In a major victory for Masimo, the U.S. International Trade Commission (USITC) has ruled that Apple violated patent laws by incorporating Masimo's pulse oximetry technology into its Apple Watch. As a result, Masimo's stock (MASI) surged by 5.3% to $85.10, while Apple's stock (AAPL) also rose 1% to $168.60.

Masimo, a leading manufacturer of pulse oximeters used in hospitals, employs a unique "signal extraction technology" (SET) to measure blood oxygen saturation levels. The USITC's decision has sparked speculation about the potential financial impact on Apple, with analysts predicting a potential loss of $100 million in annual sales.

The ruling, which prevents Apple's infringing devices from being imported into the U.S. for a 60-day period, signifies that even the tech giant is not above the law. Masimo's Chief Executive, Joe Kiani, hailed the decision as a "powerful message" and a validation of their efforts to hold Apple accountable for unlawfully misappropriating their patented technology.

While Masimo anticipates a 4.5% decrease in SET sales to $276 million for the third quarter, the potential for royalties from Apple could offset this decline. As the legal battle unfolds, experts suggest that Apple may be required to pay royalties of $1 to $2 per Apple Watch unit if unable to modify the device to avoid further infringement. This could result in annual revenue of $50 million to $100 million for Masimo, equivalent to earnings per share of 65 cents to $1.30 based on the assumption of 50 million Apple Watch units sold annually.

However, it is likely that Apple will appeal the decision, which would temporarily suspend the exclusion order. The Biden Administration will also review the ruling during this period.

The outcome of this patent battle carries significant implications for both Masimo and Apple. As Masimo emerges triumphant, securing its intellectual property rights, Apple faces potential financial setbacks and the need to reassess its usage of Masimo's patented technology. The technology giant may need to find new ways to incorporate pulse oximetry capabilities into its products or negotiate licensing agreements with Masimo to continue using the technology in question.

The impact of this ruling extends beyond mere financial repercussions, highlighting the importance of intellectual property rights and fair competition in the tech industry. The outcome sets a precedent for other tech giants to respect and uphold the laws surrounding patents, demonstrating that even the largest companies are not exempt from legal consequences.

As the legal battle between Masimo and Apple unfolds further, the tech and healthcare industries eagerly await the next chapter in this saga, where the resolution will determine the future course for both companies involved.