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Welcome back to the rundown for another weekend deep dive. Today we are talking about Apple declaring war on OpenAI. Last Friday, Apple filed a lawsuit accusing OpenAI of stealing its trade secrets. And there are some wild accusations in this 41 page filing. We're talking everything from a former Apple employee keeping a company laptop to downloading secret documents and even bringing Apple parts to an OpenAI job interview. So in today's episode, we'll break down how Apple and Open OpenAI went from partners to courtroom enemies. The wildest allegations in the lawsuit, what Apple is really trying to accomplish here with this lawsuit, and why this fight could be about something much bigger than just stolen files. We got a great one for you today. Let's dive in. Just two years ago, Apple and OpenAI were partners. At Apple's WWDC conference in June of 2024, Apple announced that ChatGPT would be integrated into Apple intelligence. And Siri now was a big deal because up until then, Apple was severely lacking when it comes to their AI strategy. So many people thought that this partnership would help put Apple back on the map. Sam Altman was actually sitting in the audience during this announcement. In that presentation, Apple called OpenAI a pioneer and market leader in AI. So at the time, this looked like a pretty important partnership for both companies because again, Apple desperately needed help with their AI strategy and OpenAI got ChatGPT into the hands of hundreds of millions of iPhone users. But this partnership didn't really deliver for either side because the integration of ChatGPT into Siri was very clunky. You know, when this integration was first announced, I was so excited because I thought that it would actually make Siri useful. But I mean, it was so bad that I pretty much never used it. And by the way, OpenAI was also pretty unhappy with this integration. According to Bloomberg, they even considered legal action against Apple earlier this year over that partnership. So that kind of paints the picture of where the relationship with Apple and OpenAI were. Tensions were already building behind the scenes, and then the nail in the coffin was when Apple announced that its new AI powered Siri, which comes out in a couple months, would run on Google's Gemini model, which ultimately ended the relationship with OpenAI. But here's the thing. It wasn't just that their software relationship was falling apart. Apple also started treating OpenAI as a threat because OpenAI was quietly making moves to compete with Apple on hardware. And they were doing it by hiring people that used to work at Apple. At the center of all this is a guy named Tong Tan. Tan spent 24 years at Apple Apple and worked his way up to vice president of product design where he oversaw products like the iPhone and Apple Watch. But in late 2023, Tan told Apple that he was leaving. Now, typically when someone resigns at Apple, they're shown the door on that day. But Apple, in a rare move, let him stick around until February of 2024 to help transition the hardware division. Meanwhile, according to Bloomberg, Tan was already working behind the scenes with with former Apple design legend Johnny I've on a new AI hardware company called IO Product. On a side note, that is an absolutely terrible name for a company. Anyways, you fast forward to May of 2025 and the tech industry was shocked when OpenAI announced that they were acquiring IO for $6.5 billion. And they made Tong Tan OpenAI's chief hardware officer. And right after that, OpenAI started hiring aggressively from from Apple. According to Apple's lawsuit, more than 400 former Apple employees now work at OpenAI. We're talking everyone from hardware engineers to designers for people that worked on the iPhone, Apple Watch and AirPods. And Apple says that this went way beyond just normal recruiting. They say that OpenAI was actively stealing Apple's trade secrets to give their new hardware division a jumpstart. And that brings us to the 41 page lawsuit that was filed in federal court. So let's get into some of these shocking allegations. All right, so let's get into the actual lawsuit because Apple was making some pretty insane allegations. The main character of this lawsuit is a guy named Chang Lu. Lou spent eight years at Apple as a senior electrical engineer working on the iPhone. But then in January of this year, he left Apple to work at OpenAI's hardware team. Now when you leave Apple or any big tech company for that matter, there's usually a standard exit process. You know, you return your company issued device, you might do an exit interview and you might sign some documents on your way out. Well, according to the lawsuit, Lou just didn't do any of that. He ghosted Apple's security team completely and he kept at least one Apple owned MacBook. Now this is where things get kind of weird because a few weeks after leaving Apple, Lou discovered that there was a bug in Apple's system that still gave him access to Apple's internal file servers, even though he was now employed by a direct competitor. Now if, if you're ever in a situation that you have access to your old company's confidential files, there's usually one right answer here. You should just report it to the company and move on with your life. What you probably shouldn't do is what Lou allegedly did, which is text your friend who still worked at Apple. Quote lol I found out I can still access the network storage. So funny. Now keep in mind Chang Lu did this on his Apple issued laptop. You would think that this guy would be one of the smartest people in Silicon Valley, but you got to admit this was a pretty dumb, dumb move. Of course Apple was going to find out that he was accessing the servers if he was using an Apple issued laptop. Now a quick sidebar here. Apple having a bug that allows an ex employee to access their internal file systems is a valid concern. I mean, this is a $4 trillion company we're talking about. Not to mention Apple probably should have disabled this employee's Apple issued laptop in the first place. But regardless, Chang Lew probably shouldn't have done what he did. One of the conspiracy theories that I have is that Apple might have let him do this to kind of set this trap for this lawsuit. Anyways, according to Apple, once Lou found out that he had access to Apple's internal files, he spent weeks downloading dozens of confidential files. You know, I'm talking engineering presentations, technical specs, details about unreleased products, including one compilation of over a thousand pages of technical documents. And again, he was doing this while working for OpenAI. But the lawsuit doesn't just stop at Lou. Apple is also going after Tong Tan. They claimed that he was using OpenAI's job interviews to get information from Apple, Apple employees about unreleased products. Apple says that Tan even used Apple's secret internal product code names in interviews and asked candidates about the status of those products. And this is the part that's crazy. He even told candidates to bring actual parts from Apple to their interviews for a show and tell session. So some of these employees were bringing batteries, logic boards and product casings. So you can kind of see why Apple filed this lawsuit. But here's the thing. Most of Apple's most detailed evidence is coming from Chang Lew. And that's because he was dumb enough to do all of his shady stuff on Apple's company hardware. But going after Chang Lu might just be how Apple gets a Look inside what OpenAI is working on when it comes to their hardware. Tech analyst Ben Thompson wrote a great piece this week describing Lou as basically a phishing license for Apple. Apple has this potential smoking gun against one of their former employees. And now the discovery process for this lawsuit could give them access to OpenAI's emails, documents and communications and this could achieve Apple's ultimate goal of slowing down OpenAI's hardware ambitions. So let's talk more about that. So Apple clearly has the receipts on Chang Lu. But this lawsuit is more than just about one engineer stealing files. Apple is going after OpenAI because their ultimate goal might be to slow down OpenAI's hardware progress and maybe get a bit of revenge as well. The thing is, Apple isn't used to having competition when it comes to hardware. You know, I'm not talking about them competing for customers. I'm talking about them competing, competing for talent. You know, OpenAI has been raiding Apple's entire hardware organization for the last couple years. The Lawsuit mentions that 400 former Apple employees now work at OpenAI. OpenAI was offering salaries and stock packages that Apple was struggling to compete with. In fact, Apple started handing out unusually large retention bonuses and even sent top executives to personally convince senior engineers to stay. And again, this is something that Apple has never really dealt with before when it comes to their hardware division. Sure, Google has their Pixel phones and Meta has their VR headsets, but none of those companies caused a max exodus of Apple's best hardware and operation talent like OpenAI has. I think that's exactly why Apple is freaking out right now. Because I got to say, I mean, some of these arguments from Apple in this lawsuit are a bit silly. Like when you interview somebody for an engineering job, you're obviously going to ask that person the projects they worked on. Now asking that person to bring unreleased prototypes into the interview. Yeah, that might be going too far. But asking what the engineer is working on seems fair to me. And that's one of Ben Thompson's main criticism of the lawsuit in his piece this week. Apple seems to be treating every former Apple employee as a walking trade secret. But, you know, if that was the standard, where exactly is OpenAI supposed to hire hardware engineers? From Chipotle? No, Apple is the one place on earth that has expert people who know how to build good consumer devices used by a billion users. And OpenAI is leaning into that argument in their response, saying that they believe in fair competition and allowing people the freedom to work wherever they choose. So that will be one of the major legal questions here. Where does an employee's personal expertise end and Apple's protected trade secrets begin? But look, regardless of how this case turns out, Apple might get their ultimate objective of slowing down OpenAI and stopping them from poaching their talent. You know, now every Apple engineer thinking about jumping to OpenAI knows that their name could end up in A court document, not to mention every supplier in Asia like Foxconn, and has to think twice about working with OpenAI when their biggest customer right now is Apple. And this is going to slow down OpenAI's hardware team, because they're about to spend the next year buried in legal reviews and depositions instead of actually building products. And speaking of the products that OpenAI is working on, we just got some news on what that next product could actually be. And I'm not going to lie, it doesn't get me that excited. So what has OpenAI's hardware team of 400 former Apple employees actually been building? Well, thanks to a scoop from Bloomberg's Mark Gurman and recurring rundown guest, we now know what the first device could be. Apparently it's a smart speaker. Now, I know what you're probably thinking, and I'm thinking the same thing, all right? Did OpenAI really just poach 400 Apple engineers to build a freaking Amazon Echo knockoff? Well, that's what it seems like on the surface, but OpenAI believes that this is going to be a very different product from the smart speakers that we have today. This device reportedly has a camera built in and other sensors that allow it to understand what's happening around it. It also has a rechargeable battery, so you can carry it with you from room to room. I guess OpenAI's goal here is to make this device into an a companion for your home. This device will be powered by GPT Live, which is OpenAI's latest voice model. This model is actually pretty good. It can both speak and listen at the same time. I've tried it on the Chat GPT app and yeah, it's really good, but personally though, I'm not super bullish on these AI companion smart speakers. You know, we've seen some of these AI companion devices come out and they've been a total flop. Obviously, Open AI is at a different level. They have a massive user base and cutting edge tech, but to me, these smart speakers just sound like a slightly better Amazon Echo and not like a revolutionary product. Internally, though, OpenAI doesn't call this thing a speaker. They describe it as a new kind of computer built for AI from the ground up. Their plan is to reveal this device later this year and ship it in 2027. And this speaker is supposed to be just the beginning. OpenAI's hardware division is reportedly working on around five different devices, including wearables. And their ultimate goal, according to Bloomberg, is to make a device that replaces the smartphone entirely and here's where the lawsuit back into the picture. Because Apple isn't just asking for money in this case, they're seeking an injunction on OpenAI's hardware altogether. That means a court order could block or delay OpenAI from selling these devices. Apple even wants OpenAI to redesign their upcoming products to remove any Apple's technology that OpenAI might have gotten illegally. And there's some precedent here with Apple too, because they went after a chip startup called Rivos a few years ago and Rivos ended up agreeing to redesign parts of their processor technology. Now OpenAI still says they're on track to announce their product this year, but now every design decision, every supplier conversation, every prototype is going to have lawyers looking over their shoulders. So what's my take here? Well, let's start with the obvious. Chang Lu is probably cooked. You know, you can obviously leave Apple and take your expertise with you, but you can't leave Apple, keep their laptop, access their servers and download confidential files while working for a direct competitor. So I think Apple might have a strong case against Chang Lu. But I also agree with Ben Thompson here that Apple's main motivation here is to use this lawsuit to see inside OpenAI's hardware operation. Now Apple wants to slow down their progress any way they can and put some doubt in current employees thinking about jumping ship. And it tells me that Apple is taking this OpenAI threat seriously. What's funny to me though is that the market doesn't seem to be too worried about OpenAI. You know Apple stock has been on a tear recently. It's the best performing mag7 stock this year and it just hit all time highs this week. So I don't think that Wall street is is scared of OpenAI's hardware ambitions. And that's why I think this lawsuit could be a bit more personal for Apple. I think Apple is feeling a bit betrayed. Tong Tan worked at Apple for 24 years. Jony. I've was Steve Jobs closest creative partner and now both these people are working against Apple. I also read an interesting report that Apple's upcoming CEO John Ternus has a strained relationship with Tong Tan. Now both of them were senior hardware guys at Apple around the same time. And according to the Bloomberg report, some of the Apple design team actually backed Tan over Turnus for the top hardware job. Turner's ultimately ended up getting that job which might have led to Tong Tan leaving Apple. And then Tan spent the last two years raiding John Ternus's hardware division. So I imagine there's some bad blood between the two. I'LL be honest though, as an Apple fanboy and Apple investor, a part of me can see why Apple is doing this. But personally, I wish Apple would just focus on competing with better products and innovation instead of trying to win the battle in the courtroom. Now Apple has a history of doing this. Steve Jobs declared thermonuclear war on Android back in 2010 and they sued Samsung along with other Android manufacturers. That fight took eight years and ended in a settlement. But importantly, it didn't stop Android from gaining market share. And it's possible the same thing happens with OpenAI. But I just hope that OpenAI has something better cooking than a glorified Amazon Echo that reads your email emails. Because if that's what Apple is worried about, then I mean, come on, what are we doing here? Well all right guys, that's it for today's weekend deep dive. Hope you guys enjoyed that one. Let me know in the comments on what you guys think. Is Apple right to protect what they built? Or do you think they're scared of OpenAI as a competitor? Also, would you actually put OpenAI's little AI companion smart speaker in your house? I'm not sure if I would drop your thoughts on Spotify and YouTube. Also, while you're at it, consider giving us a five star rating and thumbs up as well. All that engagement really does help us out and it helps other people find the show. Thank you guys so much for listening, watching and commenting. Shout out to Mike for all the work behind the scenes and we'll see you guys back here tomorrow.
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