In a recent development, a federal appeals court has decided to revive a U.S. sales ban on Apple's premium watches while it referees a patent dispute revolving around a sensor. This decision raises concerns that Apple may have to pull the devices from stores for the second time in less than a month. The ruling, issued on Wednesday by the U.S. Court of Appeals in Washington, comes three weeks after it initially blocked the ban, which had allowed Apple to resume sales of the two internet-connected watch models, the Series 9 and Ultra 2. These models had been embroiled in an intellectual-property fight with medical technology company Masimo.

The dispute began when the International Trade Commission (ITC) ruled in late October that a blood-oxygen sensor in the Apple Watch models infringed on Masimo's patents. As a result, Apple temporarily ceased sales of the Series 9 and Ultra 2 in late December. However, the company obtained a short-lived reprieve from the appeals court, which allowed them to resume sales. Apple is still attempting to persuade the federal appeals court to overturn the ITC's ruling, but the recent decision means that the company is no longer protected from the U.S. sales ban.

The appeals process is expected to take at least a year, which means that Apple will be forced to stop selling its latest watch models in the U.S. through 2024, or potentially redesign the devices to comply with the ITC's ruling. In a court filing on Monday, Masimo disclosed that Apple has received approval from the U.S. Customs and Border Protection for revisions that would remove the blood-oxygen sensor from the watches. Apple has not yet commented on how it plans to respond to the appeals court decision, which reinstates the U.S. sales ban on the Series 9 and Ultra 2 watches at 2 p.m. Pacific Time on Thursday.

Apple could potentially negotiate a settlement with Masimo that would allow them to continue selling the Apple Watch models with the blood-oxygen sensor. However, in its appeal, Apple has dismissed the notion that its watches rely on Masimo's patented technology, making a truce unlikely. The sales ban on the Series 9 and Ultra 2 watches will not prevent Apple from continuing to sell its less-expensive model, called the SE, which does not have a blood-oxygen sensor. Nevertheless, the blood-oxygen sensor has been a significant feature in Apple's marketing of the watches as life-saving tools to monitor users' health.

The potential removal of the blood-oxygen sensor would be a significant change for Apple, as it has been a key part of their efforts to position the devices as health-monitoring tools. Apple's annual sales amount to $383 billion, and although the company does not disclose the volume of Apple Watch sales, analysts estimate that the product contributes approximately $18 billion in annual revenue. Masimo argues that the U.S. sales ban on the Apple Watch models will not significantly harm Apple, as the majority of the company's revenue comes from the iPhone. Masimo has also portrayed Apple as a corporate bully engaged in the theft of intellectual property widely used in hospitals and other healthcare settings that treat around 200 million patients annually.

Apple has indicated that it is prepared to remove the blood-oxygen sensor from its internet-connected watches if the court does not provide more leeway while it pursues its bid to overturn the ruling. Masimo, in a court filing on Monday, revealed that a potential redesign of the Series 9 and Ultra 2 models, excluding the blood-oxygen sensor, has been approved by the U.S. Customs and Border Protection. The document did not disclose the specific method Apple plans to use to remove the sensor, but analysts speculate that it could be done through a software update.

Masimo won a favorable ruling from the ITC in late October, leading Apple to temporarily halt sales of the Apple Watch models with the blood-oxygen sensor just before Christmas. However, Apple filed an appeal of the ruling, resulting in an order that allowed the models to return to stores shortly after Christmas while the appeal is under review. The Court of Appeals in Washington is expected to decide whether to extend the stay later this month. If the stay is extended, the Series 9 and Ultra 2 can continue to be sold with the blood-oxygen sensors. However, the appeals process will likely take at least a year, requiring an extended stay for Apple to continue selling the watches with the blood-oxygen sensors.

Apple has not commented on the court filing revealing its plans to remove the blood-oxygen sensor if the stay is not extended. In their arguments filed with the appeals court, Masimo and Apple have presented contrasting views on the technology involved in the dispute. Masimo portrays itself as a pioneer in blood-oxygen sensors on wearable devices, alleging that Apple began luring away its employees as early as 2013. Masimo claims that when Apple introduced a watch with a blood-oxygen sensor in September 2020, the technology was unreliable and could harm its reputation and sales of its W1 medical watch. On the other hand, Apple denies infringing on Masimo's technology, which has limited availability to consumers.