The High-Stakes Patent Battle Between Masimo and Apple: A Blueprint for Navigating IP Risks in Wearable Tech

The legal clash between Masimo Corp. and Apple Inc. over the blood-oxygen monitoring feature in the Apple Watch has become a defining case study in the volatile intersection of intellectual property (IP) law and wearable technology. This dispute, now playing out in U.S. federal courts and regulatory agencies, underscores the systemic vulnerabilities in the sector—and the opportunities for investors who understand how to navigate them.

The Masimo-Apple Saga: A Microcosm of IP Risks

Masimo's lawsuit against the U.S. Customs and Border Protection (CBP) centers on a 2025 ruling that allowed Apple to reintroduce the blood-oxygen feature in its smartwatches after a prior import ban. The CBP's reversal of its January 2024 decision—made without notice to Masimo—has sparked claims of procedural violations under the Administrative Procedure Act and the Fifth Amendment. This case highlights three critical risks for wearable tech firms:

1. Regulatory Arbitrage: The CBP's ex parte ruling exploited a loophole by shifting computational tasks to paired iPhones, effectively circumventing the ITC's 2023 exclusion order. This demonstrates how regulatory flexibility can be weaponized to undermine IP enforcement, creating a "race to the bottom" for smaller innovators.
2. Patent Enforcement Gaps: The ITC's authority under Section 337 of the Tariff Act is being tested as courts scrutinize its ability to enforce exclusion orders in the face of software-driven workarounds. Recent Federal Circuit rulings, such as Lashify, Inc. v. ITC (March 2025), have already signaled a stricter interpretation of the "domestic industry" requirement, complicating patent holders' ability to secure remedies.
3. Reputational and Financial Exposure: Masimo's stock has plummeted nearly 12% in 2025, while Apple's shares have dropped 9.4%, illustrating how IP disputes can destabilize valuations. For investors, this volatility underscores the need to assess not just the technical merits of a case but also the broader regulatory and market dynamics.

The Bigger Picture: Wearable Tech's IP Minefield

The Masimo-Apple conflict is emblematic of a sector where innovation is both a driver and a battleground. Wearable tech companies are increasingly embedding medical-grade features—such as ECG monitoring, glucose tracking, and pulse oximetry—into consumer devices. These advancements rely on proprietary algorithms and sensor technologies, making IP a cornerstone of competitive advantage. However, the sector's reliance on global supply chains and software-driven updates creates vulnerabilities:

• Supply Chain Complexity: Third-party component manufacturers and contract assemblers often lack visibility into IP ownership, increasing the risk of infringement.
• Software Workarounds: As seen in the Apple case, shifting processing to companion devices (e.g., smartphones) can bypass hardware-based IP protections.
• Regulatory Uncertainty: The Federal Circuit's evolving stance on the ITC's authority—exemplified by AliveCor, Inc. v. Apple (March 2025)—creates ambiguity for companies seeking to enforce or defend patents.

Opportunities for Savvy Investors

While the risks are significant, they also create opportunities for investors who can identify firms with robust IP strategies and regulatory agility:

1. Defensive Play: Companies with Strong IP Portfolios
   Firms like Medtronic (MDT) and Dexcom (DXCM), which hold broad patents in medical wearables and have navigated regulatory hurdles, are better positioned to withstand litigation. Their ability to monetize IP through licensing or litigation settlements offers a buffer against supply chain risks.

2. Offensive Play: Legal and Regulatory Innovators
   Startups leveraging AI-driven IP management tools or blockchain-based supply chain tracking could gain a first-mover advantage in mitigating infringement risks. Investors should also monitor the Federal Circuit's upcoming rulings in Apple's appeal, as favorable precedents could reshape the sector's IP landscape.

3. Diversification Across Sectors
   Given the sector's volatility, investors should balance wearable tech exposure with holdings in complementary industries, such as cloud computing (e.g., Microsoft, MSFT) or semiconductor manufacturing (e.g., TSMC, TSM), which are less susceptible to IP disputes.

Conclusion: Navigating the IP Labyrinth

The Masimo-Apple case is a cautionary tale for wearable tech firms: IP is not just a legal asset but a strategic liability in an era of rapid innovation and regulatory flux. For investors, the key lies in distinguishing between companies that treat IP as a defensive moat and those that rely on aggressive litigation or regulatory loopholes. As the Federal Circuit's rulings in Lashify and AliveCor suggest, the legal framework is tightening, favoring firms that prioritize transparency, collaboration, and compliance.

In the end, the wearable tech sector's future will be shaped not by the gadgets themselves, but by the legal and regulatory ecosystems that govern them. Investors who recognize this dynamic—and act accordingly—will be best positioned to capitalize on the opportunities ahead.