Apple announced on Monday that it would temporarily halt sales of its flagship smartwatches, the Apple Watch Series 9 and Watch Ultra 2, both online and at retail locations in the United States. This decision comes after Apple lost a patent case two months ago, which involved the technology used by its smartwatches to detect people's pulse rates. The ruling ordered Apple to cease sales of the watches after Christmas, potentially leading to a surge in demand for the devices in the final week of holiday shopping.

The patent dispute originated from a ruling by the International Trade Commission (ITC) in October, which found that several Apple Watches infringed on patents held by Masimo, a medical technology company based in Irvine, California. During the court proceedings, Masimo highlighted how Apple had allegedly recruited its top executives and other employees, only to later release a watch with pulse oximeter capabilities that were patented by Masimo.

To avoid a complete ban on sales, Apple had two months to either negotiate a licensing deal with Masimo or appeal to the Biden administration to reverse the ITC ruling. However, Masimo's CEO, Joe Kiani, revealed in an interview that Apple had not engaged in any licensing negotiations. Instead, Apple reportedly appealed directly to President Biden, requesting him to veto the ITC ruling. Kiani expressed his frustration, accusing Apple of trying to make the agency appear as if it was supporting patent trolls.

Apple responded to Kiani's remarks with a statement, stating that the company strongly disagreed with the order and was exploring various legal and technical options to ensure that the Apple Watch remains available to customers. The Biden administration did not immediately provide any comment on Apple's appeal.

Kiani expressed his willingness to sell Apple a chip that Masimo had developed for pulse oximetry readings on the Apple Watch. This chip is currently used in Masimo's medical watch, called the W1, which has received approval from the Food and Drug Administration (FDA). The device, using algorithms to process light, determines the oxygen levels in the blood. Kiani stated that if Apple declined to use their chip, he would work with them to develop an alternative solution. Once the product meets their standards, Kiani would be happy to grant Apple a license.

It is worth noting that although Apple introduced pulse oximetry technology to its watches in 2020, the company's devices have not been officially cleared by the FDA for use as medical devices for pulse oximetry. However, this feature, referred to as "blood oxygen" by Apple, has since been included in subsequent watch models.

The Apple Watch is a significant contributor to the company's annual sales, generating nearly $20 billion out of Apple's total annual revenue of $383.29 billion, according to Bernstein Research. Apple is also the leading seller of smartwatches globally, accounting for approximately a third of all smartwatch sales, as reported by Counterpoint Research.

Apple has a history of successfully persuading presidents to veto ITC rulings. In 2013, the Obama administration overturned a ban on the sale of certain iPhone and iPad models following a patent dispute with Samsung.

As a result of the ongoing patent dispute, Apple confirmed that it would suspend sales of the Series 9 and Ultra 2 smartwatches in the United States from December 21 on its website, and from retail stores after December 24. However, other Apple Watch models unaffected by the dispute will remain available for purchase. Ryan Reith, program vice president at research firm IDC, believes that holiday sales of Apple Watches in the US will not be significantly impacted, with the full consequences of the ruling expected to be felt in January and February, traditionally slower months for Apple. Reith also pointed out that Apple has sufficient inventory of its Watch 8 and SE models to meet the demand during this period.

Globally, Apple commands around a quarter of the smartwatch market share, according to Counterpoint Research. However, this share tends to increase to over a third during the fourth quarter due to the holiday sales seasons in the United States and Europe. Notably, both the Series 9 and the Ultra 2 will still be available for purchase outside of the United States, including during the Lunar New Year season in Asia.

Apple maintains that the ITC's finding was incorrect and should be reversed, and the company plans to appeal the decision to the Federal Circuit. Masimo has accused Apple of not only hiring its employees but also stealing its pulse oximetry technology and incorporating it into the Apple Watch. A jury trial on Masimo's allegations in California federal court ended in a mistrial in May. Additionally, Apple has sued Masimo for patent infringement in a federal court in Delaware and referred to Masimo's legal actions as an attempt to clear a path for its own competing smartwatch.

The last time a presidential administration vetoed an ITC ruling was in 2013, when the Obama administration overturned an import ban on Apple's iPhones and iPads resulting from a patent dispute with Samsung. In February, the Biden administration chose not to veto a separate import ban on Apple Watches arising from a patent infringement complaint filed by medical technology company AliveCor. However, the ITC has temporarily suspended this ban for other reasons.

Apple's revenue from its wearables, home, and accessories segment, which includes the Apple Watch, AirPods, and other products, amounted to $8.28 billion in the third quarter of 2023, according to the company's report.