Masimo vs. Apple: The Role of the ITC in Patent Disputes

As referenced in our previous blog, Demystifying the International Trade Commission (ITC), Apple made headlines in December 2023 for halting the sale of its latest Apple Watch Series 9 and Ultra 2 models in the US on December 21st. The reason behind this was a patent dispute between Apple and Masimo Corp. related to a blood oxygen sensor in which the ITC ruled Apple violated Masimo’s patents. While this came to media attention in late 2023, this case had been working its way through the court system for years, starting when Masimo won a patent infringement case against True Wearable in 2022. True Wearables’ founder and CEO Marcelo Lamego worked at both Masimo and Apple where he developed similar technologies before founding True Wearables. True Wearables’ founder first worked at Masimo and then contacted Apple CEO Tim Cook in 2013, offering to help with the Apple Watch. He subsequently joined Apple in 2014. At Apple Mr. Lamego was a named inventor on several health-related Apple patents before leaving to start True Wearables in 2014, after only a few months at Apple.  So Masimo found itself in a situation where both companies, True Wearables and Apple, were allegedly infringing its patents, which led to it taking legal action against both companies

In conjunction with the patent dispute against True Wearables which resulted in a permanent injunction against the sale of True Wearables infringing devices, Masimo also filed a Section 337 action at the ITC against Apple alleging that the company was importing into the US devices that infringed multiple patents held by Masimo. In Section 337 actions, the complainant must establish that a domestic industry for articles protected by the asserted patent(s) exists or is in the process of being established.  There are two requirements that must be met in regards to the ITC domestic industry analysis: an economic element and a technical element. The complainant  (Masimo) must show that one of the economic activities identified in 19 U.S.C § 1337(a)(3) has occurred to fulfill the economic requirement. These activities include: significant investment in plant and equipment, significant employment of labor or capital, or substantial investment in exploitation, including engineering, R&D or licensing. In regards to the technical element, the complainant must establish that it practices at least one claim in each asserted patent. One of the main arguments made by Apple was whether Masimo’s W1 smartwatch, or any product by Masimo, was actually released prior to the complaint being filed by Masimo. This is an area of active development and will likely feature prominently in the appeal by Apple which was filed on December 23, 2023.

In January of 2023, the ITC issued their Final Initial Determination that Apple was infringing on Masimo’s patents. The ITC then issued a limited exclusion order and cease and desist order against Apple in late October of 2023. Once this decision was made, the next step was a 60-day presidential review period where Apple hoped that President Biden would veto the ban as President Obama had done for Apple in 2013 in regards to the iPhone and iPad. However, as the 60-day review period approached its conclusion and there was no indication that President Biden would issue such a veto, Apple pulled the Watch Series 9 and Watch Ultra 2 from its stores and President Biden eventually declined to veto the ruling of the FTC. As a last resort, Apple filed an appeal with the United States Court of Appeals for the Federal Circuit (CAFC) and secured a temporary stay of the ITC’s importation and sales ban. On December 27, the Federal Circuit granted Apple’s request for an emergency stay.  This temporary could be extended through the conclusion of the ITC appeal which could take about 18 months.

The outcome of this appeal and any further actions are important to Apple as affected watch models have been some of its best sellers, accounting for a substantial portion of the company’s overall watch sales. Although Apple hasn’t publicly disclosed revenue figures, analysts estimate that the Apple Watch alone generated approximately $17 billion in sales in fiscal 2023. Moreover, the removal of the affected watches from Apple’s online store and physical retail locations only adds another layer of complexity to the situation, as the watches will still be available through third-party retailers. Apple is working across multiple venues to overcome the decision by the ITC. As referenced above, Apple filed the appeal and won a temporary stay and will push the CAFC to find in its favor and reverse the decision of the ITC. At the same time, Apple has submitted plans to the US Customs and Border Protection for a software solution. One other possibility in this complex dispute is for Apple to pay Masimo to end the dispute and put an end to the business disruption caused by this ongoing patent dispute.

The key takeaway from the events surrounding the Masimo patents is that the ITC is an important venue for patent enforcement in the U.S., where the range of remedies may actually include a physical importation and sales ban, particularly when it comes to products where the supply chain dictates importation of products manufactured overseas.  Stay tuned for more updates on this blog as the CAFC and ITC appeal proceedings continue in 2024.

Demystifying the ITC: A Guide on the Role of the ITC in Patent Disputes

The International Trade Commission (ITC) received a lot of media attention in December of 2023 due to the patent dispute between Apple and Masimo resulting in a temporary ban on the importation and sale of certain models of the Apple Watch. While many people are familiar with State and Federal courts, most people are not familiar with ITC so Foresight created this primer to better understand the role of the ITC in patent disputes.

The ITC stands as a critical resource for patent holders, offering a unique avenue to counter patent infringements by preventing the importation of infringing products at U.S. ports of entry. However, the ITC’s procedures are distinct from those of Federal courts where patent disputes are normally litigated, demanding a nuanced understanding, especially for startups.

Filing a Complaint and Building Your Case

Initiating an ITC investigation is akin to commencing a lawsuit in Federal court. A formal complaint, known as a Section 337 action, is submitted, alleging that products arriving in the U.S. violate a valid patent. Simultaneously, the complaint must demonstrate the presence of a “domestic industry” linked to the allegedly infringed patented products.

Proving a “domestic industry” involves showcasing substantial investments in areas like labor, facilities, or research and development that support both the infringing products and the complainant’s own products. Following the complaint, the ITC evaluates whether to commence an investigation, typically within 30 days. Once initiated, the investigation becomes official and is documented in the Federal Register. Concurrently, any ongoing court cases dealing with the same issues and involving the same parties are temporarily paused during the ITC’s investigation.

The Role of the Judge and Special Staff

Throughout the investigation, an Administrative Law Judge (ALJ) assumes a central role as the fact-finder. The ALJ presides over hearings, issues decisions on motions, and substantially influences the investigation’s course. Adding to the complexity is the “Staff,” an attorney appointed from the Office of Unfair Import Investigations (OUII), who maintains an independent role during the investigation.

Timetables and Procedural Rules

The ITC strives for expedited investigations, determining an ultimate “target date” for the final decision, usually within 16 months of commencement. The ALJ establishes a procedural schedule encompassing deadlines for various aspects such as discovery, claim interpretation, motions, and hearings.

Collecting Evidence and Safeguarding Sensitive Information

After the investigation begins, both parties embark on evidence gathering, adhering to the established schedule. They employ tools like questions, document requests, and interviews. It is worth noting that in the ITC, responses to discovery requests must be provided within a shorter timeframe, just 10 days, in contrast to the more extended periods typically allowed in standard court proceedings. Renowned for its efficiency, an ITC investigation often concludes in months rather than the year or more typical in district court cases.

To safeguard sensitive information revealed during discovery, protective orders are issued, requiring attorneys to adhere to specific guidelines. Confidential business information (CBI) remains accessible only to specific individuals, including outside lawyers, experts, the Staff, ALJ, and the Commission.

Hearings and Witness Testimonies

ITC hearings depart significantly from traditional court trials. A jury is absent, and the ALJ serves as the fact-finder. Additionally, many ALJs opt for written witness statements instead of live testimony, with cross-examinations conducted during the hearing.

Initial and Final Decisions and Post-Investigation Remedies

Following the hearing and post-hearing arguments, the ALJ delivers an initial determination (ID). This document determines whether a violation of Section 337 occurred, based on evidence and the presence of a domestic industry. It also scrutinizes patent claims individually. Once the ITC’s determination has been finalized, and if a violation is established, remedies specified in the final determination (FD) become accessible.

Typically, the ITC offers exclusion orders or cease and desist orders. Exclusion orders direct U.S. Customs and Border Protection to block infringing products at ports of entry, with two types available – general (applicable to all infringing products) and limited (specific to identified manufacturers or importers). Cease and desist orders prohibit respondents from selling infringing products already within the U.S.

Presidential Review and Appellate Processes

Given that the ITC is a government agency, the President reviews exclusion orders within 60 days of the FD’s issuance. If no action is taken during this period, the ITC’s decision becomes final. Subsequently, either party can launch an appeal to the United States Court of Appeals for the Federal Circuit.

Conclusion

The ITC is an important forum for startups to become familiar with due to the impact of an exclusion order. Patent infringement is a common issue that startups are dealing with, the ITC is an important venue to addressing infringement involving products imported into the U.S. For a recent example of the role of the ITC in patent disputes and the impact of an exclusion order, please see our next blog focused on the ITC dispute between Apple and Masimo.

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