Friday, April 12, 2024

Apple’s $17 Billion Smartwatch Business Faces US Ban – Will They Find a Solution?

Share

Apple Inc. is facing a critical situation as it prepares for a ban on its smartwatches in the United States. With just days left until the ban takes effect, Apple is working on a rescue mission to save its $17 billion smartwatch business. The ban, imposed by the International Trade Commission (ITC), is a result of a legal dispute with medical device maker Masimo Corp. over patent infringement.

Apple’s engineers are racing against the clock to make software fixes and other adjustments to the algorithms on the smartwatches. Specifically, they are modifying how the technology measures a user’s blood oxygen level, which is a feature that Masimo claims infringes its patents. By adjusting how the device determines oxygen saturation and presents the data to customers, Apple hopes to resolve the dispute and bring its smartwatches back to store shelves.

This engineering effort is unprecedented for Apple, as it potentially threatens one of their biggest revenue streams in their home country, particularly during the holiday season. Apple typically prefers not to settle such disputes through negotiations, though settling with Masimo remains a possibility. However, there have been no indications of engagement between the two companies on that front.

In the meantime, Apple is exploring various options to address the ban. The company has already started preparing its retail stores for the change by sending new signs that promote the Apple Watch without featuring the Series 9 and Ultra 2 models targeted by the ban. The lower-end SE watch will still be available. Furthermore, Apple plans to stop selling the prohibited watches on its website on Thursday and remove them from its brick-and-mortar outlets by December 24.

Apple appears to believe that software changes, rather than a more complex hardware overhaul, will be sufficient to bring the smartwatches back to market. However, the patents at the core of the dispute primarily involve hardware aspects, such as how light is emitted into the skin to measure blood oxygen levels. Masimo has argued that a software fix will not be enough and that hardware changes are necessary.

Apple has stated that it is working on submitting a workaround to the US customs agency, which has the authority to approve changes enabling a product’s return to the market. Nevertheless, Masimo has contended that software tweaks would not adequately address its patent infringement concerns.

The ITC ban will take the form of an import restriction, making it impossible for Apple to sell the smartwatches in the US. Since Apple relies on overseas suppliers for components and assembly, this ban presents a significant challenge for the company.

Typically, disputes like this are settled before reaching this stage, often through negotiations aimed at leveraging settlement discussions. However, in this case, it may be difficult for Apple to resolve the dispute solely through software tweaks due to the broad scope of Masimo’s patents. Nonetheless, Apple could argue that the software controls how the device functions.

While Apple is simultaneously working on hardware and software fixes, bringing new technology to market will require time. Apple’s rigorous internal software testing process ensures that any changes do not compromise other smartwatch features. Additionally, given their medical purpose, the adjustments may require additional testing.

If Apple needs to remove hardware components from its devices, it could take at least three months to produce and ship new models, according to insider sources. This timeline does not account for how long it may take for customs agencies to approve such a move.

The blood-oxygen feature was first introduced in 2020 with the Apple Watch Series 6 model. During the height of the COVID-19 pandemic, doctors used blood-oxygen levels to assess patients’ respiratory health. The feature continuously monitors a person’s levels throughout the day and provides real-time readings in approximately 15 seconds. If the ban takes effect, sales of devices with this feature will need to cease.

It’s important to note that the ITC ban only applies to Apple’s direct sales channels, meaning third-party retailers like Walmart, Best Buy, and Target can continue offering the smartwatches. As of now, both Walmart and Best Buy have confirmed that they do not plan to stop selling Apple watches.

Apple has relied on health and safety features as key selling points for its smartwatches, contributing significantly to their success in recent years. Analysts estimate that in fiscal year 2023 alone, Apple’s smartwatch business generated $16.9 billion in revenue—an impressive increase from $9.1 billion five years prior.

The fate of Apple’s smartwatch business now rests in the hands of regulators and potentially the White House. While it remains uncertain whether Apple will receive a last-minute reprieve from the ban, US Trade Representative Katherine Tai is carefully reviewing all aspects of the dispute. The White House has the authority to veto ITC decisions, as seen in a previous patent battle between Apple and Samsung. However, this particular case presents a challenge as it involves choosing one American company over another since both Apple and Masimo are US-based firms.

Masimo has expressed its belief that the ITC’s judgment should be respected and has emphasized that even the most powerful company must abide by the law.

Read more

Local News