Joe Kiani, cofounder and CEO of med tech company Masimo, opens up about the company’s ongoing legal battle with Apple over alleged patent infringement and trade-secret theft, as well as the proxy battle he's currently embroiled in with his board. Note: Apple continues to deny Masimo’s IP claims.
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00:00 I'm guessing your affiliation has changed a little bit.
00:05 Yeah.
00:06 Let's just say I don't buy Apple products anymore.
00:09 Welcome to Leadership Next, the podcast about the changing rules of business leadership.
00:14 I'm Alan Murray.
00:15 And I'm Michal Evron.
00:18 I started Mastimo in 1989 in my condominium that had an attached garage.
00:25 So I guess it was a real garage startup.
00:28 I had just gotten my master's in the area of adaptive filters and AI signal processing.
00:36 And before starting Mastimo, I had a consulting job where I was working for another company
00:43 to make a low cost pulse oximeter.
00:47 While I was trying to develop this cheap pulse oximeter for them, I realized when I moved
00:52 with the probe on my finger, my oxygen saturation would go from 98 to 100 percent, 70 or 60
00:59 percent.
01:00 And I knew my physiology hadn't changed.
01:02 It was just a small motion of my hand.
01:05 I set out to solve that problem.
01:08 I knew about a class of filters known as adaptive filters that could figure out what frequencies
01:16 to let in and what frequencies to block, kind of like your noise canceling headphones.
01:22 And I thought I could use that to get rid of this in-band noise where my motion was
01:26 in the same bandwidth as the signal we were looking for.
01:30 I took a $40,000 loan on my condominium and then friends and family invested another $80,000
01:38 several months later.
01:40 And with that, we created Mastimo.
01:42 And today we're a publicly traded company with nearly $2 billion in revenue and about
01:47 10,000 employees.
01:48 I'm going to ask you the Apple question.
01:51 I know your company, you and your company have come up against some pretty significant
01:56 challenges.
01:58 And I want to hear, again, a little bit of an origin story of just the legal battle with
02:05 Apple and how that started.
02:07 Take us back if you don't mind.
02:09 We introduced a product called ISPO2, which was the first pulse oximeter for the smartphones.
02:14 A few months later, we got a call from Apple saying, "Hey, we want to meet with you.
02:20 You guys are the platinum of non-invasive monitoring.
02:23 And we'll sign an NDA.
02:25 Come tell us everything.
02:26 We want to work with you."
02:27 So I was excited.
02:28 I really wanted to work with Apple.
02:31 And I went there personally with a couple of my team members and spent half a day with
02:36 them.
02:37 The meeting went really well, and I thought we're going to work together.
02:41 But unfortunately, a few months later, I learned that they're trying to recruit my team.
02:46 They ended up taking 25 of my team members, our CTO.
02:51 Fast forward in 2019, I saw six patents issued to Apple, all on pulse oximetry, all with
03:00 our chief technical officer that used to work for our sister company, Willow, CircleCore.
03:07 And one of the disclosures, well, all of them were on our stuff.
03:11 One of them was a trade secret.
03:12 It wasn't even something we patented.
03:14 So at that point, we decided to sue them for trade secret and later patent infringement.
03:20 Fortunately, it's not...
03:23 I can't say it's the happy ending because we're not done done yet, but we got a win,
03:28 a major win at the ITC.
03:30 Apple's watches with pulse oximetry were enjoined in the US, and they're appealing it.
03:37 I don't think they're going to win the appeal.
03:39 We have a really strong case.
03:42 But we're waiting for that.
03:44 That's probably about a year away, but there's still a couple of trials left to go.
03:48 And hopefully we'll ultimately get our justice.
03:52 There's this ongoing proxy battle now, which we can get into.
03:56 I'm sure you love this topic.
03:59 But tell me first about the acquisition, because it's a really interesting one for you guys.
04:04 I mean, audio in general, which you just talked about, I think would surprise some people.
04:08 But how did the acquisition come about for Sound United?
04:12 We've been working on our wearables and the hearables for many, many years, maybe 15 years
04:19 as it was emerging, ready to come out.
04:22 We tried to create our own team, president of consumer business, Salesforce, and it was
04:30 daunting, slow.
04:33 And finally, one of our board members, Julie Shimer, she said, "Joe, if you really are
04:38 serious about these products, you're going to have to acquire a company that's already
04:42 in the consumer space."
04:43 We ended up buying Sound United because it had not only some of the features we were
04:48 looking for, a team that had a focus on sales and marketing to consumers, about 300, 400
04:54 people, engineering team that was really good at audio, and we were getting into the hearables,
05:00 so we wanted that.
05:02 But they also had relationships across the world with retailers in the consumer space,
05:09 like Best Buy.
05:10 We ended up buying them for about one-time revenue with positive cash flow.
05:15 It was non-diluted from day one, and we loved some of the products they had.
05:20 They were iconic brands, high-end brands that we thought would sustain for maybe a century
05:26 if needed to.
05:27 Your shareholders weren't as enthusiastic about this acquisition.
05:31 Did that catch you by surprise?
05:33 What did you make of it?
05:34 It did.
05:35 It did, because I'm not new to this.
05:38 We're celebrating our 35th anniversary, and it's not the first time I've took on a giant,
05:44 and we beat them, and we won.
05:47 So I believed my track record would put them at ease, that I haven't lost my mind.
05:53 There's a new large opportunity.
05:55 We're going to go from a $10 billion TAM, total available market, to a $150 billion
06:00 TAM, and with good reasons why we should be a major player in those spaces, like continuous
06:08 monitoring.
06:09 Why do people buy these wearables?
06:12 Most of the time, they're buying it for the health sensing.
06:15 There's about a third of the population that buy these smart watches that have chronic
06:19 illnesses.
06:20 So I thought once we explained where we're going, and I knew we're going to consumer
06:25 space, and they understood why we bought it, they would appreciate it.
06:30 Unfortunately, yeah, you're right.
06:33 They did not.
06:34 I think I learned the hard way that while we have some shareholders that may have been
06:39 with us for a decade, they make that decision on an annual basis.
06:43 It's not like they decide they're going to be in it for 10 years.
06:45 If it keeps raising, the price goes up on the stock 10, 15% a year, they're happy, and
06:50 they keep staying in your stock.
06:51 They didn't want to take a step back, jump 10 steps forward.
06:56 So I think there's a mismatch.
06:58 I run Massimo as though it's going to be around another 100 years, and I need to figure out
07:02 how to make sure it's there 100 years from now.
07:05 And I think our investors invest in Massimo thinking about the year ahead.
07:10 And that kind of took them, I think, out of that mode because they knew there'd be some
07:15 investment period before we would come out with great results.
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