The small Southern California company has been locked in a legal battle with Apple for the past four years. This has almost become their biggest business goal, and they spent US$100 million on legal fees alone. Although the other party is the world's largest consumer electronics giant, this company refuses to back down and is bound to fight Apple to the end to seek justice (compensation) for itself.
Apple almost pulled the watch from shelves
After nearly four years of legal battles, they almost achieved their goal and came close to forcing the Apple Watch to be withdrawn from shelves. Although Apple has temporarily postponed the ban through appeal, the alarm has not yet been lifted. If the two parties do not reach a settlement, they may eventually have to face a final showdown in the Supreme Court.
Who is the world's largest watch company? Not the old Swiss watch factories we are familiar with such as Swatch and Rolex, nor Japanese companies such as Casio and Citizen, but the consumer electronics giant Apple, which only entered the watch industry eight years ago.
Although Apple only released its first smart watch in 2015, and it had to be paired with an iPhone to use it, with nearly 200 million iPhones sold globally each year, Apple Watch quickly became the best-selling watch in the world, and Apple also became the world's largest watch company.
Apple does not release individual watch sales and revenue. According to Counterpoint Research, Apple Watch accounts for approximately 30% of global smart watch sales and 60% of smart watch sales. Total sales of Apple Watch last year were roughly around 50 million units, accounting for approximately 5% of Apple's total revenue, with annual sales exceeding US$20 billion.
However, the world's largest watch company almost ran out of sales and was forced to remove the ninth-generation Apple Watch and Ultra 2 series released last year on Christmas. These two series are not only Apple’s main shipments, but also the most profitable high-end products. Not only is Apple officially unable to sell watches, but all watches from third-party retailers will be removed from the shelves.
In October 2023, the U.S. International Trade Commission (ITC) ruled that the blood oxygen saturation detection function of Apple Watch infringed the patent of the plaintiff company, and ordered that the ninth-generation Apple Watch and Ultra2 watch be removed from the shelves at the end of December. Although Apple applied for a temporary injunction through the appeals court last week to suspend the implementation of the sales ban until the appeal on January 10, the two sides will soon start a new round of court battles, and Apple may continue to face the sales ban.
Iranian immigrants challenge giants
What kind of company could make Apple, the giant in the consumer electronics industry, almost capsize? Why did they spend hundreds of millions of dollars in legal fees and four years to fight Apple to the end?
The small company facing off against the giant is Masimo, a medical device company headquartered in Irvine, southern California. Speaking of which, this is not a small company. Last year's revenue exceeded US$1.2 billion and its market value exceeded US$6.5 billion.
But compared with the super giant Apple, which has annual revenue of nearly 400 billion U.S. dollars and a market value of 3 trillion U.S. dollars, Masimo's size is considered negligible. Apple only needs five days of revenue to buy Masimo.
Masimo was founded by Iranian immigrant Joe Kiani in a garage in 1989. It mainly develops and produces consumer medical devices such as oximeters. It was listed on Nasdaq in 2007. Masimo's current market capitalization exceeds US$6.5 billion and its annual revenue exceeds US$1.2 billion.
It is worth mentioning that in 2022, Masimo acquired SoundUnited, a veteran company in the audio industry, and entered the field of home audio. Perhaps many people have not heard of the name SoundUnited, but they must have heard of their B&W, Denon, Marantz, etc., which are all well-known brands in the audio field.
Thirty-five years after its founding, Chiani still serves as Masimo's chairman and CEO, firmly controlling the company he founded. The reason why Masimo spent hundreds of millions of dollars to fight Apple to the end was largely because of Chiani's personal character of never backing down.
Apple once considered acquiring
The feud between Masimo and Apple began in 2013. At the beginning of that year, Masimo released its own portable oximeter at CES and used it through an iOS app. A few months later, Apple took the initiative to contact Chiani and expressed its hope to develop technical cooperation with Masimo and planned to use their blood oxygen monitoring technology on its own watches.
Obviously, Chiani is very excited about the prospect of becoming a member of Apple's ecological chain. He believes that cooperating with Apple, the world's largest consumer electronics giant, will bring his company to the top and bring in large amounts of cooperation revenue.
Internal documents show that Apple even discussed the possibility of acquiring Masimo and asked Chiani to serve as vice president of the relevant department. However, in the end, Apple executives believed that acquiring an already large company was not in line with Apple's culture and gave up the idea of acquisition.
Apple does not deny this past. Apple stated that it did contact Masimo during the development process of the Apple Watch, but it also contacted many potential partners. Moreover, because Masimo's technology focuses on clinical medical care and is not suitable for use in consumer devices such as the Apple Watch, the two parties did not continue to discuss cooperation.
Kiani soon discovered that he had been deceived by Apple. Not only did Apple not formally cooperate with Masimo, it also poached more than 20 technical backbones from Masimo, including its chief medical officer, with double their salaries. There are no non-compete agreements in California, so Chiani has no authority to interfere with employees switching jobs.
A few years later, in 2019, a core engineer who joined Apple from Masimo applied for a blood oxygen detection patent at Apple. The sensor design used is very similar to Masimo. This completely angered Chiani. He believes that Apple not only deceived him and poached his core employees, but also stole Masimo's patented technology.
I have to ask for an explanation
In January 2020, Masimo sued Apple for stealing its trade secrets, starting a four-year patent litigation battle. According to Chiani, Masimo has spent US$100 million in litigation over the past four years, and Masimo's net profit in 2022 will be only US$144 million.
In 2020, Apple released the Apple Watch 6 series with blood oxygen detection function. It was during the global COVID-19 epidemic, and a core indicator of a COVID-19 patient's condition turning critical was a sharp drop in blood oxygen saturation. Even though the Apple Watch is not a professional medical device, ordinary consumers still regard the Apple Watch with the blood oxygen detection function as a device that "may save lives at critical moments."
Chiani believes that Apple has gained huge revenue and profits from his company's patents, with annual watch sales exceeding US$20 billion, and he must seek justice for himself. In an interview with the media, he angrily accused, "When Apple expresses interest in cooperation with a company, it is the kiss of death. You will be excited at first, but soon you will realize that their long-term goal is to do it themselves and (take the technology) as their own."
But on the other side, Apple defended itself equally firmly. Apple completely denied the accusation of stealing Masimo technology in court. Apple has always respected the intellectual property rights of other companies, but accused Masimo of using its own patents. Technicians who moved to Apple from Masimo also testified in court that they did not come to Apple with Masimo's technology.
When it comes to patent litigation, Chiani has always been full of "wolfishness". In 2006 and 2016, he won multi-year patent litigation agreements with medical device giants Nellcor and Philips, bringing Masimo more than $300 million in compensation and $1 billion in cooperation revenue. But this time he faced Apple, the unshakable giant in the global consumer electronics industry.
Biden close friend White House adviser
Chiani not only fought a legal battle with Apple in court, but also gained support for himself in the field of public opinion, portraying himself as a warrior who "challenges Apple's hegemony." Chiani said in an interview with the media, "Someone has to stand up and face Apple. If I win, it may make Apple better."
However, Chiani has never concealed his willingness to accept settlement, and his only goal is to get Apple to pay compensation for infringement. But at least for now, Apple still refuses to bow its head and plans to push the lawsuit to the Supreme Court rather than directly pay to reach a settlement.
It is worth mentioning that Kiani is also a good friend of US President Biden. In 2019, Biden even called Kiani his "one of the best friends" in public. During the 2020 election, Chiani donated nearly $8 million to Biden and supported Biden in winning the US election.
In 2021, after Biden took office, he also appointed Chiani as an adviser to the President's Council of Advisors on Science and Technology, responsible for providing advice to the White House on U.S. science, technology and innovation policies. Therefore, when the U.S. Trade Commission refused to intervene in ITC’s sales ban last week and allowed Apple Watch to continue to be removed from the shelves, the media also mentioned the friendship between Chiani and Biden.
Of course, Apple is one of the largest companies lobbying the U.S. Congress, and its influence in the U.S. government is far greater than that of Biden’s friend Kiani. Public data shows that Apple invested $9.36 million in lobbying Congress last year. There is currently no evidence that Biden himself directly intervened in the patent lawsuit.
Apple is a frequent target of patent litigation
Apple is no stranger to patent litigation. After all, in the technology industry, patent litigation is a daily challenge that every company faces. Patent infringement lawsuits come from both industry competitors and many patent companies.
In the past ten years or so, Apple has been engaged in patent litigations of various sizes, losing and winning, and patent lawyers have become the biggest winners. In the classic lawsuit of the century, Apple and Samsung fought for seven years over the rounded corner design of mobile phones, and finally received a US$540 million compensation from Samsung in 2018.
HTC, which once ranked second in the world's smartphones, was forced to accept a ten-year licensing agreement in 2012 due to Apple's patent litigation (the specific amount was not announced). This changed the company's destiny and market prospects, and began its decline. Of course, HTC's decline is more due to its own reasons.
However, when faced with some mobile communications giants with deep technology accumulation, Apple often loses, and in the end can only choose compensation or out-of-court settlement. In 2011, Nokia received 420 million euros in compensation from Apple through patent litigation. In 2014 and 2016, Nokia sued Apple again for patent infringement, and finally forced Apple to accept a settlement agreement and Nokia's patent licensing conditions in 2017.
The lawsuit battle between Apple and patent giant Qualcomm also ended with Apple being forced to accept a settlement. From 2017 to 2019, Apple and Qualcomm fought a two-year patent war in six countries around the world. Apple accused Qualcomm of suspected monopoly, and Qualcomm sued Apple for patent infringement. Apple hopes to challenge Qualcomm's patent licensing standards and refuses to accept Qualcomm's complete machine charging standards.
However, in this series of patent litigation between the two parties, Qualcomm and Apple's positions are completely different. All Apple can do is refuse to pay, hitting Qualcomm's revenue and performance, while Qualcomm can rely on its strong patent pool to directly hit Apple's core iPhone business through continuous sales bans.
The difficulty in producing Intel's 5G baseband chip has become the most important factor overwhelming Apple. The 5G era has arrived, and Apple cannot continue without 5G baseband chips. Finally, in April 2019, Apple reached a six-year patent licensing agreement with Qualcomm and purchased baseband chips from Qualcomm. What disappoints Apple is that they still cannot come up with their own baseband chips after nearly four years and can only continue to rely on Qualcomm's product supply.
Returning to the patent lawsuit between Masimo and Apple, neither party has shown any signs of giving in. Although Chiani was willing to accept a settlement and receive compensation to settle the lawsuit, Apple refused to spend money to rectify the disaster and planned to fight the lawsuit with Masimo to the end.
The next confrontation between the two sides will be on January 10, when the International Trade Commission must respond to Apple's appeal, and on January 12, U.S. Customs will also decide whether Apple's software adjustments to the Apple Watch can help it bypass the ban.
If Chiani ultimately wins the lawsuit, or forces Apple to seek a settlement, he is expected to receive billions of dollars in damages, which would be the biggest victory in Masimo's history. But if Apple ultimately wins the lawsuit, the hundreds of millions of dollars Masimo spent on the lawsuit will be wasted. Chiani's current personal assets are approximately US$1 billion.
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