He’d arrived in the U.S. from Iran at age 9, knowing just a few words of English. By 22, he’d earned a master’s degree in electrical engineering. At 25, he set to work developing a way to read oxygen levels in the blood using light.
The innovation, known as a pulse oximeter, helped build his company, Masimo, from a one-person operation in a California garage into a billion dollar behemoth that monitors the health of 200m+ patients across the U.S.
Then, in 2019, Kiani learned that Apple, the ~$3T industry titan, might be infringing on the tech he’d spent decades of his life perfecting. He was incensed, and initiated multiple legal maneuvers to protect his patents. He believed he needed to protect the value of innovation itself.
“There’s no monopoly on who can be inventive,” he testified before a Senate subcommittee earlier this fall. “It’s just a matter of throwing yourself at the problem, working on it and then all of a sudden one day you feel like gods are speaking to you.”
Joe Kiani founded Masimo in 1989. (Media News Group/Orange County Register via Getty Images)
Of course, he was also planning the launch of a watch of his own, the W1, with some of the very capabilities Apple had just unveiled.
This October, Kiani’s longtime lawyer delivered him the good news: He’d won a critical ruling from the International Trade Commission, and Apple had lost. The result produced an import ban on several recent models of Apple watches, effective December 26, throwing the future of the Apple Watch, worth an estimated ~$14B to $18B, into question.
Fights over patents erupt all the time, but they rarely involve a company as large as Apple facing consequences this staggering. Is Apple really headed for a fall? And is Masimo really the David it seems to be?
What’s a patent anyway?
The World Intellectual Property Organization defines a patent as an exclusive right granted for an invention, which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem.
If that sounds vaguely like word salad, it’s because the net is a wide one.
The Hustle
Anyone can file for one in the U.S., and the 12m+ patents the country has granted since 1790 have included everything from:
- potash, an ingredient used in fertilizer and America’s first patent
- a hiccup cure, by way of a device that delivers electric shocks to the mouth and granted long after the Middle Ages in 2006
- a dust cover for dogs (yes, the application includes diagrams)
- a wearable bird feeder
The first software patent, though, was issued back in 1968, and since then tech companies like Apple have shelled out millions to protect their IP. A smartphone draws on technology covered by 250k patents, according to one estimate by researchers in 2012.
Google now holds more than 100k globally. Samsung has more than 350k. And Apple has more than 95k patents to its name.
The uptick in patents granted in the U.S. has turned them into their own currency. Blackberry recently sold 32k patents to Key Patent Innovations, a patent monetization company, for $170m, plus royalties on future profits.
Patent applications can run companies as much as $30k, for research, filing, and lawyers’ fees (far more than the ~$900 cost for DIY inventors).
They also involve showing your cards — making how your invention works a matter of public record – and some companies have turned patent hunting into sport, demanding royalties or scooping up patents from distressed companies for dirt cheap. (Spoiler alert: patent sharking, or trolling, was a key plot point on the latest season of Billions.)
So why bother?
“The basic rule of thumb is, if you can keep it secret, keep it secret,” says Colleen Chien, professor at Berkeley Law School and advisor on patent issues to the Obama and Biden administrations. “But if you can’t — because when you sell the product, it reveals how the product works or shows your design — think about patent protection.”
As soon as Kiani realized what his pulse oximetry technology could do, he filed for patent protection and received his first in 1991. He’s also no stranger to patent litigation.
Colleen Chien, professor at Berkeley Law School, says if the companies can’t reach a settlement, consumers may see Apple watch prices rise as it reconfigures its supply chain. (via Colleen Chien)
Back in the 90s, Nellcor, a medtech company that dominated the market Masimo was trying to break into, met with the company to learn more about their innovations. According to Kiani, instead of offering to license or acquire Masimo and its tech, it copied it; its leadership even told Kiani they’d squash Masimo like a bug. It sparked five years of litigation, in which Masimo ultimately triumphed.
The next decade, Masimo went head-to-head with Philips in federal court, enforcing rights to its patents again.
And then, in 2013, Apple came calling, inviting Kiani for a visit. Kiani didn’t think of them as competition. They occupied the consumer space; he sold directly to hospitals and healthcare facilities.
They complimented Kiani’s non-invasive monitoring technology, and wanted to know what he thought the future of healthcare could look like if they integrated Masimo technology into Apple products. Kiani was thrilled.
So how’d we end up at the International Trade Commission (ITC)?
Kiani traveled to Cupertino to meet with company executives about possibly licensing his tech for the Apple Watch. (This kind of licensing is common, especially in tech, so existing designs don’t have to be constantly duplicated from the ground-up.) But they never did, according to allegations made by Masimo in ITC trial documents.
The next month, the company claimed, Apple hired away Masimo’s Chief Medical Officer. A few months later, they hired another Masimo scientist, one of the named inventors on the patents in question. Apple would go on to hire 20+ Masimo employees, and open an office around the corner in Irvine, Calif., so they wouldn’t have to move.
Fast forward seven years to the fall of 2020, and Apple releases the Series 6 watch, the first with a blood-oxygen level reader, the technology Masimo believes it owns. It was also the first to be manufactured in China.
The Hustle
The overseas manufacturing location gave Masimo an opportunity to mount an ITC challenge against Apple. The ITC is set up to protect domestic industry by guarding against unfair competition, trade secret misappropriation or antitrust issues. It’s also an easier avenue than going to court.
- An ITC proceeding is faster than filing a lawsuit, for one.
- And two, the ITC can issue an exclusion order, or an import ban, which gets products off the shelves and which matters if you’ve just had your own watch with a blood-oxygen level reader in it approved by the FDA. (Looking at you, Kiani.)
“These companies are fiercely competing in every venue, whether it be in a marketplace or the courtroom or elsewhere,” Chien says. “So it’s natural for them to use all means that they can legally access to do that.”
Despite the thousands of patents awarded every year, cases where major companies sue each other or mount ITC challenges over patents are rare, which is partly what makes one like this fascinating, according to Jonathan Stroud, general counsel for Unified Patents, a patent advocacy organization based in Washington.
“It’s rare because it’s destructive,” he says. “Nobody wins.”
Some experts argue the conflicts are a drain on the U.S. economy and innovation. And they’re definitely a drain on shareholders.
Instead, years ago, major companies began putting their patents into LLCs and then initiating litigation to avoid their legal tiffs becoming public knowledge. “Now the vast majority of U.S. patent litigation is run through these types of vehicles – we can all pretend we’re not suing each other,” Stroud says.
What does this all mean for Apple?
When the ITC ruled in Masimo’s favor, it issued an import ban on Apple Watches that allegedly use Masimo’s tech (most of them) — starting December 26.
“Masimo has wrongly attempted to use the ITC to keep a potentially lifesaving product from millions of U.S. consumers, while making way for their own watch that copies Apple,” an Apple spokesperson told The Hustle.
The ITC is just one front in the companies’ very public patent fight. In 2020, Masimo also filed a trade-secret appropriation suit against Apple; Apple sued back in Delaware, accusing Masimo of bringing “carefully timed lawsuits” and alleging patent infringement of its own.
Decisions on each case have slowly been trickling out. In May, a deadlocked jury forced a mistrial in the $1.8B trade secrets lawsuit. The jury came down 6-to-1 for Apple, and the case is set to be retried. In September, a federal appeals court also sided with Apple, and invalidated parts of Masimo’s patents.
So while the company won the ITC battle, it’s looking unlikely it will win its war with the world’s biggest company.
“There’s definitely gamesmanship going on,” Stroud says. “For both sides.”
A 2022 model Apple Watch. (Justin Sullivan/Getty Images)
Meanwhile, the impending ban hasn’t stopped Apple’s innovators from filing patent after patent. So far this year, they’ve applied for patent tech to allow:
- The Apple Watch to detect changes in posture, and detect and respond when a wearer takes a fall
- Users to customize the watch’s face by automatically matching them to the color of the shirt they’re wearing, or any other object
- Users to write on the watch screen with an Apple Pencil or their finger
- Users access to directions inside venues like malls and sports stadiums
- A watch band that’ll automatically fit to a wearer’s wrist
Apple has a few more levers of its own to pull before customs begins to block watches from hitting U.S. soil.
From now until December 26, President Joe Biden could issue a presidential veto of the decision. (This is unlikely — such a veto hasn’t been issued since 2013.) It can request a stay of the order, pending an appeal of the decision, which the ITC rarely grants. (Though an appeal is coming, according to Apple.) Or it can move its manufacturing to the U.S., which would skirt the ban.
But, according to Chien, your gift list doesn’t need an overhaul yet. She suspects the companies will reach a licensing agreement or detente in the coming weeks. “Typically, you want the market decisions to be driven by the market, not by litigation,” Chien says.
“My guess is they will work things out, and Apple will still be able to sell its product.”
At the very least until Boxing Day.
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