How a Much Smaller Company Took on Apple and Won
Apple’s aspiring partners have accused it of stealing their patented tech. Intellectual property rights are crucial for smaller companies to compete against giants
Thousands of years ago, an infamous duel between two champions took place to decide the outcome of a war. In the ancient world, single combat was used as a substitute for a full-scale battle between armies, potentially minimising bloodshed and resolving disputes on a smaller scale.
On one side, the towering warrior wore a bronze helmet and a heavy coat of mail. He carried three separate weapons – a sword, a spear, and a shield, all optimised for close combat.
In contrast, prior to volunteering to fight, the callow champion from the other army had been carrying bread, corn and cheese to the battlefield to supply his soldier brothers. He armed himself with rocks for the duel.
The rest of the tale is well known as the story of David and Goliath, a phrase which has come to be embedded in our language as a metaphor for an improbable victory by an underdog.
Underdog stories are universally popular, mostly because they pit the small and disadvantaged against the powerful and established, tapping into a deep-seated desire for justice and fairness. However, there's more latent strategy to the ancient David and Goliath story than meets the eye, just like its modern IP Law counterpart.
For the past 4 years, the Goliath that is Apple Inc. (the world’s most valuable company by market capitalisation, valued at US$2.9 Trillion and commanding over 56% of the global smartwatch market) has been embroiled in a battle royale with Masimo Corp. over the wireless pulse oximeters contained in Apple watches.
A medical technology company that is worth approximately US$6.06 Billion, Masimo is no regular David, yet it is dwarfed by Apple, the literal (tech) giant that is 480 times its size.
The Pulse of the Dispute
Masimo develops blood-oxygen measurement devices, and was one of the many companies with which Apple has discussed a potential partnership or integration of their technology, only for talks to stop, with Apple subsequently launching its own similar features.
Masimo has made several allegations against Apple. First and most crucially, that the blood oxygen feature of Apple Watch models infringed upon their patents - specifically, that Apple had appropriated and used their unique algorithms and light sensor arrangements in the watches. Secondly, that Apple stole their trade secrets and confidential information. And thirdly, that Apple poached several of their employees.
This culminated in several legal battles, in which the US International Trade Commission found that Apple’s pulse oximeter feature violated Masimo’s patents. The ITC implemented a ban against the import and sale of the Series 9 and Ultra 2 Apple Watch models in the US beginning just after Christmas 2023. This decision was reviewed by the White House, but they declined to veto the ban. Apple then appealed the decision in the Federal Courts, which issued a court order and temporarily lifted the ban while the decision was being made.
However, on January 18th 2024 the US Court of Appeals for the Federal Circuit declined to extend the stay further, effectively banning the two Watch models in question and setting Apple on the long road towards a formal appeal.
Since this outcome, Apple has been forced to remove the contested blood oxygen monitoring functionality from the Series 9 and Ultra 2 variants in order to keep selling them. However, since the court’s verdict only applies within the United States, the blood oxygen app should continue working for Apple Watch models sold in Singapore and elsewhere.
Is Apple a patent bully?
Steve Jobs famously said of Apple’s philosophy: “good artists copy; great artists steal’ — and we have always been shameless about stealing great ideas.”
Many bemoan the fact that Apple is no longer the byword for innovation it once was, and that under Tim Cook it has only ever made incremental improvements to generation after generation of its products.
However, Apple’s core strategy has always comprised combining new technology with innovative business models, rather than inventing it. Apple invented neither the mobile phone, music player nor internet communications, but brought them together in a groundbreaking way to create the iPhone. Xerox PARC engineers originally developed the graphical user interface (basically the way your desktop looks today) but didn’t know what to do with it, and Apple imitated it in their revolutionary design for the Macintosh.
Apple may appear to be a monolithic company, but behind the veneer of its immaculately rounded corners, seamless software and gleaming glass spacecraft HQ in Cupertino lies a patchwork quilt of acquisitions. Like a monstrous Frankenstein, it stitches together acquired, licensed or swiped brilliance with its in-house alchemy and branding genius.
Goliath's size is undeniable. Apple dominates the tech landscape and over the years it has become increasingly litigious. According to IP research firm Patexia, since 2012 Apple has initiated more patent infringement or invalidation actions before the US Patent Trial and Appeal Board than any other entity. Given the complexity of patents in general, it can cost approximately $500,000 to defend against a single action - a significant cost for smaller companies. This being the case, most companies bow out the moment Apple comes knocking.
On many occasions, these patent lawsuits have been aimed at competitors like HTC (one of the largest Android licensees). Some cynical commentators have described these actions as “competition by litigation” - i.e. cases brought with the purpose of tying up resources that otherwise might be used to compete against Apple.
Apple has also sought to, and successfully invalidated the patents of companies that have brought patent infringement complaints before the International Trade Commission. Apple has used this tactic against AliveCor, which it previously worked with to develop accessories that could conduct electrocardiograms.
Other companies, like Valencell, which entered into what appeared to be bona fide discussions and negotiations with Apple to license their revolutionary active movement heart-rate monitoring technology, were dropped in a heartbeat when Apple launched a model of the Apple Watch with its own similar feature. Upon their claim that Apple infringed 4 of their patents, Apple in turn sought to invalidate those 4 patents, as well as several other Valencell patents that were unrelated to the case. Exhausted from the litigation, Valencell settled the dispute with Apple out of court.
Apple’s litigious nature is not limited to patents, and between 2019 and 2021, they filed 215 trade mark oppositions against various businesses, even if these trade marks were not registered in respect of anything even remotely technology related. To put things into perspective, in the same time period, Microsoft, Amazon, Facebook and Google, filed 136 oppositions collectively.
Most of the entities targeted by Apple simply did not have the resources to fight back and in all, 127 entities (59%) did not even respond to the challenge and defaulted, while 37 entities (17%) withdrew their applications.
Why Masimo thinks it can beat Goliath
In the face of a giant nearly 500 times its size, what gives Masimo the confidence to take on a particularly litigious giant? Like David, Masimo might just have an ace up its sleeve.
To explain David’s ace, a bit of ancient warfare context is necessary. Ancient armies had three kinds of warriors – cavalry (armed men on horseback), infantry (foot soldiers), and artillery (comprising archers and slingers). Malcolm Gladwell argues that the three kinds of warriors balanced each other like gestures in the game of rock, paper, and scissors.
Infantry could defeat cavalry. Calvary was too fast for artillery. And artillery was deadly against infantry, because a large, heavily armoured soldier like Goliath was a sitting duck for a slinger like David who was launching projectiles from a hundred metres away. According to Malcolm Gladwell, Goliath probably had as much of a chance against David as any bronze age warrior with a sword would have had against an opponent armed with a gun.
Rather than shuddering with fear, David was unafraid to go up against Goliath as he was willing to breach the moral code of single combat, that of equality of arms. In the words of the Craven Knight, “I say victory is better than honour.”
Masimo is similarly bolstered by its ace, its confidence in a previous outcome, where it successfully leveraged its patent to prevent a competitor from using its technology in a wireless pulse oximeter known as the Oxxiom. In 2018, Masimo filed a complaint against True Wearables for patent infringement. The court sided with Masimo and in 2022, issued a permanent injunction against the sale of the infringing device.
In the lawsuit, Masimo named the True Wearables Founder and CEO, Marcelo Lamego, as a co-defendant. Lamego had worked at both Masimo and its sister company, Cercacor, before he founded True Wearables. Masimo alleged that Lamego had misappropriated their trade secrets due to his “unfettered access” to “highly confidential information” and was in breach of his contract and fiduciary duties. The court found in favour of Masimo and ordered Lamego and True Wearables to stop misappropriating trade secrets, misusing and/or disclosing confidential information, and selling the Oxxiom in its current form.
A fact of great significance to the present Masimo v Apple dispute is that Lamego had also worked at Apple for several months before founding True Wearables. During his time at Apple, Lamego was named as an inventor of several of the company’s health-technology-related patents that Masimo alleged were “closely tied” to his former workplace. If these allegations are found to be true, it certainly seems to bolster Masimo’s case against Apple.
Given the similarity in the wireless pulse oximeter and the blood oxygen function of the Apple Watch models in question, and the relationship between Lamego and Apple, Masimo seems to believe that they have a good chance of stopping Apple in the same way that they stopped True Wearables. In the words of Masimo CEO Joe Kiani: “This is not accidental infringement - this is a deliberate taking of our intellectual property… These guys have been caught with their hands in the cookie jar”.
Regardless of how this case develops, one thing is for certain - Masimo's slingshot has shaken the Valley, sending a rippling message even in the vale of giants.
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Disclaimer
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. That.Legal LLC represents neither party in this dispute and is not privy to any confidential information pertaining to the parties. All facts stated herein are compiled from publicly available sources. If you require any advice or information, please speak to a practising lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of That.Legal LLC accepts or assumes responsibility, or has any liability, to any person in respect of this article.