Shares of Masimo Corp. (NASDAQ:MASI) gained over 9.5% in early trading Friday after announcing the U.S. International Trade Commission found that tech giant Apple (NASDAQ:AAPL) violated U.S. laws by incorporating Masimo's patented light-based pulse oximetry technology in its Apple Watches. The commission has recommended a limited exclusion order for the infringing Apple Watches. The determination will now proceed to a 60-day presidential review phase, where the Biden administration will assess it.
“Today’s ruling by the USITC sends a powerful message that even the world’s largest company is not above the law,” said Joe Kiani, Founder, Chairman, and CEO of Masimo. “This important determination is a strong validation of our efforts to hold Apple accountable for unlawfully misappropriating our patented technology,” added Mr. Kiani.
Analysts from BTIG called this a "significant win" for Masimo and put it in a more favorable position for a potential settlement with Apple.
"We think there remains upside potential for the stock for settlements, royalty payments, or other monetary-based agreements," the analysts added as they reiterated a Buy rating and $150 price target.
The analysts added that for next steps in the decision, they expect that the Biden administration takes no action to prevent the exclusion order issued by the commission from going into effect. Meanwhile, Apple can appeal to the court of appeals for the federal circuit. Appeals can take anywhere from 15-18 months, but the exclusion order would be in effect during this period.
From there, the analysts see five potential outcomes if President Biden takes no action. "1) Apple does nothing and the exclusion order goes into effect. 2) The two parties reach a settlement. 3) Apple de-features the watch by removing or disabling the pulse-ox feature. 4) Apple has a design around (unclear to us if they have one). 5) We see the two parties enter into a partnership."
If Masimo is ultimately successful, analysts from Needham & Company think Apple might be forced to pay it royalties. They estimate that the royalties could be $1-2 per Apple Watch which would total $50-100 million of annual revenue or $0.65-1.30 of EPS based on annual sales of 50 million Apple Watch units.