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Tuesday, May 21, 2024
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Mistrial in Masimo’s Trade Secret Theft Case vs. Apple

Apple Inc. (Nasdaq: AAPL) lead attorney Joseph Mueller asked an Orange County jury to look at his witnesses who stood up during his closing arguments in the $1.85 billion trial over the theft of trade secrets brought by Irvine medtech Masimo Corp. (Nasdaq: MASI) against the world’s most valuable tech company.

“You need to find that each of the folks that I just introduced as well as other folks you heard during the course of this, took the stand, took the oath and broke it—that didn’t happen,” Mueller told the jury.

“They took the stand and testified to you truthfully, honestly and forthrightly.”
Mueller’s strategy convinced six of seven female jurors that Apple did not steal Masimo technology.

Because of the one holdout juror, Judge James V. Selna on May 1 declared a mistrial in the closely watched, four-week case that was held at the Ronald Reagan Federal Building and U.S. Courthouse in Santa Ana.

The trial was the latest in Masimo’s battle against Apple, a case whose roots date back about a decade. Masimo has thus far spent $55 million in its legal cases against Apple, with the expectation of legal fees topping $100 million due to ongoing cases in other venues, and a second trial in Santa Ana.

“While we are disappointed that the jury was unable to reach a verdict, we intend to retry the case and continue to pursue legal redress against Apple,” Masimo co-founder and Chief Executive Joe Kiani said in a statement.

After the hung jury was announced, Apple thanked the jurors and insisted that its employees don’t “take or use confidential information from other companies.”

In the trading session following the mistrial, shares of the Irvine-based maker of oxygen monitoring equipment fell 3% to $183.34 and a $9.6 billion market cap. Apple shares were off about 1% to $168.54 and a $2.7 trillion market cap.

Trade Ban?

Masimo has alleged that the Cupertino-based tech giant stole technology for its watches to monitor oxygen levels.

Masimo’s longtime attorneys, Joseph Re and Steve Jensen of Knobbe Martens, have won several big cases for Masimo in the past two decades, collecting hundreds of millions of dollars in settlements from giant medtech companies Royal Philips Electronics NV and Nellcor, now a unit of Medtronic PLC.

Last November, the pair won a case against former Masimo-turned-Apple employee Marcelo Lamego, as a federal court ordered him to abandon at least 12 patent applications.

In January, the pair won a crucial first round before the International Trade Commission when an administrative law judge ruled that Apple’s watches illegally used Masimo’s technology for pulse oximetry.

“The United States Trade Commission is scheduled in the coming months to decide whether to ban the importation of certain models of the Apple Watch,” Kiani said last week.
If a ban is upheld, President Joe Biden will have 60 days to reverse the decision. Kiani has been a longtime supporter of Biden.

If Apple loses the ITC case, it can appeal to the U.S. Court of Appeals.

Mount Everest

The trial revealed several details about the two companies.

Email correspondence among Apple employees referred to Kiani as having a Steve Jobs-like reputation within the medical technology development space. Apple executives discussed acquiring Masimo and installing Kiani as the VP of Medical Technologies. Apple CEO Tim Cook nixed the acquisition because Masimo sold its equipment to hospitals and not consumers.

About a decade ago, Apple started a project called “Mount Everest” where it would work with Masimo to develop oxygen monitoring technology.

“Project Everest—the highest mountain in the land,” found that Masimo was the standout company in its field, Masimo lead attorney Re told the jury.

In his closing argument, Re argued that whether Apple employees lied on the stand “wasn’t the point.” Rather, Apple should have known it was taking Masimo’s technology.

“We have a preponderance of evidence of misappropriation” by Apple, Re said.
Re specifically pointed to Lamego, who was slated to become Masimo’s chief technology officer until he joined Apple for about five months in 2014. Lamego suggested 25 improvements to Apple technology in his first meeting and then was named on 12 Apple patent applications, the Masimo lawyer said.

“Somebody should have known; it’s a red flag,” Re told the jury. “It’s not that they’re lying.”

Next Level Down

Masimo originally sued for $3.1 billion. However, Judge Selna tossed out six charges related to business trade secrets just prior to the case going to the jury. That ruling reduced

Masimo’s request to $1.85 billion for its technical trade secrets.

However, Selna permitted Masimo to tell the jury how Apple recruited 30 of its employees, including Lamego and Chief Medical Officer Michael O’Reilly.

A debate erupted over an Apple email that showed its recruiters used a “next level down” technique to search for lower-level Masimo employees on LinkedIn.

“This was (a plan) to recruit from Masimo, to learn information that they didn’t have and that they needed,” Re told the jury.

“There’s a suggestion that there is some sort of scandal,” WilmerHale’s Mueller said in his closing argument. “Researching on LinkedIn for folks who might want to work at Apple is not misappropriation.”

The trial brought up the old business conundrum of whether valuable employees can leave for a competitor.

Selna instructed the jury that hiring employees from competitors isn’t illegal by itself.

“There’s no claim that Apple violated employment law,” Mueller told the jury. “There’s no claim that Apple engaged in improper recruiting practices or violated employment laws.”

An article in the Wall Street Journal during the trial caused consternation by Selna.
Headlined, “When Apple Comes Calling, ‘It’s the Kiss of Death,’” the article cited Kiani and more than two dozen other executives at other companies who said Apple often initiates discussions and then launches its own similar features.

Masimo assured the judge that Kiani spoke with the Wall Street Journal in January, well before the trial started and didn’t know the article would appear during the trial.

Activists

Masimo is scheduled to report first-quarter results on May 9.

The medtech counts fights on other fronts, beyond Apple. Masimo is battling activist investor Politan Capital Management, which last week nominated two candidates to the board of directors, including its managing partner Quentin Koffey and Michelle Brennan, a longtime executive with Johnson & Johnson.

“Over the past eight months, we have attempted to engage constructively with Masimo’s board—but they have refused to even meet with us,” Koffey said in a statement.

“Despite our track record of working privately with companies to fix strategic, operational and governance matters, Masimo’s board has taken an extraordinarily aggressive and hostile approach to our engagement.”

The company’s annual meeting is scheduled for June 26.

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