Patent attorney here. Unless Apple is doing something that isn't required by law -- and Apple tends not to do that if they think they're right as in this case -- activation in the US is completely OK with an Apple Watch purchased in Canada.
The reason why is that the Masimo patent infringement suit that Apple lost is a bit of a strange one. It's an International Trade Commission (ITC) suit, not a "regular" patent lawsuit filed in US district court (I think Masimo also brought a regular patent suit, which Apple won). A regular lawsuit prevents the manufacture, use, and sale of an infringing product; an ITC suit just prevents the importation of an infringing product.
Furthermore, the doctrine of exhaustion means that a patent owner loses its patent rights after first sale to the end user.
ITC decisions are reviewable and reversible only by the President, and cannot be escalated into US district court or appealed to the Federal Circuit (the latter to which regular patent lawsuits are appealed, and along with the Supreme Court is decidedly anti-patent). President Biden chose not to review the decision.
What this means is when you buy a watch in Canada as an American consumer, you can activate it wherever -- in the US or in Canada -- and bring it back to the US. As soon as you purchased the watch, Masimo's patent rights as to your watch were extinguished.
By comparison, if the lawsuit that Apple had lost was a regular patent suit, Apple could in theory still import the watches into the US, it just couldn't sell them them in the US.
And even with the ITC suit that Apple lost, in theory Apple could still make the watches in the US to export for sale outside the US. The ITC decision only prevents Apple from importing infringing watches.
I will add that by "activation" I mean adding the watch to your Apple account. If the watch is of the cellular variety, I am not sure the best way to activate it with your cell phone carrier (e.g., T-Mobile). I haven't traveled to Canada since getting my Apple watch -- although am going next week! -- but in Mexico, Europe, and Asia, I never got cell coverage on my watch via T-Mobile, even though my watch (Series 8) is on my T-Mobile account, I have data roaming on T-Mobile (of course), and additionally buy one of those international travel data packs.
I am toying with the idea of getting a Series 10 when I am in Canada, with cell capability, and would totally activate it in Canada as to adding it to my Apple account, but would wait until I'm back in the US before I add it to my T-Mobile account.
US, Canadian, Ecuadorian, Mexican, and Puerto Rican Apple watches are identical in their cellular capability, per
this page on Apple's web site. (I don't know why Puerto Rico is called out separately, since it's part of the US... presumably Guam has the same cell capability as US and PR watches, too, but who knows.)
The downside to buying in Canada is that I'm not sure if using your Apple Card still gives you 3% cash back, and I'm not sure if you can use any balance you may have on your Apple Account (not to be confused with Apple Cash), nor am I sure if you trade-in your existing watch (although you could do that later and simply get the value added to your Apple Account).
I also don't know how warranty coverage works, though I suspect there isn't any. This wouldn't be a huge concern for me, though I would probably try to buy the watch as early in my trip in Canada as possible so I could return it to the Apple Store if necessary. You
would have the warranty in Canada, though, so you could ostensibly go back whenever if you needed warranty support.
And there are (well, used to be) enough Canadians who have moved to the US that I don't think this is that unusual of a situation (i.e., Canadian buys a watch in Canada, moves to the US and no longer maintains a Canadian mailing address).
Apple Care would also likely have to be purchased through Canada -- and I don't know if Apple would let you purchase it right away without a Canadian address. But for the reason in the previous paragraph, I assume you could buy it with a Canadian address, and then later change that it to an American address.
Furthermore, there should be no technical reason an Apple Store in the US couldn't service/work on an Apple watch purchased in Canada, so long as you were willing to pay for the repair costs. It's identical to an American watch. But, I could see this not being the case... although if you are of a certain class of consumer (older and/or white sadly), you probably could pull the privilege card or the "I don't understand, I'm an older fellow who is not tech savvy" card, and get it serviced. (I say this as an older white dude, and see how I'm treated much differently/better than younger people and people of color in retail contexts.)
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