By Mark Gurman | Bloomberg
Apple Inc. will stop selling the latest versions of its smartwatch in the US due to a patent dispute, taking the devices off the market in the middle of the busy holiday season.
Sales of the Apple Watch Series 9 and Ultra 2 will be halted on the company’s online store on Dec. 21 and at its physical retail stores beginning on Christmas Eve, it said in a statement.
The move comes ahead of the anticipated import ban of Apple Watch models with a blood oxygen sensor first added to the lineup in 2020 stemming from a legal battle with Irvine-based Masimo Corp.
The International Trade Commission ruled in October that Apple violates Masimo patents and would need to halt sales of infringing devices. The patents relate to an Apple Watch app that allows the device to calculate a person’s blood oxygen saturation.
A presidential review of that order is now underway. “While the review period will not end until Dec. 25, Apple is preemptively taking steps to comply should the ruling stand,” the company said.
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Health features have become increasingly critical selling points for the Apple Watch, putting the company in competition with medical device makers. Masimo sells a range of health monitoring technology.
The Apple Watch Series 9 and Ultra 2 generate the vast majority of the company’s watch sales. Apple doesn’t say how much revenue the product line brings in, but it’s a core part of its Wearables, Home and Accessories business, which generates more than $40 billion a year.
The news, previously reported by 9to5Mac, sent the shares down 1.3% in New York on Monday. The stock had reached a record high last week. Masimo gained 3.5%.
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The devices will be removed from Apple’s online store at 3 p.m. New York time on Thursday. Apple said there will be no impact to watches already sold to customers. The SE model, which lacks the blood oxygen feature, also remains on sale. The company said it would provide more information on Dec. 25 as the review period concludes.
The need for Apple to stop selling a core product in the US is unprecedented, especially during the company’s most important quarter. In the past, Apple has had to halt sales of older iPhones in places like Germany due to patent issues. In the US, the ITC has ruled before on other Apple disputes, including one with Samsung Electronics Co. over the iPhone and iPad. In that case, President Barack Obama stepped in to overturn a ban.
An Apple spokesperson said that the ruling from the ITC is erroneous and should be reversed. The company plans to appeal the decision.
Given that the issue is related to hardware patents, Apple can’t quickly resolve the dispute with a software update a tactic it has used in the past. If Apple doesn’t win on appeal or by presidential intervention, it’s unclear how long it would take for the company to redesign the devices to not violate the Masimo patents.
The company’s devices will continue to be sold via many third-party retailers, which could help buoy Apple’s fiscal first-quarter sales. In some cases, Apple products generate higher sales volume at outside retailers than through its own channels.
The Cupertino-based company operates about 270 stores in the US. Apple previously said its first-quarter revenue would be in line with last year. That suggests that the Apple Watch disruption could be the difference between revenue growing for the first time in a year or declining again. Already, the company’s sales have dropped for four straight quarters the longest such streak in two decades.
Apple has been preparing its retail outlets for the disruption in recent days, sending stores new signs that advertise its watches without showing specific photos of the Series 9 and Ultra 2. Given that the halt doesn’t officially go into effect until next Monday, the Biden administration could still step in at the eleventh hour and prevent it.
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