Apple's Trade Secret Lawsuit Against OpenAI: IPO and Hardware Implications

Apple recently filed a trade secrets lawsuit against OpenAI, accusing the AI company of a pattern of misconduct aimed at getting current and former Apple employees to share confidential information. In response, OpenAI said it is “not aware of any evidence that this complaint has merit.”

On the latest episode of TechCrunch’s Equity podcast, Kirsten Korosec, Sean O’Kane, and Anthony Ha debated whether this lawsuit will cast a shadow over OpenAI’s much-discussed plans to get into the hardware business (starting with a mobile smart speaker) and go public.

Sean suggested that even without injunctive relief, the lawsuit could naturally lead to delays in OpenAI’s work, which he believes was likely part of Apple’s reasoning. He noted that Apple doesn’t pursue such actions without careful consideration.

With significant plans on the line, the question arises whether OpenAI will attempt to settle this quickly or if it learned from its recent courtroom victory against Elon Musk that it can withstand the cost and embarrassment of a trial. Kirsten, at least, predicts the latter.

Kirsten Korosec asked Sean how he felt about Sam Altman potentially listening to him through a small device in his pocket.

Sean O’Kane responded that he was not in favor of such a device, acknowledging it might be predictable. He mentioned that this is allegedly the first product OpenAI has been working on in its hardware division with Jony Ive and company. He recalled a vague video from last year where they discussed hardware and legacy devices like laptops and phones. Sean stated that while some might embrace constant listening, it would not be for him.

Anthony Ha added that such mobile devices wouldn't just listen to the user but also to those around them. He emphasized the need to renegotiate social norms if these devices become widespread, advocating for criticism against those who record others without consent.

Kirsten highlighted the device, long speculated about, as important in the context of the lawsuit Apple filed last Friday. She noted it was the biggest news of the week and a trade secret lawsuit with “pretty wild allegations,” emphasizing they are currently just allegations in Apple’s complaint. Apple is accusing OpenAI of a pattern of misconduct at the highest levels, specifically targeting former Apple employees now at OpenAI. The lawsuit explicitly names Tang Tan, OpenAI’s chief hardware officer.

Kirsten explained that Apple is accusing OpenAI of essentially stealing their trade secrets, which could then be used for a competing hardware product. She asked for initial impressions of the lawsuit, setting aside its merits, focusing on its potential impact.

Sean offered two main impressions. First, he sees it as a significant risk to whatever OpenAI is developing. He reiterated that even without a court-ordered injunction, the lawsuit could inherently cause delays in OpenAI's projects, suggesting this was a strategic move by Apple.

Second, Sean pointed out that OpenAI has confidentially filed for an IPO, potentially by the end of this year or early next year, based on Sam Altman’s cautious statements. He argued that the lawsuit raises numerous questions for the IPO. While OpenAI’s current business is likely dominated by software, and hardware isn't a major factor yet, if they plan to pitch a significant hardware division to bankers and investors, this lawsuit could pose a huge risk and alter the IPO’s pricing calculus.

Anthony noted an allegation that Apple must have solid data on: over 400 former Apple employees now work at OpenAI. While both are large companies, this represents a substantial talent drain. He also wondered, in the context of the potential IPO, about the marketing and brand damage OpenAI sustained from its previous trial against Elon Musk. Despite winning, embarrassing details emerged. Anthony questioned whether OpenAI would want to avoid another trial or if they learned they could survive such a legal battle with Apple.