Apple To Halt U.S. Sales Of Smartwatches After Patent Loss

(Bloomberg) -- Apple Inc. will stop selling the latest versions of its smartwatch in the US due to a patent dispute, taking some of its best-selling devices off the market during the busy holiday season.

Sales of the Apple Watch Series 9 and Ultra 2 will be halted on the company’s online store on Dec. 21 and at its physical retail locations beginning on Christmas Eve, it said in a statement Monday.

The company is preparing for a looming ban of Apple Watch models with a blood oxygen sensor — a feature first added to the lineup in 2020 — that Masimo Corp. says it invented. 

The International Trade Commission ruled in October that Apple violates Masimo patents and would need to halt sales of infringing devices. The patents relate to how the watches calculate a person’s blood oxygen saturation. 

A presidential review of that order is now underway. “While the review period will not end until Dec. 25, Apple is preemptively taking steps to comply should the ruling stand,” the company said.

Health features have become increasingly critical selling points for the Apple Watch, putting the company in competition with medical device makers. Masimo, based in Irvine, California, sells a range of health monitoring technology.

In a statement, Masimo said the ban “demonstrates that even the world’s most powerful company must abide by the law.”

“The ITC found that Apple stole Masimo’s patented pulse oximetry technology, which measures blood oxygen,” the company said. “The ITC undertook a thorough legal process and its expert judgment in this matter should be respected, protecting intellectual property rights and maintaining public trust in the United States’ patent system.”

The Series 9 and Ultra 2 models generate the vast majority of Apple’s watch sales. The company doesn’t say how much revenue the product line brings in, but it’s a core part of its Wearables, Home and Accessories business, which generates more than $40 billion a year.

According to analyst estimates, the Apple Watch alone made about $17 billion in fiscal 2023, which ended in September.

The sales halt will also impact some older Apple Watch models, including the Series 8, which Apple continues to sell in refurbished condition on its website. The blood oxygen feature was first added in the Apple Watch Series 6.

The news, previously reported by 9to5Mac, sent Apple shares down as much as 1.6% in New York on Monday. The stock had reached a record high last week. Masimo gained as much as 5.7%. 

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The devices will be removed from Apple’s online store at 3 p.m. New York time on Thursday. Apple said there will be no impact to watches already sold to customers. The SE model, which lacks the blood oxygen feature, also remains on sale.

The company said it would provide more information on Dec. 25 as the review period concludes. 

A Biden administration official said the review has been delegated to US Trade Representative Katherine Tai. She is carefully considering all factors in the dispute, the official said. The deadline is Christmas Day because these reviews last 60 days and the order was issued Oct. 26.

An Apple spokesperson said that the ruling from the ITC is erroneous and should be reversed. The company plans to appeal the decision. 

Though it’s unrelated to the news, two executives overseeing Apple Watch development are departing the company. Steve Hotelling, a key witness in the Masimo lawsuit, is retiring, while Tang Tan, chief of Apple Watch product design, plans to depart in February. 

Apple being forced to stop selling a core product in the US is unprecedented, especially during the company’s most important quarter. In the past, Apple has had to halt sales of older iPhones in places like Germany due to patent issues.

In the US, the ITC has ruled before on other Apple disputes, including one with Samsung Electronics Co. over the iPhone and iPad. In that case, President Barack Obama stepped in to overturn a ban. One notable difference with Masimo is it’s an American company. 

Given that the issue is related to hardware patents, Apple probably can’t quickly resolve the dispute with a software update — a tactic it has used in the past. If Apple doesn’t win on appeal or by presidential intervention, it’s unclear how long it would take the company to redesign the devices to not violate the Masimo patents. 

The watches will continue to be sold via many third-party retailers, which could help buoy Apple’s fiscal first-quarter sales. In some cases, Apple products generate higher sales volume at outside retailers than through its own channels.

The Cupertino, California-based company operates about 270 stores in the US. Apple previously said its first-quarter revenue would be in line with the year-earlier period. That suggests that the Apple Watch disruption could be the difference between revenue growing for the first time in a year or declining again. Already, the company’s sales have dropped for four straight quarters — the longest such streak in two decades.

Apple has been preparing its retail outlets for the disruption in recent days, sending stores new signs that advertise its watches without showing specific photos of the Series 9 and Ultra 2.

--With assistance from Josh Wingrove.

(Updated with Masimo response starting in seventh paragraph.)

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