It was a hard lesson to learn. But it could be the most valuable of Joe Kiani’s career.

Never one to eschew confrontation or give up easily, Kiani has spent his entire entrepreneurial career championing better patient care. His dedication to improving the pulse oximeter is unparalleled: Kiani spent more than three decades growing the garage startup concept into a global medtech powerhouse.

Over the years, Kiani has had to fend off intellectual property challenges from other companies and market access roadblocks from group purchasing organizations. As the owner of more than 500 patents or patent applications related to advanced signal processing, optical sensors, and wearable solutions, he’s been fiercely protective of the signal extraction technology he developed for his first company—Irvine, Calif.-based Masimo. 

That technology (Masimo SET) distinguishes between noise caused by blood flow and interference from motion like walking, shivering, or other movements. Such proficiency eliminated the potential for false readings, transforming Masimo’s pulse oximeters into the gold standard in noninvasive blood oxygen level monitoring and pulse signal/fluid responsiveness in patients.

Not surprisingly, Masimo’s pulse oximetry solution has garnered lots of attention in recent decades—good and bad. The good: multiple U.S. Food and Drug Administration product clearances, a 200 million-patient-plus user base, a “Most Innovative Companies in North America” designation (Fast Company), and Newsweek top hospital customers.

The bad: a poorly-received billion-dollar acquisition (Sound United), a $5 billion market value loss (resulting from the 2022 deal), scrutiny from an activist hedge fund founder, and a very public patent infringement battle with Apple.

The two latter miscues helped set the stage for Kiani’s eventual ouster as Masimo’s leader. As Kiani’s firm and Apple traded legal barbs over supposed employee pilfering, smartwatch mimicking, and trade secret stealing, veteran investor Quentin Koffey—who founded activist hedge fund Politan Capital Management in 2021—grew increasingly concerned about Masimo’s governance capabilities, believing the company had given Kiani too much power. Within six months, Politan acquired nearly 9% of Masimo. 

Such was the birth of Kiani’s hard-learned lesson.

“Never give up control to outsiders,” he told a marketer/podcaster earlier this year who asked him to relay the most painful lesson he’d learned in his tenure as Masimo’s founder/president/CEO. “It’s OK to give equity to friends, family, and people you know. But never to strangers.”

Alas, knowledge gained a little too late for Kiani. The bitter, two-year proxy battle he waged with Politan ended last fall with Kiani’s resignation from Masimo upon Politan assuming control of its six-member board.

Despite the divorce, tensions between Kiani and Politan still linger. Barely a month after the proxy battle victory, Masimo’s new management sued Kiani, claiming he colluded with RTW Investments LP on an “empty voting” scheme to manipulate the board election. Filed in New York, the suit accused Kiani of conspiring with RTW to temporarily boost the firm’s voting power to nearly 10% by purchasing shares shortly before key voting dates, then quickly reducing their stake afterward.

Masimo’s complaint also claims Kiani violated fair disclosure regulations by selectively sharing confidential company information with RTW, including key voting dates. Masimo contends Kiani—a personal investor in RTW-managed funds and close associate of RTW executives—regularly communicated with the investment firm through encrypted messages.

In a legal motion to dismiss Masimo’s lawsuit, Kiani claimed the company already investigated his alleged ties to RTW and came up empty. “Mr. Kiani does not currently, nor has he ever had, any agreement, arrangement, understanding, relationship, or otherwise with RTW or any of its affiliates…” the motion states.

Kiani also claims Masimo cannot prove its “empty voting” allegations, arguing in his complaint, “…the…allegations are insufficient to suggest that Mr. Kiani and TRW entered into any agreement to acquire, hold, vote, or dispose of Masimo securities. Instead, the well-pleaded factual allegations depict routine communications between Mr. Kiani and a significant shareholder regarding an important upcoming vote…” 

Kiani further fired back at Masimo earlier this year by filing a notice against Masimo’s six Politan-affiliated board of directors for more than $100 million in statutory penalties. The Private Attorneys General Act notice to the California Labor & Workforce Development Agency allege the directors failed to award him a $400 million severance payout.

As he awaited his latest notice to work its way through the courts, Masimo decided in early August to drop its “empty voting” conspiracy claim against Kiani. 

“This lawsuit was filed by Politan-controlled Masimo as an effort to avoid paying Mr. Kiani what he is owed under his 10-year-old employment agreement,” Hueston Hennigan partner John Hueston said. “The claim of an ‘empty voting’ conspiracy between Kiani and RTW was meritless. But now, to avoid a neutral judge’s scrutiny, Politan-controlled Masimo chose to dismiss the claim rather than face another contested loss.”

Maybe not a total loss: A federal judge in California upheld the lawsuit, ruling the company provided sufficient evidence that Kiani and RTW colluded to sway a board election.

Perhaps there’s another lesson to be learned.