Apple’s Lawsuit Against OpenAI: A Potential Disruption to Hardware Ambitions?
Apple recently filed a trade secrets lawsuit against OpenAI, accusing the AI company of misconduct aimed at tricking current and former Apple employees into sharing confidential information. (In response, OpenAI said it was “not aware of any evidence that this complaint has merit.”)
Implications for OpenAI’s Hardware and IPO Plans
In the latest episode of TechCrunch’s Equity podcast, Kirsten Korosec, Sean O’Kane, and I debated whether this lawsuit would cast a shadow over OpenAI’s much-discussed plans to move into the hardware business (starting with a smart mobile speaker) and go public. Sean suggested that even if the court does not grant an injunction or restraining order, the lawsuit could naturally delay OpenAI’s projects, which might be part of Apple’s strategy to slow down its competitor.
With all these projects on the line, will OpenAI attempt to resolve this issue as quickly as possible, or has it learned from its recent legal victory against Elon Musk that it can bear the cost and embarrassment of a trial? Kirsten, at least, predicts the latter.
Concerns Over Privacy and Social Norms
Kirsten: Sean, what do you think about Sam Altman listening to you with a little device maybe in your pocket?
Sean: I’m doing well. Maybe it’s predictable, but I’m fine. No thanks.
We’ll come back to this, I’m sure, but this would be the first product that OpenAI is working on in its hardware division with Jony Ive and company. They’ve been really shy since that weird video they released last year where they were sitting in a cafe or bar in San Francisco and sort of talking very vaguely about existing hardware and devices, i.e. laptops and phones. And so if that’s the direction they’re heading in, all power to the people who want to have someone like that always listening to them. It won’t be for me.
Anthony: Part of what we need to remember about these types of devices is also that, depending on how mobile they are, they don’t just listen to you, they listen to the people around you. Maybe that’s okay with me – I don’t agree with it, but let’s say I was – but if we met in person at Disrupt, then suddenly it could listen to all of us.
There are all sorts of social norms that will need to be renegotiated if these things become widespread. I think we should mock and criticize those who record other people without their consent.
The Lawsuit: A Serious Challenge or Just a Hurdle?
Kirsten: Well, I’m bringing up the device that has been speculated about for a very long time, and we’ll see what it actually ends up being once it’s officially presented, but it’s important in the context of this lawsuit that Apple filed last Friday.
This was definitely the biggest news of the week, and it involves a trade secret lawsuit. It contains some pretty wild allegations and we should point out that these are allegations that were made as part of a lawsuit filed by Apple. But what he accuses OpenAI of is a pattern of misconduct at the highest levels, specifically directed at OpenAI employees who worked at Apple. And in fact, they named hardware manager Tang Tan in this lawsuit.
This is all important because Apple accuses OpenAI of essentially stealing their trade secrets, but in this context it could then be used for a competing hardware product. I wonder if maybe we’re not questioning whether this trial has merit, because we haven’t done a full pre-trial investigation yet, but what are your first impressions of the trial, other than wow, this is going to be entertaining?
Sean: Two things. First, this is a potentially pretty big risk to whatever OpenAI is working on. Even putting aside whether or not the court grants an injunction or restraining order on what OpenAI is doing, it can naturally lead to this kind of situation where it’s going to cause delays in what OpenAI is working on, which I’m sure was probably part of the reasoning behind Apple doing this. They don’t do this willy-nilly.
The other is that we think OpenAI is – we know they filed for an IPO confidentially. We think this could happen as soon as late this year, or early next year, based on Sam Altman’s cautious IPO language. And that raises a whole bunch of questions about that because, on the one hand, we think their current business is probably largely focused on software; they don’t really take into account the hardware business at the moment.
They’re about to go to the markets and they’re going to ask bankers and investors where they think their addressable market should be, and if they have a lot of it tied to a potential hardware division and hardware products, that could be a huge risk and change a lot of the IPO pricing calculus. So that’s where I’m thinking.
Anthony: A [allegation] which I guess Apple must have some pretty solid numbers on, they said over 400 Apple employees now work at OpenAI. Of course, both cases are very large companies with several thousand, or even tens of thousands, employees. So as a percentage, it’s not necessarily huge. But that seems like a lot of people and a pretty serious talent drain.
And the other thing I’m wondering is related to Sean’s point. In the context of a possible IPO, how much damage did OpenAI ultimately suffer from a marketing and branding perspective compared to the trial it has already undergone? It seemed to basically win, but there was a lot of dirty laundry, not great, but kind of embarrassing, that came out in the testimony. To what extent are they just saying, “We don’t want to go through this again”? Or did they learn the lesson like, “Hey, we went through this and we survived and we’ll be fine if we have to give Apple another try”?
Kirsten: Besides, I fully predict the latter case.
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