'This is a mess': Masimo trade secrets trial reveals details of Apple Watch development
Top executives with the world's first trillion-dollar company are expected to testify in the high-stakes civil trial underway in U.S. District Court in Santa Ana, California.
Shortly after his colleague met with the co-founder of the medical technology company Masimo Corp. in 2013, Apple Inc. executive Bob Mansfield bluntly suggested their next move: “Why don’t we just acquire it?”
Adrian Perica, then Apple’s head of mergers and acquisitions, seemed to share Mansfield’s vision when he replied, “I agree with the thoughts below” and said Masimo CEO Joe Kiani “could be the health and wellness leader we’re looking for.”
But the tech giant never ended up offering Kiani a job. Instead, Apple hired away some of Kiani’s star employees, and they went on to help launch the Apple Watch in 2015.
Now a federal trade secrets trial underway in the Central District of California’s Santa Ana courthouse is detailing how the world’s first $3 trillion company developed its latest innovation blockbuster, and it’s offering a rare peek inside a global powerhouse known for strict secrecy.
Michael O’Reilly, a former Masimo employee now working on health-related special projects for Apple, is in the middle of it. A medical doctor and university professor, he is expected to take the stand along with other top executives, including Perica, now Apple’s vice president of corporate development. Mansfield also is expected to testify: Apple’s former senior vice president of technologies, he’d moved to a leadership role focused on Apple’s future projects when he authored the emails shown to jurors last week.
Another billion-dollar Apple battle for WilmerHale
The specifics of the alleged trade secrets in Masimo’s lawsuit are subject to a protective order issued by Senior U.S. District Judge James V. Selna, and anyone not included in the order must leave the courtroom for related testimony. But other key evidence is being presented in open court, including Mansfield’s May 2013 email to Perica and other internal Apple communications that Kiani’s lawyers say support their argument that the company had nefarious hiring intentions when it targeted Masimo employees.
It’s another chapter in a series of high-stakes battles led by Apple’s go-to law firm, Boston-based Wilmer Cutler Pickering Hale and Dorr LLP. Partners Joseph Mueller and Mark Selwyn were part of the worldwide patent litigation blitz with Samsung Electronic Co., Ltd. that sought control of the smartphone and tablet markets 10 years ago, and they’re presenting another top-dollar case to try to defend against Masimo’s claims.
They’re up against a team from Irvine-based Knobbe Martens LLP, with partner Joseph Re emphasizing Masimo’s Orange County roots to the jury of all women during opening statements on March 29. Re also said the case is hardly one of David v. Goliath: Masimo was atop the medical technology field when Apple started developing the Apple Watch in February 2012. “They’re entering a field they know absolutely nothing about,” Re said.
Through the lawsuit, Masimo is seeking co-ownership of five Apple patents issued in 2019 that the company argues were either obtained using trade secrets stolen from Masimo or are partial products of Masimo inventors. The company spent decades developing noninvasive blood-monitoring technology that’s made it “the world leader in detecting constituents in the blood,” Re said. Masimo released its own watch for consumers in 2022.
Re didn’t mention a specific amount of money Masimo is seeking from Apple — a hired expert will be testifying — but he told the jury Apple’s revenue is “astronomical.”
“They’re very successful. The number of watches — it’ll blow your mind away,” Re said, adding that he “won’t mention them in open court.”
Mueller told the jury Masimo is seeking $3.1 billion.
“That would be an outlandish amount of money if there were actually trade secrets apportion,” Mueller said. But there isn’t, he said, making Masimo’s request “an enormous sum of money without any factual basis for it.”
‘On current path, the sensor effort will fail’
Mueller said Masimo is accusing Apple of “concocting a scheme” to steal ideas from the company and its affiliate, Cercacor Laboratories, Inc., when in reality, “Apple and the folks at Apple did not steal a thing from Cercacor or Masimo.”
“And you won’t need to take it from me,” Mueller said. “We’ll bring in the folks who wrote those emails and received those emails … to talk about what actually happened.”
That includes Mansfield, a 25-year Apple employee who reports to CEO Tim Cook and lamented in a 2013 email about their Apple Watch efforts, “On current path, the sensor effort will fail.”
Mansfield sent it after Perica told him he’d spoken with Cook about acquiring Masimo, but that “Tim is not interested given the overall product profile” because Masimo designs products for medical providers while Apple focuses on general consumers.
Re tried to drive home to the jury that Cook’s disinterest in acquiring Masimo didn’t mean that Apple didn’t still need help: Mansfield later said in an email that the “team involved me in review of sensor designs yesterday” and “frankly, I think this is a mess.” (UPDATE: I saw the email on the gallery monitor later in trial, and the exact quote is “frankly, I think it is a mess.”)
“This is better than anybody’s memory. The emails last. The documents don’t lie. There’s no memory needed for what’s going on in these emails,” Re told the jury.
The emails between Mansfield and Perica that Re displayed were sent in the months before O’Reilly left Masimo to become Apple’s vice president of medical technology in July 2013. Re said O’Reilly had been Kiani’s “confidant” at Masimo, but he’d told Kiani that Apple offered him an extraordinary compensation package that paid twice what he was earning at Masimo and included $5 million in stock investments and a bonus double what Masimo offered. (Update: Testimony later in trial put the stock value at $2.5 million, not $5 million.)
“I was very saddened, and I was disappointed and thought maybe this is also the end of our relationship with Apple,” Kiani testified last week. However, he said O’Reilly assured him that Masimo and Apple would grow closer “by him being there.”
“He bragged that he interviewed with Tim Cook,” Kiani testified.
The bad news continued. A few months after O’Reilly joined Apple, another of Kiani’s key innovators jumped ship: Marcelo Lamego, Cercacor’s chief technical officer.
Jurors last week saw firsthand how Lamego emailed Cook directly before he did so, writing, “I strongly believe I can help develop medical technology to help make Apple No. 1 in medical and wellness,” Re said, reading aloud an email displayed on the courtroom TV screens.
“Nobody knew this was happening other than Mr. Cook and Mr. Lamego,” Re told the jury. “He’s bargaining with Mr. Cook.”
Cook forwarded Lamego’s email to O’Reilly, who quickly vouched for his former colleague.
“I know him well. He would be an incredible addition to the team,” O’Reilly replied.
But, O’Reilly warned Cook, “Most of his knowledge that would be directly applicable may be considered confidential information of Cercacor or Masimo.”
‘Their jaws are dropping right now’
The Knobbe Martens team obtained the internal Apple emails that Re displayed through the civil discovery process, but Re told the jury that Kiani and other Masimo employees didn’t see them before trial. They saw them for the first time as they sat in the gallery for Re’s opening.
“Just imagine the Masimo people in the room,” Re told the jury. “Their jaws are dropping right now. They hadn’t seen these.”
Lamego joined Apple in January 2014, but his stay was short: Kiani testified that someone told him Lamego quit because he’d been asked to violate his confidentially requirements with Masimo.
“At the time, I was happy that he had not spilled our confidential information,” Kiani testified.
Apple’s lawyers objected to the hearsay testimony regarding why Lamego left Apple, but Judge Selna allowed it not for the truth of the matter but to establish Kiani’s state of mind. Part of Apple’s defense is that Masimo’s claims are beyond the statute of limitations, so Masimo’s lawyers want to show the jury why they didn’t sue until January 2020.
Kiani testified that while O’Reilly and Lamego joined Apple in 2013 and 2014, he trusted they weren’t sharing Masimo’s secrets until he noticed patents issued for Apple in October 2019 “and it was on our stuff.”
Kiani also criticized the accuracy of Apple’s products, which Mueller pressed him about in cross-examination.
“You’re accusing Apple of taking ideas you claim rely on precision and reliability and at the same time saying these are not precise or reliable products?” Mueller asked
“That’s correct,” Kiani answered.
Mueller emphasized that Kiani’s May 3, 2013, meeting with Perico at Apple’s Cupertino, California, headquarters was an introductory meeting that didn’t produce a formal agreement, and no trade secrets were revealed. He also reminded Kiani about his ongoing friendship with O’Reilly after O’Reilly joined Apple.
In 2016, when O’Reilly’s wife was sick with the cancer that eventually killed her, Kiani emailed him recommending an oncologist.
"It’s your position in this case that that same gentleman — Dr. Reilly — lied to you and misappropriate trade secrets?” Mueller asked.
“Yes. Unfortunately,” Kiani answered.
The trial is expected to last another two weeks. Check out my Twitter page for updates from Judge Selna’s courtroom, and stay tuned for more articles.
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