Apple Faces Billionaire Khosla in Goliath v. Goliath Tech Suits
IPhone maker, VC veteran are fighting for heart-health tracking market
There's an unwritten rule for technology startups: Never challenge Apple in court if you want to survive.
The world's most valuable company has a track record of success in a long string of David versus Goliath battles over cutting-edge, life-changing technologies. But billionaire Vinod Khosla is no lightweight. He's one of Silicon Valley's most celebrated venture capitalists, and he's used to playing long odds on the startups he backs.
Khosla Ventures LLC put itself on a collision course with Apple Inc. when it moved into the personal health and fitness space a decade ago and invested in AliveCor, a maker of cardiac monitoring devices and software. What might have been a big partnership opportunity for AliveCor in the years following the release of the Apple Watch in 2015, to offer watch bands that monitor heart health, has turned into a messy court fight.
Now, instead of riding Apple's coattails as a prominent player in the wearable medical device market, forecast to grow to $132.5 billion by 2031, AliveCor's Food and Drug Administration-approved technology is inaccessible to the tens of millions of people who buy Apple Watches every year.
The startup is in its third year of trying to prove to judges that the iPhone maker brazenly copied its heart-monitoring technology and sabotaged AliveCor's ability to offer its own product on the Apple Watch. Apple has parried with claims that its smaller rival's patent-infringement and antitrust claims are meritless — and with counterattacks alleging that AliveCor is the imitator.
“We made it a battle because we can,” Khosla told Bloomberg News. “I think it's really important that they not bully people and so we decided to make it a public battle.”
Khosla is famously tenacious. In 2018, he fought all the way to the US Supreme Court to block public access to a Pacific beach he owns 30 miles south of San Francisco — and five years after he was rebuffed, he's soldiering on in a local court.
So is AliveCor, which recently prevailed over Apple at the White House when President Joe Biden declined to veto a ruling by a trade court in Washington that could theoretically bar imports of the Apple Watch. But that ban won't take effect unless AliveCor wins long-shot appeals on some contested patents.
AliveCor traces the dispute back to 2015, when it says its co-founder, David Albert, was invited by Apple executives to show off its heart-monitoring device, dubbed the KardiaBand, and was told the iPhone maker intended to collaborate.
Apple says the meeting was like hundreds of others it has hosted with developers over the years, with no pretense of a partnership.
After 18 months of discussions, in “a clear attempt to steal AliveCor's thunder,” Apple announced its own heart health initiative for the Apple Watch a few hours after AliveCor informed the technology company of the official launch date of its band, AliveCor later claimed in a lawsuit.
Over the next few years, as Apple updated the Watch operating system, no other service was allowed to offer heart-rate monitoring on the device because of the company's “concentrated campaign to corner the market,” AliveCor said in its antitrust complaint filed two years ago in federal court in Oakland, California.
The skirmish over patents kicked off in 2020 when AliveCor filed an infringement suit against Apple in Texas. Apple fired back and won a ruling from a US Commerce Department patent board invalidating three AliveCor patents critical to its technology as undeserving of legal protection in the first place. AliveCor escalated the dispute to a federal appeals court — which may not reach a decision until next year.
“As a practical matter Apple has the upper hand, given its massive war chest.”
Apple says it has done nothing wrong and denies Khosla's claims that it bullies smaller companies. Apple said it partners with companies, institutions and organizations to support advances in science and medicine and that its technology has led to better patient outcomes and health savings at hospitals and clinics.
“We deeply respect intellectual property and innovation and do not take or use confidential information from other companies,” the company said in a statement. “We will continue to protect the innovations we advance on behalf of our customers against false claims.”
Apple said any claims by AliveCor that it was cut off from accessing user data are a result of the startup's decision not to tweak its technology to fit more precise heart health reporting on the Apple Watch. A ruling on Apple's request for dismissal of the antitrust claims is expected soon. If Apple doesn't prevail at this stage, a trial is set for 2024.
AliveCor Chief Executive Officer Priya Abani describes her company as “thriving,” saying it has sold 2.5 million devices, offers a subscription service and has won regulatory clearances in 42 countries.
But legal experts are skeptical that AliveCor can win its crusade to prove Apple illegally blocked its technology from the Apple Watch, or even collect royalty payments from its adversary.
“In an ideal world, the smaller companies would have the upper hand, but today as a practical matter Apple has the upper hand, given its massive war chest,” said Adam Mossoff, a law professor at George Mason University in Arlington, Virginia.
Medical-device maker Masimo Corp. finally got a trial three years after accusing Apple of using stolen trade secrets for a blood-oxygen sensor in the Apple Watch. But in early May, after a jury in southern California told a judge it was leaning 6-1 in favor of Apple, the judge declared a mistrial when it became clear a unanimous verdict wasn't coming.
If AliveCor emerges victorious it would reverse the trend in which startups that claim they've been burned by Apple typically get crushed by the giant in court.
Khosla Ventures has invested in five of six financing rounds held by AliveCor, which has raised nearly $154 million, according to Crunchbase. A spokeswoman for Khosla Ventures said the firm is one of AliveCor's largest investors, but declined to provide details.
Khosla, who is the chairman of AliveCor's board, declined to comment on whether the company is getting help paying its legal bills.
“We don't back litigation,” Khosla said of his VC firm. “There's plenty of people who back litigation. They have to make sure you have a good case before they back the litigation.”
AliveCor weighed the impact the legal fight would have on its bottom line but decided that “we have to fight for our rights,” Abani said. “Because if we let this one go, what is to say the next thing we innovate, they're not going to come and grab that?”
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