A heated part of
Masimo and co-plaintiff Cercacor Laboratories Inc., a Masimo spinoff that owns certain licensing rights to many Masimo patents, allege that Apple stole trade secrets, including some related to technology that uses light sensors to measure the amount of oxygen in the bloodstream.
They accused Apple of using confidential information from two former executives it hired, one from each plaintiff. Apple then allegedly deployed those secrets to design, build, and sell certain Apple Watch models.
Up to $1 billion could be at stake in the trade secrets dispute, according to Bloomberg Intelligence analyst
The outcome could influence how the parties’ broader intellectual-property conflict shakes out, and whether a settlement resolving their many disputes is likely. Apple and Masimo also are dueling over watch-related patents in another federal court and at the US International Trade Commission, which has the power to block imports of products that infringe US patents.
This week’s trial will center on the Series 4-7 and SE models of the Apple Watch, according to Masimo’s redacted “building blocks for its lost-profits calculation,” filed March 24.
The calculation is based on Apple Watches starting in the fourth quarter of 2018, when Apple began selling its Series 4 watch, the filing says. It also relies on the price of Masimo’s sensor modules, which are “at least $100 per module;” and on Masimo’s gross-profit margin, which “is consistently 65% or higher.”
The parties agreed to hold until after the trial their presentation of evidence relevant to the amount of any reasonable royalty on trade-secret misappropriation, if necessary.
Masimo and Cercacor declined to comment on the trial. Apple didn’t immediately respond to a request for comment.
‘Contrived for This Litigation’
Apple said last week in its trial brief that “not a shred” of the plaintiffs’ confidential information “was ever used in the design, development, or marketing of Apple Watch.” It said Masimo and Cercacor “have wrongly tried to use this litigation as a maneuver to clear a path for their smartwatch.”
The W1, which Masimo launched Aug. 31, is the focus of two cases Apple filed in October alleging the W1 and its charger infringe design patents and, separately, patents covering various technologies. The suits are pending in Delaware.
Apple also said that much of what Masimo and Cercacor claim as trade secrets “are ideas long known and used by multiple companies.” The Cupertino, Calif.-based tech giant pointed to the lack of “even a single pre-litigation document that records—in full—any of their alleged trade secrets” and said that’s because “they have been contrived for this litigation.”
Apple said it “took nothing” from Masimo and Cercacor, and the case “ultimately rests on a series of out-of-context quotes and misdirection.”
The responsibility for the plaintiffs’ “failures to successfully commercialize a smartwatch,” Apple said, “is theirs alone.”
‘Up to $1 Billion’
The trade-secrets trial “poses a significant damages risk,” Bason, the BI analyst, wrote in a March 29 note, “and if the parties don’t settle around the trial, Masimo’s International Trade Commission case carries the threat of an import ban on Apple watches by mid-September.”
Bason said “an amount up to $1 billion is possible, if not probable, in the event of a Masimo win, given other recent large damages awards in trade secrets cases.” He called the California jury trial “Masimo’s best means for a positive outcome.”
Trade secrets cases, he said, are “especially onerous for defendants, meaning there’s a chance the parties could reach a deal before a verdict.”
Masimo said in its own trial brief that it had trimmed the list of trade secrets it would present at trial to those in four categories. Two of those were redacted. The other two comprise business strategies; and “value, importance, and appropriateness.”
“In contrast, Apple has never identified any way it would streamline its defenses,” Masimo said. “Rather, Apple has maintained each and every defense in this action.”
Corporate Hiring
The Santa Ana, Calif., jury will decide whether Apple wrongfully obtained, disclosed in patent applications, or used any confidential information from Michael O’Reilly and Marcelo Lamego.
O’Reilly was Masimo’s chief medical officer and executive vice president for medical affairs from January 2008 until he joined Apple in July 2013. Lamego, a former research scientist at Masimo, was Cercacor’s chief technical officer before Apple hired him in January 2014.
Apple said its smartwatch, “including its health sensing features, was well into development” when they were hired. Lamego worked there for “a mere six months,” Apple said. Neither “did anything wrong at Apple,” it said. Apple called the “attempts to besmirch their reputations” both “unfounded and unfortunate.” The men, it said, “did nothing more than choose to work at Apple.”
The plaintiffs allege that Apple filed patent applications on what Lamego got from Masimo and Cercacor employees while he worked there. Masimo and Cercacor want those employees added as named inventors to Apple’s applications.
The trade secrets trial comes a few months after the Patent Trial and Appeal Board denied Apple’s requests that it review the validity of a Masimo patent that an ITC judge in January said the Series 6 Apple Watch infringes.
The trade judge’s findings in that case are subject to review by the full commission, which is expected to announce by mid-May whether it’ll take another look at the judge’s initial determination. The ITC recently extended the target date for completing that investigation to July 17.
Masimo and Cercacor are represented by Knobbe Martens Olson & Bear LLP. Apple is represented by Wilmer Cutler Pickering Hale & Dorr LLP, Lewis & Llewellyn LLP, Haynes & Boone LLP, and Gibson, Dunn & Crutcher LLP.
The case is Masimo Corp. v. Apple Inc., C.D. Cal., No. 8:20-cv-48.
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