave the ITC until Jan. 10 to respond to Apple's request.

U.S. President Joe Biden's administration declined to veto the ban on Tuesday, allowing it to take effect. Apple asked for a pause of the ban later that day.

Apple has said it is working on a range of legal and technical options.

On Tuesday, the company told the court that U.S. Customs and Border Protection is considering whether redesigned versions of its watches infringe Masimo's patents and can be imported. The customs agency has set a target date of Jan. 12 for its decision, Apple said.

Apple had paused sales of the affected devices from its website and retail locations last week in the United States due to the ITC decision. They remained available at retailers including Amazon, Best Buy, Costco and Walmart.

The ban did not affect the Apple Watch SE, a less-expensive model without a pulse oximeter. Previously sold watches also were not be affected by the ban.

A jury trial on Masimo's allegations against Apple in California federal court had ended with a mistrial in May.

Apple's wearables, home and accessory business, which includes the Apple Watch, AirPods earbuds and other products, brought in $8.28 billion in revenue during the third quarter of 2023, according to a company report.

(Reporting by Blake Brittain in Washington and Jaspreet Singh in Bengaluru, additional reporting by Max Cherney in San Francisco, and Akash Sriram and Aditya Soni in Bengaluru; Editing by Ben Klayman, Chizu Nomiyama, Howard Goller and Matthew Lewis)

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