You'll also notice I'm no lawyer, but you'll notice the very specific language OpenAI has used. 'We have no interest in using trade secrets.' Saying to my wife, like after I snuck a cookie, that I have no interest in eating cookies doesn't negate the fact that I maybe ate the cookie. OpenAI was saying that this, you know, way that Apple's approached this has felt oddly personal. And it's like, yeah, no, it is super personal to Apple. You know, you hired Johnny Ive who ran design at Apple, who hired, as Apple has put it, you know, hundreds of ex-employees. Eddy Cue's son is working at OpenAI on this hardware. I mean, it is very personal. Everyone knows each other. They go way back. And Apple takes these things very seriously.
Welcome to Prof G Markets. I'm Ed Elson. It is August 5th. Let's check in on yesterday's market vitals. The major indices climbed, with the Dow and the S&P 500 hitting record highs on hopes that the Strait of Hormuz would soon reopen. Brent crude oil dropped below $80 per barrel. The yield on 10-year Treasuries declined. AMD shares dropped more than 8% despite posting record revenues. And finally, Palantir shares popped almost 30% a day after crushing earnings and raising its outlook.
Okay, what else is happening? The legal war between OpenAI and Apple just heated up. Last month, Apple sued OpenAI, accusing the company of stealing trade secrets to build its own AI hardware device. At the time, Apple called the lawsuit, quote, 'just the tip of the iceberg.' Then on Monday, Apple asked a federal judge to bar OpenAI and two ex-employees from accessing, using, or disclosing information it claims are trade secrets. Apple also asked the court to fast-track the case, arguing that there is a, quote, 'imminent threat to its trade secrets.' OpenAI then fired back in a blog post, calling the lawsuit, quote, 'careless, aggressive, and oddly personal.' The company also accused Apple's lawyers of mistakenly emailing the wrong person after confusing two people with similar Asian surnames. OpenAI maintains it has no interest in using another company's trade secrets and says the suit is, quote, 'based on false information.' The hearing has been scheduled for October 1st. Here to unpack this drama, we are speaking with Alex Heath, author of the Sources newsletter. Alex, it's good to see you. Let's just start with Apple's preliminary injunction, which was filed at the beginning of the week. Then we'll get to OpenAI's clapback, which was equal parts hilarious and important. What is Apple saying here? What are they accusing OpenAI of now?
Well, they're basically suggesting that there's more to the story than they've let on previously. That the corruption, as they see it, runs deeper. And I think most importantly, as you said in the intro, they're wanting a preliminary injunction. I mean, let's be real, Apple's trying to slow OpenAI down. That's what they're trying to do. They're trying to keep this launch that they have for their first device later this year from happening, derail the whole thing, freeze employees from continuing to work on things. And that's why I think we saw that OpenAI response that you talked about.
So, what do you make of that response? They started with that point about Apple's lawyers emailing the wrong person, and they specifically mentioned that they confused the names of two Asian people, which is, I mean, that seems intentional.
It's embarrassing. That's also something you put into a case like this to get people like us to talk about it rather than the merits of the evidence. It's a bit of a distraction. It's like a 'look over here' thing. They're accidentally emailing people. You'll also notice I'm no lawyer, but you'll notice the very specific language OpenAI has used. 'We have no interest in using trade secrets.' Like saying to my wife, you know, after I snuck a cookie, that I have no interest in eating cookies doesn't negate the fact that I maybe ate the cookie, right? These are very different statements. Like you could say, 'We have not done this and we're ready to fight this in court.' They're not saying this. They're saying, 'We have no interest in this.' I think probably both parties have some embarrassing things that they don't want to come out, is my read of the situation and the way they're messaging it. It's a very nasty lawsuit. I mean, OpenAI was saying that this, you know, way that Apple's approached this has felt oddly personal, and it's like, yeah, no, it is super personal to Apple. You know, you hired Johnny Ive who ran design at Apple. You hired, as Apple has put it, you know, hundreds of ex-employees. Eddy Cue's son is working at OpenAI on this hardware. I mean, it is very personal. Everyone knows each other. They go way back. And Apple takes these things very seriously. They've been very consistent, even back to Steve Jobs, on litigating these kinds of things, taking, you know, employee poaching very seriously, suing ex-employees for suspected leaking. This is not out of the norm of them to behave this way. I think OpenAI going, you know, they start with saying how much respect they have for Apple and then saying like this is beneath them. It's a tactic, but it also doesn't speak to the merits of what Apple has said. And if you look at the texts that OpenAI has produced to try to back up, I didn't see a smoking gun there that, you know, Apple's totally in the wrong here. I just see a lot of he said, she said, hearsay. Yeah, maybe some ex-Apple employees reached out to the people at OpenAI asking just innocently for stuff back, and Apple's using that to say, 'Oh, OpenAI people are leaking proprietary info or taking it from Apple.' There's just a lot of like very messy energy to this that suggests these two companies hate each other.
And I haven't seen a smoking gun on either side. I see a lot of like potential room for more embarrassment on each side. And I think you see that even in the way OpenAI has responded.
Well, that was sort of what struck me in OpenAI's response in the blog post that they published. I was looking for them to make the actual counterargument to the claim, but I couldn't find it. I thought I was seeing it when I was seeing all of their accusations because the language was very powerful and very accusatory. But to go with your stealing cookies analogy, it kind of is like, 'Hey, no, I didn't steal,' or they didn't say, 'I didn't steal cookies.' The accusation was you stole the cookies. And then the response was like, 'Yeah, well, you didn't do the laundry earlier.' Or it's like, 'I have no interest in the cookies. Maybe I did eat them, but maybe I did it accidentally.' And that's maybe where this lands is like there were some unintentional transfers of trade secrets, and that's bad. And Apple's using that to really go for the jugular and slow things down. I would not be surprised if that ends up where this lands, but we don't know, right? Like you and I haven't seen all of the discovery. It hasn't happened. You know, OpenAI is producing these texts. To me, these texts don't really meaningfully move anything forward on the arguments on either side. So, I think we'll have to wait and see how Apple responds. You know, it'll be really interesting if this settles or Apple gets the injunction. I mean, OpenAI definitely responded because of the injunction, because if that were granted, they'd have to pause work on their first device.
I mean, what really is the point of posting this blog if they're not actually addressing the merits of the case and if it's not going to hold water really in the legal sphere? I mean, I know you're not a lawyer.
Well, I don't know. So, I don't want to speak to like, I don't know if it'll hold water as someone who's just following the case. To me, I didn't see a strong rebuttal. I did see, you know, like Hawkan, like the most senior person that they're accusing at OpenAI, the former Apple leader. You know, I did see OpenAI have a very simple blanket, like he always told people not to give him trade secrets kind of response. Didn't address like any specific. I mean, Apple's very specific about how, you know, OpenAI employees allegedly coerced information out of people. And OpenAI didn't get into detail on that in its response. It was very blanket. And again, this like 'we have no interest,' it's not the same as saying you didn't do it.
It's just not very specifically lawyered.
And I've seen much forceful responses where, you know, usually the standard is like, 'This is meritless. We believe this case is meritless and we look forward to defending it in court.' Right? You're not seeing that here. You're seeing a lot of like, 'Why is this so personal? We have no interest.' Like, it's very, it's very like teenage angsty.
Yeah, it's really interesting. What do you think this means for the launch of this hardware device? I mean, where do we even stand on this hardware device that OpenAI has been working on? Is that still happening?
I mean, the latest I've heard and that others have reported is they definitely are on track for an unveil sometime later this year of the first device, which is supposedly going to be this kind of Alexa HomePod-like AI speaker with a bunch of sensors on it that kind of sits at your desk or goes on a table and ambiently takes in the environment, maybe even interrupts you, essentially has like an AI personality, maybe your AI chief of staff kind of in a way, and takes in the world around you. And then obviously they have a family of devices they've said they're working on. I think we're going to see probably some kinds of earbuds, maybe a wrist thing, some glasses. They're not going to do a phone. But I'm sure Apple would love to slow down the release of this. I mean, I think Scott has been saying that as well, that like it's worth probably the legal fees just to like introduce chaos into this very competitive moment.
Whatever OpenAI though is putting out in the fall, like it's not going to cannibalize iPhone sales. So, there's no like near-term risk to Apple here. I think it's more of like the principle that Apple feels very betrayed and yes, it's clearly very personal. You know, Hawkan Tan, the most senior executive at OpenAI they're accusing of leaving Apple and taking secrets and coercing for secrets, you know, used to work very closely with John Turnis, right? The new CEO of Apple incoming. Like, these people go way back. And so it's also very telling, I think, and interesting that Johnny Ive is not named in the suit. I mean, I know that's been discussed before, but he continues to stay out of it, which to me suggests there's some kind of blanket agreement there that I'm not reporting this. I'm just speculating that there's an intentional reason he's been left out of it and maybe it doesn't mean that he's not implicated, but Apple isn't able to include him.
Say the preliminary injunction is granted, Apple wins that, and the hardware launch is at the very least put on hold or maybe even just cancelled. How bad would that be for OpenAI? How important is it to them?
