Third party keyboards are allowed in iOS (Google has Gboard on the App Store) and it is unclear to me what APIs need to be leveraged for watchOS so I can't speak to that rejection either. The WaPo article not going a bit deeper on the rejection was odd.
If Apple was actually using App Store rejections as a method to strong arm him for contract negotiation purposes, then certainly he has a case. But that would be unusual for Apple. Apple aqui-hires teams all of the time, Dark Sky being one of them. The article leaves off how the negotiations concluded, so its unclear if Apple lowballed the guy, didnt make an offer, or he demanded a number Apple wasn't willing to pay and built their own (if they weren't already). Apple Watch 7 would have been in the works for quite some time, with screen size changes locked in sometime in 2020 and the OS feature buildout starting then too.
If this is an instance of overzealous and inconsistent enforcement of App Store rules (but not overtly directed to hard him), then he also should object and do so loudly, and potentially has a case (which he's already filed). Apple certainly has work to do on this front. He should also complain about Apple's poor curation of the App Store, but someone creating a similar app in and of itself isn't news. This would be like the folks behind PUBG suggestion Fortnite should be banned because it does the same thing.
If this is an instance of Apple enhancing a feature in an OS and taking it to the next reasonable state, influenced by third party tools or not, baring patents, isn't news. There is even a term "
Sherlocked" for having a third party tool obsoleted by an OS enhancement.