The latest legal battle between Irvine-based medical device maker Masimo Corp. and Apple Inc. erupted in a testy exchange about “light tricks” on Nov. 5 in the Ronald Reagan Federal Building and U.S. Courthouse in Santa Ana.
The estimated week-long bench trial means Judge James Selna, who oversaw last year’s jury trial, will decide whether Apple poached Masimo’s employees and stole trade secrets to develop the Apple Watch. When that decision will be issued was unknown at press time.
The retrial came less than a week after Time Magazine named Masimo’s W1 Medical Watch one of the best inventions of 2024, labeled as the only FDA-approved medical wearable that provides continuous oxygen saturation and pulse rate tracking.
On the same day as the trial, Masimo reported its first quarterly financial results without co-founder Joe Kiani, who resigned as CEO last month after being ousted as chairman in the annual shareholder vote in September.
Masimo (Nasdaq: MASI) reported third quarter revenue increased 5.4% to $504.6 million, surpassing the Zacks Consensus Estimate of $502.6 million.
Shares rose 14% to a 52-week high of $173.90 the following trading session and an $8.6 billion market cap.
The recent transition in leadership has been “seamless,” according to Interim CEO Michelle Brennan.
“We appreciate the commitment and energy of our employees, which has resulted in a seamless transition since our annual meeting with no disruption to our business or departures of critical talent,” Brennan said in a statement.
Apple Denies Poaching
Masimo continues to be represented by its longtime attorneys, Joseph Re and Steve Jensen of Knobbe Martens.
The pair has 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.
The dispute dates to 2013 when Apple sought Masimo’s technology to install pulse oximetry on its watch. 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 vice president of Medical Technologies. Apple CEO Tim Cook nixed the acquisition because Masimo sold its equipment to hospitals and not consumers.
Apple ended the arrangement within a few months and instead decided to recruit about 25 Masimo employees, including its chief medical officer and an executive slated to become its chief technology officer.
Apple denied it was poaching and among its executives in email exchanges, used the term “smart recruiting.”
Apple’s legal team played a video testimony from Cook in the courtroom, where he described the hiring technique as scouting people based on their skills opposed to just their previous roles.
“Our culture is just so opposite of that,” Cook said referring to the poaching allegation.
Apple Using ‘Light Tricks’?
Masimo originally filed the lawsuit against Apple in 2020 after discovering its technology was used in Apple Watches to monitor oxygen levels.
Masimo initially sought $3.1 billion and after more than half of its trade secrets were dismissed, reduced the request to $1.85 billion. A four-week trial took place in 2023 and resulted in a mistrial with a hung jury.
In the retrial, Masimo has dropped all requests for monetary damages and is seeking an injunction against the Apple Watch, according to news reports.
At last week’s trial, Apple’s lead trial lawyer Joseph Mueller of Los Angeles law firm Wilmer Cutler Pickering Hale and Dorr LLP said that Apple was working on its first Apple Watch in 2014.
“Masimo didn’t have a watch at this time,” Mueller said in in his opening statement.
He argued that the black foam for a quality control test, a type of short circuit and demodulation used by Apple, aren’t trade secrets, but rather known industry techniques.
Kiani took the stand, and the questioning became heated at times.
When the Apple attorney tried to demonstrate one of the trade secrets using a flashlight and a white poster board, Kiani said “You’re really diminishing what’s going on here with these foam and light tricks.
“I’m happy to explain why the subtle ideas that we spent the decade developing made a big difference in the field,” he added.
Mueller asked, “Are you here to say that the plaintiffs own the general idea of wanting light that goes through tissue to be received and trying to separate light that has not passed through tissue? You put it that you own as a trade secret, that basic idea?’
Kiani replied that “No, we own the procedure… when the people leave the room, I can explain.”
After this exchange, the court was sealed and bystanders had to leave as the lawyers discussed trade secrets.
Apple is the world’s second most valuable publicly traded firm with a market cap of $3.4 trillion (Nasdaq: AAPL).
Masimo Wins
In the past year, Masimo has won a couple of significant court cases. The U.S. International Trade Commission ruled in 2023 that Apple violated a Masimo patent and had to stop importing its watches with the disputed technology.
Separately, a Delaware jury in late October found that Masimo’s current products did not infringe any of Apple’s patents. The jury did find that a Masimo product that has been discontinued did violate an Apple product; the jury awarded $250 to Apple.
“Apple primarily sought an injunction against Masimo’s current products, and the jury’s verdict is a victory for Masimo on that issue,” a company spokesman said.
In other legal news, Masimo filed a lawsuit against Kiani on Oct. 25 accusing him of attempting to secretly manipulate the annual shareholder vote in his favor.
The company alleges that Kiani and RTW Investments colluded on an “empty voting” scheme, a practice where a shareholder increases their voting power without incurring the economic risk, after Politan announced its two nominees Darlene Solomon and Bill Jellison for board election.
“Mr. Kiani and RTW understood that there was a serious risk that Mr. Kiani would lose his seat on Masimo’s Board at the 2024 annual meeting of Masimo’s shareholders given the longstanding and widespread criticism of his governance of the company,” the complaint states.
At the time, Masimo claims that RTW Investments only owned 2.8% of the company’s common stock.
In the days leading up to the meeting, Masimo said RTW more than tripled its ownership to 9.9%, causing its total ownership to increase to 19%, by buying shares and used short sales to ensure its “economic exposure remained at or below 2.8%.”
The suit was filed in the U.S. District Court for the Southern District of New York.
