Always Have a Plan B in the ITC

We are well into Fall and most consumer electronics companies are getting ready for the holiday season—but this year is different for Apple.  On Thursday, the International Trade Commission (ITC) handed down orders that would prohibit Apple from importing or selling its Apple Watches in the US after the holidays. 

On June 29, 2021, an alleged competitor of Apple, Masimo Corporation, filed a complaint with the ITC and asked the agency to ban the importation and sale of Apple Watches because they infringe five of Masimo’s patents.  Now, the ITC has determined that at least Series 6 Apple Watches infringed two of Masimo’s patents because the watches measure blood oxygen saturation using a process known as pulse oximetry. 

This latest ITC decision comes amid a long, strained relationship between Apple and Masimo.  Masimo alleged that Apple wanted to acquire the company before changing course and hiring Masimo engineers instead.  Soon after the hires, Masimo discovered that Apple watches were using Masimo’s pulse oximetry technology tech. Based on this belief, Masimo sued Apple for trade secret misappropriation in the Central District of California, which resulted in a mistrial after the jury could not come to a unanimous decision. A retrial is scheduled for October 2024. 

In response, Apple sued Masimo in the District of Delaware, alleging that Masimo’s competing W1 smart watches infringe Apple’s design patents. Naturally, Masimo counterclaimed with its own infringement allegations and the parties continue to battle in a number of different courts.

Now that the ITC has made its final determination, Apple stands to lose significant revenue if the ITC’s orders go into effect in 60 days. Beyond the direct loss of sales, the ITC’s orders would open the door for competitors to further embed themselves in the US smartwatch market, and possibly in the markets for other wearables and smartphones. 

How could Apple have avoided this predicament?  First, Apple could have made software or hardware changes to its watches, and then used the ITC proceedings to adjudicate that its new designs do not infringe and could be sold in the US. However, as Apple did not have a redesigned product adjudicated by the ITC, US Customs and Border Protection (CBP) will likely exclude—at least initially—any shipments containing Apple Watches. While Apple has several avenues to obtain approval to import redesigned watches, doing so may take several weeks to months, during which time Apple cannot sell its watches.  To avoid supply interruptions, promptly preparing and adjudicating a so-called design around is a vitally important “Plan B” for companies accused of infringement in the ITC.

Apple found itself facing a similar problem for its Apple Watches in January in a case brought by AliveCor, but the ITC temporarily suspended its orders pending the results of a proceeding at the Patent Office before the Patent Trial and Appeal Board (PTAB) in which the claims of AliveCor’s patents were found to be invalid. The ITC may still, in theory, uphold its ban in the AliveCor case, but the ITC’s decision to suspend enforcement of its orders suggests that the ITC will not ban the sale of Apple Watches in that case if the PTAB’s invalidity decision is affirmed. No such strategy is available to Apple in the Masimo case as the PTAB already decided not to institute similar proceedings against Masimo’s patents. Apple Inc. v. Masimo Corp., IPR2022-01274 (PTAB); Apple Inc. v. Masimo Corp., IPR2022- 01275 (PTAB).  Quickly preparing and filing a successful petition with the PTAB to challenge invalidity is also a vitally important “Plan B” for tech companies in the ITC, as shown by the AliveCor and Masimo cases.

With the PTAB route exhausted, Apple plans to appeal the ITC’s orders to the Federal Circuit, and has asked the ITC to suspend enforcement of its orders pending that appeal.  Unless Apple is successful with obtaining a stay, the Federal Circuit is unlikely to find in Apple’s favor for at least a year, perhaps after next year’s holiday shopping season.

Apple also plans to appeal to U.S. Trade Representative Katherine Tai on the grounds that the ITC’s orders would harm public health.  Doctors and health groups have warned the ITC about potential public health consequences of a ban on Apple Watches. However, Masimo argued in its complaint that products with the same health capabilities are readily available on the market and that Apple itself encourages users not to rely on its watches’ blood oxygen measurements in the fine print of its product descriptions. Moreover, U.S. Trade Representative Tai previously declined to intervene in the AliveCor case. 

The President has not vetoed an ITC order since 2013, when the Obama Administration acted to protect Apple from an exclusion order that would have banned the sale of certain iPhone and iPad models in the US. In that case, which itself was the first presidential veto of an ITC exclusion order since 1987 (occurring only four other times in history), the Obama administration found that the exclusion order would have given Samsung and other owners of standard-essential patents “undue leverage” in negotiating licenses with Apple and other implementers of 4G, 5G, WiFi, and other core technological standards.  The presence of a standard-essential patent was a crucial point in then-U.S. Trade Representative Michael Froman’s veto order, which cited policy statements by the U.S. Department of Justice and Patent and Trademark Office stating that exclusion orders should only issue for standard-essential patents in rare circumstances. 

Without a design around or an order from the PTAB invalidating Masimo’s patents, Apple may be left to negotiate a license to resume sales of its Apple Watches after the holiday season.