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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | 24. Commitments and Contingencies Employment and Severance Agreements In July 2017, the Company entered into the First Amendment to the certain Amended and Restated Employment Agreement entered into between the Company and Mr. Kiani on November 4, 2015 (as amended, the Amended Employment Agreement). Pursuant to the terms of the Amended Employment Agreement, upon a Qualifying Termination (as defined in the Amended Employment Agreement), Mr. Kiani will be entitled to receive a cash severance benefit equal to two times the sum of his then-current base salary and the average annual bonus paid to Mr. Kiani during the immediately preceding three years, the full amount of the Award Shares (as defined in the Amended Employment Agreement) and the full amount of the Cash Payment (as defined in the Amended Employment Agreement). In addition, in the event of a Change in Control (as defined in the Amended Employment Agreement) prior to a Qualifying Termination, on each of the first and second anniversaries of the Change in Control, 50% of the Cash Payment and 50% of the Award Shares will vest, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date; however, in the event of a Qualifying Termination or a termination of Mr. Kiani’s employment due to death or disability prior to either of such anniversaries, any unvested amount of the Cash Payment and all of the unvested Award Shares shall vest and be paid in full. Additionally, in the event of a Change in Control prior to a Qualifying Termination, Mr. Kiani’s stock options and any other equity awards will vest in accordance with their terms, but in no event later than in two equal installments on each of the one year and two year anniversaries of the Change in Control, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date. On January 14, 2022, the Company entered into the Second Amendment to the Amended Employment Agreement (the “Second Amendment”) with Mr. Kiani. The Second Amendment provides that the RSUs granted to Mr. Kiani pursuant to the Amended Employment Agreement will vest in full upon the termination of Mr. Kiani’s employment with the Company pursuant to Mr. Kiani’s death or disability. As of December 31, 2022, the expense related to the Award Shares and Cash Payment that would be recognized in the Company’s consolidated financial statements upon the occurrence of a Qualifying Termination under the Restated Employment Agreement was approximately $664.3 million. As of December 31, 2022, the Company had severance plan participation agreements with six executive officers. The participation agreements (the Agreements) are governed by the terms and conditions of the Company’s 2007 Severance Protection Plan, which became effective on July 19, 2007 and which was amended effective December 31, 2008. Under each of the Agreements, the applicable executive officer may be entitled to receive certain salary, equity, medical and life insurance benefits if he is terminated by the Company without cause or if he terminates his employment for good reason under certain circumstances. Each executive officer is also required to give the Company six months advance notice of his resignation under certain circumstances. On September 16, 2022, the Company appointed Blair Tripodi as its Chief Operating Officer (COO), Consumer Division. The offer letter entered into with Mr. Tripodi upon completion of the Sound United Acquisition included certain compensation, retention and benefit provisions. In addition, Mr. Tripodi is also a limited participant in the Severance Plan, which provides that, if (a) Mr. Tripodi’s employment is terminated on the date of a Change in Control (as defined in the Severance Plan) specifically because his current job, or similar job, is not offered to him on the date of such Change in Control, or (b) Mr. Tripodi’s employment is terminated by the Company without cause or if he terminates his employment with the Company for Good Reason (as defined in the Severance Plan) upon or within 36 months of a Change in Control, fifty percent of Mr. Tripodi’s unvested and outstanding equity-based awards will immediately vest. Cercacor Cross-Licensing Agreement Provisions The Company’s Cross-Licensing Agreement with Cercacor contains annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Upon a Change in Control (as defined in the Cross-Licensing Agreement) of the Company or Cercacor: (i) all rights to the “Masimo” trademark will be assigned to Cercacor if the surviving or acquiring entity ceases to use “Masimo” as a company name and trademark; (ii) the option to license technology developed by Cercacor for use in blood glucose monitoring will be deemed automatically exercised and a $2.5 million license fee for this technology will become immediately payable to Cercacor; and (iii) the minimum aggregate annual royalties payable to Cercacor for carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin and/or glucose measurements will increase to $15.0 million per year until the exclusivity period of the agreement ends, plus up to $2.0 million for each additional vital sign measurement with no maximum ceiling for non-vital sign measurements. Purchase Commitments Pursuant to contractual obligations with vendors, the Company had $473.8 million of purchase commitments as of December 31, 2022 that are expected to be purchased within one year. These purchase commitments have been made for certain inventory items in order to secure sufficient levels of those items, other critical inventory and manufacturing supplies and to achieve better pricing. Other Contractual Commitments In the normal course of business, the Company may provide bank guarantees to support government hospital tenders in certain foreign jurisdictions. As of December 31, 2022, the Company had approximately $4.8 million in outstanding unsecured bank guarantees. In certain circumstances, the Company also provides limited indemnification within its various customer contracts whereby the Company indemnifies the parties to whom it sells its products with respect to potential infringement of intellectual property, and against bodily injury caused by a defective Company product. It is not possible to predict the maximum potential amount of future payments under these or similar agreements, due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved. As of December 31, 2022, the Company had not incurred any significant costs related to contractual indemnification of its customers. Concentrations of Risk The Company is exposed to credit loss for the amount of its cash deposits with financial institutions in excess of federally insured limits. The Company invests a portion of its excess cash in savings accounts with major financial institutions. As of December 31, 2022, the Company had $202.9 million of bank balances, of which $8.2 million was covered by either the U.S. Federal Deposit Insurance Corporation limit or foreign countries’ deposit insurance organizations. The Company’s ability to sell its products to U.S. hospitals depends in part on its relationships with GPOs. Many existing and potential customers for the Company’s products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes exclusively, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. During the years ended December 31, 2022, January 1, 2022 and January 2, 2021, revenue from the sale of the Company’s products to customers that are members of GPOs approximated 53.8%, 51.9% and 49.3% of total revenue, respectively. For the years ended December 31, 2022, January 1, 2022 and January 2, 2021, the Company had sales through two just-in-time distributors that represented 10.1% and 5.1%, 14.6% and 9.6%, and 11.5% and 10.1% of total revenue, respectively. As of December 31, 2022 and January 1, 2022, one customer represented 9.1% and 15.7%, respectively, of the Company’s accounts receivable balance. The receivable balance related to such customer is fully secured by letters of credit. Litigation On January 9, 2020, the Company filed a complaint against Apple Inc. (Apple) in the District Court for infringement of a number of patents, for trade secret misappropriation, and for ownership and correction of inventorship of a number of Apple patents listing one of its former employees as an inventor. The Company is seeking damages, injunctive relief, and declaratory judgment regarding ownership of the Apple patents. Apple filed petitions for Inter Partes review (IPR) of the asserted patents in the U.S. Patent and Trademark Office (PTO). The PTO instituted IPR of the asserted patents. On October 13, 2020, the District Court stayed the patent infringement claims pending completion of the IPR proceedings. On February 5, 2021, the Company filed a fourth amended complaint. On February 26, 2021, Apple filed a partial motion to dismiss the trade secrets claim in the fourth amended complaint. On April 21, 2021, the District Court issued an order granting in part and denying in part the motion to dismiss. On May 5, 2021, Apple filed its answer to the fourth amended complaint. On December 7, 2021, Apple filed a motion for partial summary judgment on the trade secrets claim, which was denied on February 17, 2022. In December 2022, Apple filed another motion for summary judgment on the Company’s trade secrets claim, which was denied in February 2023. Trial is currently set to begin on March 27, 2023. In the IPR proceedings, one or more of the challenged claims of three of the asserted patents were found valid. The challenged claims of nine of the asserted patents were found invalid. The Company and Apple filed notices of appeal with the U.S. Court of Appeals for the Federal Circuit seeking review of the IPR decisions on all asserted patents. The Company and Apple filed briefs in one consolidated appeal for five asserted patents and in two appeals for two asserted patents and now await scheduling of oral arguments. The Company filed an opening brief in another consolidated appeal for four asserted patents on December 12, 2022, and Apple filed a reply brief in that other consolidated appeal on February 21, 2023. On June 30, 2021, the Company filed a complaint with the U.S. International Trade Commission (ITC) against Apple for infringement of a number of other patents. The Company filed an amended complaint on July 12, 2021. On August 13, 2021, the ITC issued a Notice of Institution of Investigation on the asserted patents. From June 6, 2022 to June 10, 2022, the ITC conducted an evidentiary hearing. The current target date for completion of the ITC investigation is May 10, 2023. Apple filed petitions for IPR of the asserted patents in the PTO. In February 2023, the PTO denied Apple’s IPR petitions on some of the asserted patents and instituted IPRs on other asserted patents. Apple has sought rehearing on certain patents for which Apple’s IPR Petitions were denied. On January 10, 2023, a United States Administrative Law Judge in Washington, D.C. ruled that Apple violated Section 337 of the Tariff Act of 1930, as amended, by importing and selling within the United States certain Apple Watches with light-based pulse oximetry functionality and components, which infringe one of the Company’s pulse oximeter patents. On January 24, 2023, the United States Administrative Law Judge further recommended that the ITC issue an exclusion order and a cease and desist order on certain Apple Watches. The ITC will now consider whether to implement a ban on imports of certain Apple Watches. On January 30, 2023, the PTO denied institution of IPR proceedings for the Company’s pulse oximeter patent that the United States Administrative Law Judge ruled was infringed. With respect to the other patents asserted at the ITC, the PTO denied institution of IPR proceedings for two patents and instituted IPR proceedings for two patents in January or February 2023, and Apple filed requests for rehearing of some decisions that denied institution of IPR proceedings on February 23, 2023. On October 20, 2022, Apple filed two complaints against the Company in the U.S. District Court of for the District of Delaware alleging that the Masimo W1™ watch infringes a number of utility and design patents. Apple is seeking damages and injunctive relief. On December 12, 2022, the Company counterclaimed for monopolization, attempted monopolization, false advertising (and related causes of action) and infringement of multiple patents. The Company is seeking damages and injunctive relief. The Court has not set a schedule or trial date in either case. On February 3, 2023, Apple moved to (1) sever the Company’s monopolization and false advertising counterclaims into a separate case, (2) stay the Company’s patent-infringement claims and (3) to expedite Apple’s design-patent claims. The Company opposed Apple’s motions on February 24, 2023. On the same day, the Company moved to consolidate Apple’s utility-patent claims, Apple’s design-patents claims and the Company’s counterclaims for discovery and all pretrial proceedings. On February 21, 2023, Apple moved to dismiss the Company’s monopolization and false advertising claims. The Company intends to vigorously pursue all of its legal remedies in its litigation against Apple and believes the Company has good and substantial defenses to Apple’s claims, but there is no guarantee that the Company will be successful in these efforts. On October 21, 2022, a complaint was filed in the Delaware Court of Chancery against the Company and the members of the Company’s Board (Director Defendants) by Politan Capital Management LP and Politan Capital NY LLC (Activist Plaintiffs). The complaint seeks relief to (i) declare certain amendments to the Company’s bylaws that became effective on September 9, 2022 (Bylaw Amendments) unenforceable, (ii) find that the Director Defendants breached their fiduciary duties by approving and implementing the Bylaw Amendments and the shareholder rights plan adopted by the Company on September 9, 2022, and refusing to invalidate certain change in control provisions in the Company’s employment agreement with Joe Kiani, the Company’s Chief Executive Officer (CEO), (iii) invalidate certain change in control provisions in Mr. Kiani’s employment agreement, (iv) permanently enjoin the Company and its Board from taking any actions to prevent the Activist Plaintiffs from exercising their rights in accordance with the Company’s prior bylaws to nominate directors, and (v) have Mr. Kiani, the Company’s CEO and founder leave the Company, and (vi) award the Activist Plaintiffs their fees, costs and expenses in connection with the action covered by the complaint. In response to the complaint, on October 24, 2022, the Company and the Director Defendants filed a counterclaim, answer and defense in the Delaware Court of Chancery against the Activist Plaintiffs, seeking relief to (i) have the court declare that the Bylaw Amendments are valid and enforceable and that the Company is permitted to invalidate any director nominations by the Activist Plaintiffs that are not made in accordance with the amended bylaws and (ii) award the Company reasonable costs, including attorneys’ fees and expenses. On October 28, 2022, the Activist Plaintiffs filed a counterclaim and answer generally denying substantially all of the allegations raised in the Company’s counterclaim and raising a number of affirmative defenses against the Company’s counterclaim. On February 5, 2023, the Company withdrew the Bylaw Amendments. The Company believes that the Company and the Director Defendants have good and substantial defenses to the Activist Plaintiffs’ claims (including those raised in their counterclaim), but there is no guarantee that the Company and the Director Defendants will prevail. The Company is unable to determine whether any loss will ultimately occur or to estimate the range of such loss; therefore, no amount of loss has been accrued by the Company in the accompanying consolidated financial statements. From time to time, the Company may be involved in other litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. The Company believes that it currently is not a party to any other legal proceedings which, individually or in the aggregate, would have a material adverse effect on its consolidated financial position, results of operations or cash flows.

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