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. OpenAI responded by saying 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 I 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 to go public.
Potential Delays and Strategic Motives
"Even setting aside whether or not the court grants any kind of injunctive relief or any kind of restraining order over what OpenAI is doing, it just naturally can lead to that sort of situation where it's going to cause some delays 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 do this stuff willy nilly."
With all those plans on the line, will OpenAI try to settle this as quickly as possible, or did it learn from its recent courtroom victory against Elon Musk that it can endure the cost and embarrassment of a trial? Kirsten, at least, predicts the latter.
The Hardware Device and Social Implications
Kirsten asked Sean how he felt about Sam Altman listening to him with a little device possibly in his pocket. Sean replied, "I'm good. Maybe that's predictable, but I'm good. No thanks."
Sean noted that this is allegedly the first product OpenAI has been working on in its hardware division with Jony Ive and company. They have been really coy ever since that weird video they put out last year of them sitting at a coffee shop or bar in San Francisco and talking very vaguely about hardware and legacy devices, meaning laptops and phones. "So if this is the direction they're headed in, all power to people who want to have somebody like that always listening to them. This is not going to be for me."
Anthony added that part of what we have to remember about those kinds of devices is that, depending on how mobile it is, it is not just listening to you, it is listening to the people around you. "I might be fine with it. I'm not fine with it, but let's say I was. But then if we met up in-person at Disrupt, then suddenly it might be listening to all of us."
"There's all kinds of social norms that are going to have to be renegotiated if these things become widespread. I think we should make fun of and criticize people who record other people without consent," Anthony said.
Lawsuit Details and Allegations
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Kirsten brought up the device that has been speculated about for a really long time, noting that we will see what it really ends up being once it is officially introduced. But it is important in the context of this lawsuit that Apple filed last Friday.
"It was the biggest news of the week, certainly, and this is a trade secret lawsuit. It has some pretty wild allegations and we should very much emphasize these are allegations that have been filed in a complaint by Apple. But what it is accusing OpenAI of is a pattern of misconduct at the highest levels, specifically directed towards OpenAI employees who used to work at Apple. And in fact they've named the chief hardware officer Tang Tan in this lawsuit," Kirsten said.
"This is all important because Apple is accusing OpenAI of essentially stealing their trade secrets, but in the context of that, this could be then used for a competing hardware product. I'm wondering if maybe we don't get into whether this lawsuit has merits, because we haven't gone through full discovery, but what are your initial impressions of the lawsuit aside from the fact that wow, this is going to be entertaining?"
Sean responded with two points. First, this is a pretty big risk potentially to whatever it is OpenAI is working on. Even setting aside whether or not the court grants any kind of injunctive relief or any kind of restraining order over what OpenAI is doing, it just naturally can lead to that sort of situation where it is going to cause some delays in what OpenAI is working on, which he suspects was probably part of the reasoning behind Apple doing this. "They don't do this stuff willy nilly."
Second, we know that OpenAI has filed confidentially for an IPO. We think it might happen as early as the end of this year, or early next year, if you believe Sam Altman's cautious language around the IPO. This raises a whole bunch of questions around that because, on the one hand, we think their business right now is probably overwhelmingly the software; they are not really factoring in any hardware business into that picture at the moment.
"They're about to go to the markets and they're going to be pitching bankers and investors on where they think their addressable market should be, and if they have a big amount of that pegged to a potential hardware division and hardware products, this could be a huge risk to that and changes a lot of the calculus of sort of how the IPO gets priced. So that's where my head's at," Sean said.
Talent Drain and IPO Implications
Anthony pointed out one allegation that he assumes Apple must have pretty solid numbers on: Apple said more than 400 Apple employees now work at OpenAI. Granted, both companies are very large with many thousands or tens of thousands of employees. So as a percentage, it is 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. With the context of the potential IPO, how much damage did OpenAI ultimately take from a marketing and brand perspective from the trial it already went through? That it seemed to basically win, but there was a lot of not-terrible-but-kind-of-embarrassing dirty laundry that came out in the testimony. To what extent are they just like, 'We do not want to go through that again'? Or did they take the lesson of, 'Hey, we went through it and we survived and we'll be okay if we have to do another trial with Apple'?"
Kirsten fully predicts the latter.