Aaron Tilley reports in the Wall Street Journal:
Apple will pause U.S. online sales of the Apple Watch Series 9 and Apple Watch Ultra 2 beginning on Dec. 21 and in U.S. stores after Dec. 24, removing from the market a popular Christmas gift just days before the holiday. The Series 9 and Ultra 2 are the primary newer models for sale on the company’s website. A ruling by the U.S. International Trade Commission found Apple violated patents related to a blood-oxygen sensor on some versions. The case involves medical-technology company , which alleged in a 2021 complaint that Apple violated its patents. Apple has included a sensor, called a pulse oximeter, in most new models of the Apple Watch since 2020.
is set to halt sales of its smartwatch in the coming days as it prepares to comply with a U.S. import ban ordered by a federal trade agency that found the company violated patents of a competitor.The company will pause U.S. online sales of the Apple Watch Series 9 and Apple Watch Ultra 2 beginning on Dec. 21 and in U.S. stores after Dec. 24, removing from the market a popular Christmas gift just days before the holiday. The Series 9 and Ultra 2 are the primary newer models for sale on the company’s website. The SE, an older model that wasn’t part of the ruling, will continue to be sold. Previously sold watches won’t be affected by the ban.
The October ruling by the U.S. International Trade Commission found that Apple violated patents related to a blood-oxygen sensor on some versions of the device. The case revolves around medical-technology company
, which alleged in a 2021 complaint that Apple violated its patents. Apple has included a sensor, called a pulse oximeter, in most new models of the Apple Watch since 2020.The sales pause comes amid a critical holiday season for Apple after the company has faced flagging sales and a variety of business challenges at home and abroad. For its fiscal 2023 that ended in September, overall sales were down for the first time since 2019.
The timing of Apple’s announcement may prompt more sales ahead of the ban as well as draw attention to the issue from President Biden. The Biden administration has until Christmas Day to overturn the ruling as part of the commission review process. Apple has pushed the administration to veto the commission’s ruling, according to Masimo.
Apple shares fell by less than 1% on Monday after the company said it is taking pre-emptive steps in case the ruling stands and that it plans an appeal.
“Apple strongly disagrees with the order and is pursuing a range of legal and technical options to ensure that Apple Watch is available to customers,” the company said.
“The decision to exclude certain foreign-made models of the Apple Watch demonstrates that even the world’s most powerful company must abide by the law,” Masimo said in a statement.
The Wall Street Journal reported in April that Masimo and a number of other smaller companies alleged that Apple copied their technology and used an aggressive legal strategy through the U.S. patent system to avoid paying royalties. Apple said it doesn’t steal technology and accused Masimo of copying Apple.
The company has several potential paths open to deal with the ban. Apple could still settle with Masimo, though settling could open the door to more challenges on similar grounds. The company could also make changes to the Apple Watches through a software update that could avoid using the contested technology.
Apple is by far the largest smartwatch vendor, accounting for 30% of all shipments in 2022 and nearly 60% of global sales, according to Counterpoint Research. It’s still a small business when compared with Apple’s overall sales. Watch sales only accounted for about 4.7% of Apple’s overall sales of about $383 billion in fiscal 2023, estimated investment firm Oppenheimer.
Martin Yang, an analyst at Oppenheimer, said he thinks it is unlikely Apple will let this sales halt go on for long. Even though it represents a relatively small portion of Apple’s overall revenue, the Apple Watch is an important product category for Apple and its growing health ambitions.
“If anything, Apple will settle as a last resort,” Yang said.
Because the pause won’t go into effect until after Christmas Eve, it is unlikely the action will hit holiday sales much, said Jitesh Ubrani, a research manager at IDC. Most holiday season shopping has already been done. If it continues, the ban would have a much larger impact on Apple’s 2024 sales, Ubrani said.
Masimo and Apple began their relationship in 2013, when Apple discussed potentially integrating Masimo’s sensing technology into future Apple products. Internally, Apple executives debated the idea of buying Masimo and making its chief executive a vice president, according to documents made public at a later trial. But Apple ultimately decided against it because “acquisitions of this size aren’t our style,” an email reads.
Instead of buying Masimo, Apple ended up hiring Masimo engineers and began working on the technology itself, Masimo later said.
Another company named AliveCor, which previously sold Apple accessories that performed electrocardiograms, alleged a similar case of Apple violating several of its patents with the 2018 launch of a new Apple Watch. AliveCor also complained to the trade commission and won, but Apple was able to invalidate AliveCor’s patents through an appeal system at the U.S. Patent and Trademark Office, preventing any import ban from going through. AliveCor is appealing the patent office’s decision to revoke its patents.
Apple faces other major obstacles to various parts of its business going into 2024. In Europe, new legislation will force open the company’s mobile operating system and its tightly-guarded app ecosystem. In complying with the regulation, the sales the company makes on third-party apps may take a hit.
Apple’s lucrative default search arrangement with Google—which provides Apple with around $20 billion every year—is also under scrutiny by the U.S. Department of Justice, with a case that could be decided by next year.
And in China, Apple’s third-largest market, government employees have recently been ordered to not use iPhones and other foreign-branded devices for work. That, along with the re-emergence of domestic Chinese smartphone champion Huawei, could potentially hamper Apple’s sales in the country.
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