Apple plans to halt sales of newest watches in US over a patent dispute
SAN FRANCISCO - Apple plans to stop sales of its latest Apple watches before Christmas, in response to a ruling in October by the International Trade Commission that Apple was guilty of patent infringement for incorporating a blood oxygen sensor technology developed by Southern California medical device maker Masimo.
The White House had a 60-day review period to overrule the ITC, but it expires December 25th and so far, the Biden administration has not announced any reversal of the ITC ruling.
Apple plans to halt online sales on Thursday and in-store sales on Sunday of the Apple Watch Series 9 and Ultra 2 models. The less-expensive SE model does not have the blood oximeter, so it will continue to be sold past December 25th.
The uncertainty about the Apple Watch patent violation is causing some concern and confusion for consumers during the height of the holiday shopping season.
At the Apple store in San Francisco's Union Square on Wednesday, the Series 9 and Ultra 2 were on display. Some customers said they were hoping to get one for Christmas.
"I thought it would be nice to get it as a holiday present for myself," said Heidi Guo of San Francisco.
"There's different options, so that's why I set up an appointment to talk to a specialist to decide the best one," Rusty Deatherage of San Francisco said.
Peter Lee, a professor at UC Davis School of Law who specializes in intellectual property and patent law, says it is significant that Apple is pulling its products during its busiest holiday sales period.
"I think that they are concerned that if they did not comply with the order, they could face more serious sanctions. And I think that they also want to provide the appearance of being kind of a good citizen then when that complies with the laws." Lee said.
White House press secretary Karine Jean-Pierre said the Biden administration was tracking the Apple Watch trade case. She said U.S. Trade Representative Katherine Tai has the authority to decide on the matter and that she was "carefully considering all the factors in this case." Jean-Pierre said she didn’t want to get ahead of any decision Tai might make.
Lee says if the White House does not overrule the ITC decision, Apple still could find a way to put their watches back on the market.
"Apple has already discussed the possibility of appealing to the Federal Circuit, which is an appellate court that can review the ITC order," Lee said.
Lee says there are other options as well.
"Apple could actually try to negotiate a license with Masimo. Apple has not done this, they are quite stalwart and asserting that they are not infringing these patents. But in theory, if Apple actually negotiated a license with Masimo, then they could get their products back on the markets. Alternatively, they could just try to redesign their products, so they don't actually infringe the patents," Lee said
Some customers said they didn't want to wait and went ahead and bought watches.
Others say they are wary and will watch to see what happens.
"I don't want to get stuck with it and don't know what's going to happen, so probably hold off and see what's going to happen first," Victor Castro of Sacramento said as he passed the Apple store in San Francisco's Union Square with his family.
"Obviously, I feel like, give credit where credit is due, but I feel like Apple has just a unique type of experience with their technology." Aolani Vargas of Sacramento said, "I feel like I would wait it out."
"If they're discontinuing, then there's a chance that you know, it's harder to upgrade and to repair and those considerations too," Guo said.
Other retailers such as Best Buy and Target which have Apple Watch Series 9 and Ultra 2 products are not included in the sales stoppage.
Lee notes that the convergence of tech devices and the race by companies to obtain patents in the fast-moving technology sectors, has lead to increasing challenges on the part of developers and regulators.
"There are many, many components, many technological components that go into something like an Apple Watch, or an iPhone. And so to the extent that you have lots and lots of technologies kind of bundled together in these products, the likelihood is greater than at least one patent will be infringed," Lee said.
The disruption will likely cost Apple about $300-400 million in holiday-season sales, estimated Wedbush Securities analyst Dan Ives. That’s a relative drop in the bucket for Apple, given analysts are expecting Apple to generate nearly $120 billion in sales during the October-December period that includes the holiday shopping season.
The sales suspension on the two Apple Watch models "doesn’t move the needle much for the company, but still it couldn’t have come at a worse possible time," Ives said.
Apple’s stock so far hasn’t been significantly affected by the announced sales suspension on the two watch models, leaving the shares near their record high reached last week.
If the ITC’s sales ban isn’t overturned, Apple pledged to "take all measures" to resume sales of the Series 9 and Ultra 2 models in the U.S. as soon as possible. The U.S. International Trade commission announced on Wednesday that Apple's motion had been denied.
This isn’t the first patent roadblock the Apple Watch has run into as it increasingly morphs into a health-management device. Last year, the ITC ruled that Apple had infringed on the wearable EKG technology of AliveCor — a decision the Biden administration declined to overturn. That dispute hasn’t directly affected Apple Watch sales yet because another regulatory body had ruled that AliveCor’s technology isn’t patentable. The legal tussle on that issue is still ongoing.
The patent headaches facing Apple as it tries to infuse more medical technology into its watch models makes it increasingly likely the company will either have to start working out licensing deals or simply acquiring startups specializing in the field, Ives predicted.
Jana Katsuyama is a reporter for KTVU. Email Jana at jana.katsuyama@fox.com or call her at 510-326-5529. Or follow her on Twitter @JanaKTVU.