Apple Inc. is facing significant challenges as it is prohibited from selling almost all models of Apple Watch in the United States, just ahead of Christmas.
Four days ago, it became known that Apple won’t be able to sell its latest watches, the Apple Watch Series 9 and Apple Watch Ultra 2, in the U.S. starting from December 25. This implies that the corporation will miss out on substantial revenue.
We all know that Apple Watch is considered one of the best smartwatches on the market. Moreover, these watches are top sellers, as emphasized by Apple on multiple occasions. Therefore, for Apple, smartwatches are one of the most crucial products, with wearable devices becoming the second most profitable category after the iPhone. Apple has previously stated that the revenue from wearable device sales alone equals the revenue size of Fortune 150-listed companies.
Furthermore, we are aware that iPhone users often strive to pair their devices with an Apple Watch. Therefore, the ban on selling Apple Watch in the U.S. is a significant blow to the company’s ambitions and image, leading to substantial financial losses. So, why did this happen? Let’s delve into the details.
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The Masimo lawsuit and the decision of the International Trade Commission
It is known that Apple must halt the sale of Apple Watch Series 9 and Ultra 2 in the U.S. due to an ongoing legal battle with the medical company Masimo. Earlier this week, the Cupertino-based corporation stopped offering the watches through its online store but continued to sell them in retail outlets. However, these retail sales will also cease by December 24th.
The U.S. International Trade Commission (ITC), responsible for handling trade-related patents, had previously issued an order banning Apple from selling Watch Series 9 and Ultra 2. The decision was made after a U.S. court ruled in January that Apple had violated Masimo’s patents related to technology used in the blood oxygen level detection feature.
This decision came at the worst possible time for Apple—right before Christmas, when these products traditionally generate very high sales.
The entire issue stems from a patent dispute between Masimo and the technological giant from Cupertino. Masimo is a California-based company founded in 1989, primarily focused on manufacturing medical devices for monitoring patients’ health. In 2022, through the acquisition of the Sound United brand, Masimo expanded its scope of activities, including home audio systems and wearable electronics focused on health monitoring.
It should be noted that it is not only the latest generation of watches that allegedly infringes several Masimo patents related to measuring blood oxygenation using a SpO2 sensor. The suspension of sales follows an October decision by the International Trade Commission, which will take effect on December 25 after a 60-day period. During this period, President Joe Biden could have vetoed the Commission’s decision, but he has not yet reacted. However, the presidential administration is under pressure to assess the entire situation. Therefore, Apple is precautionarily suspending sales in case the decision remains in force, the company said.
It is already known that Apple will appeal the decision, which, in its view, is erroneous on the part of the ITC. In October of last year, the company also filed a couple of lawsuits against Masimo, claiming a violation of its own patent rights. At that time, Apple argued that Masimo was trying to use the ITC to compete for millions of consumers in the U.S., making way for its own watches that mimic Apple. This refers to the smartwatch called Masimo W1, which has not been as successful as the Apple Watch so far.
Masimo’s complaint, initially focused on the technology presented in Series 6, dates back to June 2021. The medical company claimed that Apple began hiring Masimo employees, starting with Masimo’s Chief Medical Officer. In the fall of 2020, Apple introduced Series 6, which first featured the SpO2 sensor.
In other words, the main dispute revolves around pulse oximetry, which uses an optical SpO2 sensor. Last month, Masimo received FDA approval for its own wrist-worn product, which is sold both by prescription and over the counter.
Apple almost immediately tried to reassure its supporters, stating, “The Apple team is continuously working to create products and services that provide users with the best features in health, fitness, and safety. Apple strongly disagrees with the ITC’s order and is taking a series of legal and technical measures to ensure that Apple Watch will be available to customers in the near future.”
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Only Apple Watch SE will remain on sale
On Wednesday, the commission rejected Apple’s proposal to suspend the ban. “Our company is taking preventive measures so that we can adapt to the future verdict,” said a representative of Apple in a statement. One of the recent steps, which occurred just a few days ago, is the suspension of sales for Apple Watch Series 9 and Apple Watch Ultra 2 in the official Apple online store in the United States.
Therefore, the tech giant will only be able to sell Apple Watch SE in the United States. The ban also extends to all other models of Apple Watches, including the Watch Series 6, introduced in 2020, as they feature the SpO2 sensor. The recall also affects releases under the Nike and Hermès brands.
You can still purchase the watch from regular Apple Store locations in the US, but only until December 24. The commission’s ban only applies to official Apple sales channels, meaning other retail networks like Best Buy and Walmart will be able to continue selling the watch without restrictions. It is likely that the watch will be available at these retail outlets until stocks run out in the US. Apple won’t be able to import more watches manufactured abroad into the US until the commission’s order is lifted.
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Apple Watch for out-of-warranty repair
Until the current patent dispute is resolved, Apple cannot perform out-of-warranty hardware repairs or replace older Apple Watch Series 6 and newer models at official service centers. This could potentially cause complications for millions of Americans. The current restrictions do not apply to warranty repairs.
Apple has already informed service personnel about the suspension of out-of-warranty repairs for watches. This is not only due to the ban on import and sales but also because of the impossibility to service the watches. Therefore, Apple needs to try to resolve this entire dispute as quickly as possible.
Currently, it is also unclear how long the ban may last. Unofficial sources indicate that Apple developers are currently working on modifying the software for Apple Watch, specifically on a blood oxygen level measurement feature, to avoid patent infringement. However, this may not be sufficient.
The future ban on the sale of Apple Inc. smartwatches in the United States will also prohibit companies from repairing out-of-warranty broken watches, which could be a major concern for many consumers.
This week, Apple customer service teams were informed in a memo that the company will no longer replace warranty Apple Watch Series 6. This means that if a customer, for example, has a broken screen, they will not be able to seek a resolution from Apple. However, the company will still provide services that can be done through software, such as reinstalling the operating system.
Representatives of the company were instructed to inform affected customers that they will be contacted when hardware replacement is allowed again. Prior to the ban, Apple could not address certain hardware issues with smartwatches and instead simply replaced these devices.
The ban on replacement does not apply to watches purchased before December 25, the day the ban takes effect in the U.S., and models still under warranty. The device warranty typically lasts for one year, but users can extend this period by paying for AppleCare.
After December 25, Apple will also be unable to exchange watches purchased before the ban, for example, for a different color or size within the standard return period. Retail employees were informed that product exchanges will not be allowed, but Apple still permits the replacement of accessories such as straps. Watches can still be returned for a refund.
The ban on watches remains in effect until Apple reaches a licensing agreement with Masimo, obtains a federal reprieve, or finds another resolution to the issue. Apple is working on a software update that, in its view, will alleviate the problem.
Masimo is open to negotiations, but Apple is unwilling to engage
Masimo has already stated that the disputed patents pertain to hardware, not software. This could pose a more acute problem for Apple. It’s worth noting that a hardware modification to the manufacturing process could take up to three months for the company. This is a significant timeframe, especially considering the ongoing holiday sales.
Negotiations regarding licensing Masimo’s patents to Apple are also underway. Joe Kiani, the CEO of Masimo, mentioned that they are open to talks. “But they (referring to Apple) have not responded,” Kiani added.
“Our company disagrees with the decision of the International Trade Commission, and we will try to use all legal and technical possibilities to make Apple Watch available to our customers again,” commented Apple spokesperson Nikki Rothberg on Monday. In other words, the parties are not actively seeking a compromise to resolve the issue. This is consistent with Apple’s approach, which has been evident in the past.
An unfair practice by Apple?
Apple is also facing allegations that, starting from 2013, it managed to lure several employees from Masimo by offering them, among other things, double the salary. In doing so, the company attempted to obtain crucial information from Masimo employees about the blood oxygenation sensor, which it later used in registering at least 12 of its own patents. In essence, Apple simply hired some of Masimo’s employees and then, based on the information acquired from them, filed its own patents.
Since then, Masimo has been attempting to take Apple to court specifically for patent infringement. The CEO of Masimo stated that legal disputes have already cost them over $60 million, and in his estimation, further legal battles will incur at least the same amount. Interestingly, however, it was only this year that a decision was made in favor of Masimo.
Patent disputes are not uncommon in the world of technology, but in this case, it’s a battle of giant proportions where David and Goliath are pitted against each other. The current information available seems to favor Masimo, as Apple’s software modifications are likely to be insufficient to resolve the dispute. Moreover, experts are confident that the President of the United States will not veto the decision of the U.S. International Trade Commission (ITC) because it goes against the principles of American jurisprudence.
And this is indeed an unpleasant Christmas gift for Apple and its fans. To complete the picture, it’s worth noting that, at the moment, the ban only applies to the United States, so there won’t be any changes in Apple’s offerings in other countries.
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