Can an Apple lawsuit derail OpenAI’s hardware plans?

Apple recently filed a trade secret lawsuit against OpenAI, accusing the AI ​​company of a pattern of misconduct aimed at duping current and former Apple employees into sharing confidential information. (In response, OpenAI said it is “not aware of any evidence that this complaint is justified.”)

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

“Even setting aside whether or not the court grants any kind of injunctive relief or restraining order for what OpenAI is doing, it could obviously lead to those types of situations where it will cause some delay in what OpenAI is working on,” Sean suggested. “Which I’m sure was probably part of the reasoning behind Apple doing this. They don’t just do things like this.”

With all these plans hanging in the balance, will OpenAI try to resolve this as quickly as possible, or has it learned from its recent courtroom victory against Elon Musk that it can stomach the expense and embarrassment of a lawsuit? In any case, Kirsten predicts the latter.

Keep reading for a preview of our conversation, edited for length and clarity.

Kirsten Korosec: Sean, what do you think about Sam Altman listening to you with maybe a little device in your pocket?

Sean O’Kane: I’m good. Maybe that’s predictable, but I’m good. No thanks.

We’ll be sure to get into it, but this is reportedly the first product OpenAI has worked on in its hardware division with Jony Ive and company. Since then they have been very reluctant that weird video they released last year of them sitting in that coffee shop or bar in San Francisco talking very vaguely about hardware and older devices, i.e. laptops and phones. And if this is the direction they are going, then all power goes to people who want such a person to always listen to them. This won’t be for me.

Anthony Ha: Also, part of what we need to remember about these types of devices is that depending on how mobile it is, it’s listening not just to you, but to the people around you. I may be fine with it – I’m not fine with it, but let’s just say I was – but then when we meet in person at Disrupt, maybe suddenly it will listen to all of us.

There are all kinds of social norms that need to be renegotiated if these things become widespread. I think we should ridicule and criticize people who record other people without permission.

Kirsten: Well, I’m bringing up the device that has been speculated for a long time, and we’ll see what it will actually become once it’s officially introduced, but it’s important in the context of the lawsuit Apple filed last Friday.

It was certainly the biggest news of the week, and this is a trade secret lawsuit. There are some pretty wild allegations in there, and we should emphasize that these are allegations made in a complaint from Apple. But what it accuses OpenAI of is a pattern of misconduct at the highest levels, specifically targeting OpenAI employees who formerly worked at Apple. And in fact, in this lawsuit, they named the chief hardware official as Tang Tan.

This is all important because Apple is accusing OpenAI of essentially stealing their trade secrets, but in the context of that this could then be used for a competing hardware product. I’m wondering if we might not get into whether this lawsuit has merit because we haven’t had full discovery yet, but what are your first impressions of the lawsuit, other than the fact that wow, this is going to be entertaining?

Sean: Two things. First off, this is potentially a pretty big risk for what OpenAI is working on. Even setting aside whether or not the court grants any kind of injunctive relief or restraining order for what OpenAI is doing, it could of course lead to those types of situations where it will cause some delay in what OpenAI is working on, which I’m sure was probably part of the reasoning behind Apple doing this. They don’t do these things knowingly.

The other is that we think OpenAI is: we know they have confidentially filed for an IPO. We think this could happen as early as the end of this year or early next year, if you believe Sam Altman’s cautious language around the IPO. And this just raises a lot of questions, because on the one hand we think that their business at this point is probably overwhelmingly software; they’re not really considering a hardware company in that picture right now.

They’re about to go to the markets and they’re going to pitch bankers and investors on where they think their addressable market should be, and if they have a big chunk of that tied to a potential hardware division and hardware products, it could be a huge risk and change a lot of the calculus of how the IPO is priced. So that’s where my head is.

Anthony: A [allegation] which I assume Apple must have pretty solid numbers, they said there are now over 400 Apple employees working at OpenAI. Admittedly, they are both very large companies with many thousands or tens of thousands of 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 wonder about is related to Sean’s point. Given the context of the potential IPO, how much damage has OpenAI ultimately suffered from a marketing and branding perspective from the trial it has already undergone? That it seemed to basically win, but there was a lot of not-terrible, but still a bit embarrassing dirty laundry coming out of the testimony. To what extent do they just say: “We don’t want to experience that again”? Or have they learned the lesson of, “Hey, we’ve been through it and we’ve survived and we’ll be fine if we have to do another trial with Apple”?

Kirsten: I fully predict the latter.