Apple's Legal Tussle over Talent and Trade Secrets Takes on New Meaning in the AI Era

In a trade secrets suit between Apple and medtech company Masimo over smartwatch technology, the Silicon Valley talent war is taking center stage against the backdrop of an AI boom and national dialogue around noncompete clauses.

In April, a federal jury was tasked with deciding a case alleging that Apple poached top talent from Masimo and used its technology to develop a blood-oxygen monitoring sensor for the Apple Watch. The jury came back one juror short of a consensus, resulting in a mistrial last week.

But the case is about more than smartwatches; it’s also about what tech employees take with them when they leave a job, something that’s increasingly important as Big Tech workers decamp for AI startups.

“Part of the battle here is over people,” UC San Francisco law professor Robin Feldman, who heads up the UC Law SF Center for Innovation, said. “The talent is in the person, and these battles are about the extent to which you can control the person,” she added.

And the stakes of those battles are heightened thanks to the rapid growth in artificial intelligence.

“In the field of AI…what matters is knowledge in the form of data and in the form of personnel,” she said. “In the context of AI, these trade secret-like cases may become more central.”

A new twist on an old story

Masimo sued Apple in California federal court in 2020, accusing it of luring away key employees and misusing confidential information. According to the suit, Apple and Masimo met in 2013 at Apple’s request to discuss integrating Masimo’s technology into Apple products, and the two eventually entered into a confidentiality agreement. Instead of teaming up, Apple hired away two high-level executives as a way to gain access to Masimo’s work, the suit alleged.

The California lawsuit is but one round in a broader battle between the two companies. In 2021, Masimo filed a patent-infringement complaint with the US International Trade Commission, seeking to block imports of the Apple Watch. And last year, Apple sued Masimo in federal court in Delaware, alleging patent infringement. Those cases, also about the Apple Watch, are still pending.

James Pooley, a trade secrets expert and attorney who has represented companies including Adobe, GE, and Qualcomm, said the high-profile (and high dollar value) nature of the Apple case is part of the reason issues like talent poaching are being explored so thoroughly.

“Cases like this have many dimensions,” Pooley said. “You get treated to a number of different issues that wouldn’t necessarily come up in cases where people couldn’t afford to turn over every rock and assert every possible argument.”

For Pooley, the Apple case illustrates an age-old Silicon Valley adage.

“There’s the story of the small-time innovator, Masimo, versus Apple, which has an innovation factory,” Pooley said. And in that David and Goliath scenario, the question, he said, becomes, “Who is the innovator?”

Feldman noted that efforts to manage the flow of talent and knowledge aren’t limited to Big Tech. “The battle is playing out in Silicon Valley in cases like this, but also in government efforts,” she said, pointing to attempts to ban noncompete clauses.

“What’s happening in this case and in the Valley reflects strongly on those types of efforts,” she added.