Apple Could Bypass Apple Watch Ban with Software Tweaks

Yesterday, Apple announced that it would voluntarily halt sales of the Apple Watch in the US in advance of a looming import ban ordered by the US International Trade Commission (ITC) that’s expected to take effect on December 25.

The ban would impact the Apple Watch Series 9 and Apple Watch Ultra 2 — the only models that Apple currently sells that include blood oxygen sensing technology that health technology rival Masimo claims infringes ten of its patents. While that sensor has been used since the Apple Watch Series 6, most older models aren’t directly affected as Apple no longer sells them; the Apple Watch SE doesn’t include the sensor, so it’s not covered by the ban and will remain available for purchase.

The ITC officially ordered the ban in October, but the process involves a 60-day review period during which the President can overrule the ITC decision. This rarely happens — it’s been done only four times in the history of the ITC — and the Biden administration already declined to intervene in a similar Apple Watch health technology case earlier this year. So, there’s little hope of an eleventh-hour reprieve here, and Apple knows it.

While Apple intends to appeal the ITC decision, it can’t file that case until December 26, after the review period has ended. In the meantime, the ban will still go into effect — and remain in effect — even as Apple pursues its appeals. There’s a possibility Apple could get an appellate court to order a stay on the ban, allowing the Apple Watch to return to the market. However, it would still take some time for this to wind its way through the courts, during which time the two latest flagship Apple Watch models will remain unavailable in the US, with a significant impact on Apple’s bottom line.

Analysts estimate the Apple Watch was a $17 billion business for Apple in 2023. While not all of that came from the US or the latest models, it’s still safe to say that having those banned from sale in one of the company’s largest markets isn’t going to look good in the next quarterly earnings report.

Naturally, Apple would prefer to avoid this, and it looks like it may find a workable solution. According to a new report from Bloomberg’s Mark Gurman, Apple is working on software-level changes that would potentially avoid infringing on Masimo’s patents.

Engineers at the company are racing to make changes to algorithms on the device that measure a user’s blood oxygen level — a feature that Masimo Corp. has argued infringes its patents. They’re adjusting how the technology determines oxygen saturation and presents the data to customers, according to people familiar with the work.

Mark Gurman

If successful, such changes would likely come in a watchOS 10 software update, although it’s unclear whether the Apple Watch would have to come with those software changes in the box or if an over-the-air update would be sufficient to appease the ITC.

According to an Apple spokeswoman, Apple is preparing to submit this workaround to the US customs agency, which is responsible for approving any changes required to comply with an ITC order such as this.

However, like a Presidential veto, this may be another “Hail Mary” pass on Apple’s part. The patents in question are primarily related to the Apple Watch blog pressure sensor hardware, including the light sensors that shine into the skin to measure blood oxygen saturation levels.

Still, Apple’s health scientists, engineers, and intellectual property lawyers likely all have a far better idea of what’s at stake here, and at this point, they believe the software changes should be enough to allow the Apple Watch to pass muster.

It’s a high-stakes engineering effort unlike any Apple has undertaken before.

Mark Gurman

For its part, Masimo disagrees, with a spokesperson telling Gurman that a software fix will not cut it and that “the hardware needs to change.” Evan Zimmerman, a patent expert consulted by Bloomberg, also said that Apple has its work cut out for it in resolving this with a mere software adjustment since Masimo’s patents are extremely broad. However, he suggested Apple could make a plausible argument that since the hardware is entirely controlled by the software, the two form a single entity.

Zimmerman also added that it’s rare for disputes like this one to reach the level that it has, as companies typically agree to a settlement to avoid such a ban. However, Apple has been determined in its insistence that it does not infringe on any of Masimo’s patents and has, in turn, accused Masimo of infringing on Apple’s patents.

Among the spate of lawsuits between the two companies, Masimo has also sued Apple for direct theft of intellectual property and poaching its senior scientists and engineers — a case that ended in a mistrial earlier this year — and Apple also filed a lawsuit against Masimo alleging it did the same with its W1 smartwatch.

Even if Apple’s software fixes are approved, it may still take some time before they’re ready to put the Apple Watch Series 9 and Ultra 2 back on the market. As with all watchOS software updates, internal testing needs to be conducted before release, and since this is a health feature, it may require additional testing. Thankfully, unlike the ECG feature, the blood oxygen sensor is not medically certified, which could reduce any potential delays.

However, if the software fix isn’t approved, Apple will have to retool its manufacturing process to remove the infringing sensors entirely, in which case it could take several months before revised Apple Watch models reappear in the US, including the time it would take US regulators to approve the new design and confirm it doesn’t infringe on Masimo’s patents.

The White House has yet to comment on whether it will grant Apple a reprieve on the ban. A Biden administration official told Bloomberg that US Trade Representative Katherine Tai is “handling the review and carefully considering all factors in the dispute.”

While it’s possible the ban could be overruled based on the fact that Apple still has an appeals process to go through and is working on addressing the infringement, Gurman notes that the Biden administration may be reluctant to intervene in a case between two US companies, since Masimo is also based in California. The last time a US President overturned an ITC ban was in a 2013 patent dispute between Apple and Samsung, which is based in South Korea.

The ITC ruling contains two separate orders: a limited exclusion order that bars Apple from importing infringing products into the US and a cease and desist order that prevents Apple from selling any inventory of infringing products in its stores or through third-party distribution channels. This would also include the Apple Watch Series 8, which Apple still sells on its refurbished store.

However, Apple has an exemption allowing it to continue to provide warranty service to any Apple Watch models purchased before the ban came into effect, including replacing them entirely if necessary.

The cease-and-desist order also applies only to Apple and not third-party retailers. So, while they can’t purchase any new inventory from Apple, they’re not prevented from selling any Apple Watch models they already have in stock. Walmart and Best Buy have already announced that they don’t plan to stop sales, and it stands to reason that others will follow suit. The Apple Watch Series 9 and Apple Watch Ultra 2 will also still be available for purchase in other nearby countries, such as Canada and Mexico.