Transcription
Did OpenAI just steal the most critical secret hardware supply chain magic that Apple has been working on for the last couple of decades? The answer is probably yes. And it came in the form of this leaked text message saying, "Lol, I found out I can access the network storage." So funny from an Apple engineer who went over to OpenAI.
Now, this Apple engineer, his name is Changlu, and he had a company MacBook that he kept after he left. And he found later on there was an authentication bug that left his access alive even while he was at OpenAI. So he took this stolen laptop and downloaded over a thousand pages of confidential material covering a ton of unreleased products, engineering presentations, and technical specs on unreleased Apple hardware products.
Now, who's the best hardware product maker in the world for consumers? It's Apple. And now OpenAI has this treasure trove of information that they have been using to build, allegedly been using to build their new hardware device that we're tremendously excited about. So there is a lot of chaos going on in the story. But right now, the story is Apple is suing OpenAI, and they have a lot of ammo to back this thing up. And all of this comes off the back of OpenAI releasing GPT 5.6 this week. So they had so many ups and so many downs.
But yeah, Friday, July 10th, they got slapped with a lawsuit from none other than Apple, claiming that they've stolen a bunch of trade secrets, specifically around how they build the future AI hardware devices. And as we know, OpenAI has been working on quite a few of these devices, rumored to be going online around February 2027. They acquired Johnny Ive's startup IO. Johnny Ive, famously, one of the chief product designers at Apple, for around $6.5 billion. So, it's a big deal for Apple to make this claim.
Now, imagine you are interviewing for a new job at OpenAI. Before going into your interview, they ask you to bring a piece of hardware from your current company, that being Apple, to show and tell during your interview to show how the circuitry design works, to show how the engineering design completely works in your interview itself. That's exactly what a 24-year veteran from Apple, ex-veteran, VP of design, he designed the iPhone, he designed the iWatch, called Tang Yu, did at Apple. He is officially, um, OpenAI's Chief Hardware Design Officer and he's responsible for launching their future AI devices.
There's another guy that you mentioned earlier, Josh, called Changu. He's an 8-year electrical engineer from Apple who also left and happened to have a laptop which still had access to Apple's file system. So, he stole a bunch of blueprints. This basically reads like some kind of dramatic movie. It kind of, I'm kind of, I've got "The Social Network" playing in my head, like from the Meta kind of vibes, but, um, this is a crazy lawsuit if true. And if it does end up getting taken to the end of this case where there's a judgment placed on OpenAI, this could defer the launch of their AI hardware devices by as much as a year. It's pretty serious.
And if you scroll down just a tiny bit, we'll see the three people named, or I should say the two people that you just mentioned and one missing name. Now, we have Tang, we have Chang, which sounds like a joke that these are the two people at the core of this lawsuit. But there is a third person who is notably not named, and it's Johnny Ive and his company LoveFrom, or I guess specifically IO here, who already had a lawsuit filed against them for a totally different reason. So if you remember this image on screen when they made their big announcement that OpenAI was acquiring Johnny Ive's company IO for, I think it was like $4 or $5 billion, they made this really nice announcement video, they published this blog post about it, and then immediately within the week, they got sued by another company named IO, and now they have to actually change their name. So that's a totally separate lawsuit, but notably, Johnny is not named at all in this Apple lawsuit, and you have to ask the question, why?
Well, I think one of those is like, could you imagine Apple suing Johnny? That would be the most diabolical headline ever. But perhaps the reality is is that they actually didn't have a whole lot to do with this. And that a lot of the kind of ownership of this problem comes directly from the OpenAI team and these two people because from the sounds of it, uh, the OpenAI team was very much aware of what was going on. In fact, they were building and actively poaching up to 400 people from Apple's design, engineering, and their production teams to help them build this new AI hardware infrastructure system.
It's important to note that California, where all these companies reside, don't actually have a non-compete law. So, technically, you can leave one company on one day and join a competitor immediately the next day, and there's no like non-compete laws that can be enforced. So, all of that is legal. What is potentially illegal is, um, what these employees exactly did. So I want to, I want to just spend a moment kind of describing exactly what these executives did, which is what has got OpenAI into such hot water.
So let's start with the 24-year Apple veteran. He was the VP of design. So he was responsible, heavily responsible for designing what the iPhone looked like, how it worked, and he did the same for the iWatch as well. He's now OpenAI's Chief Hardware Officer. He has assumed that role since January of this year. So, it's a pretty short term. Um, and what he's reportedly done is before leaving Apple, he emailed himself a list of the suppliers that Apple has for their entire supply chain so that he knew who to reach out to, contacts and friendlies that he's made at those supplying companies, so that he could replicate basically the same thing at OpenAI.
Another thing he did is he reached out to a bunch of Apple employees immediately after he assumed the new role and gave them the guide as to how to evade Apple's restrictive policies around talking to competitors. Number three, he asked them to come for interviews and as I mentioned earlier, bring a piece of hardware that they're designing to prove that number one, they're working on Apple hardware and two, to show them, you know, some of the secrets as to how to do this. Uh, and then number three, he basically like outlined the entire policy at OpenAI as to why they could just kind of leave and join OpenAI. So the idea is he allegedly made this incredibly obvious that he's trying to poach these specific types of hardware engineers, and I don't think that's just good practice in general, and Apple's just coming for blood.
The second guy, Changu, he kind of accidentally fell into this file case, if "accidental" is kind of like a term I'm using kind of generously here. Um, he was an electrical engineer. He stole a laptop that was technically Apple's property. He didn't return it. And when he opened it on his first day at OpenAI, he realized that he still had access to the filing system and even the chat system at Apple. So, he basically reached out and stole a bunch of files that were incredibly proprietary. And that's who Apple's going after.
>> Yeah, the allegations list is pretty long. You mentioned a couple here about the things that he was doing, but then there's another one which is the "homework pattern," they call it. And in one instance, an Apple employee screenshot it and downloaded files about this like highly confidential project prior to the interview with Tan. And then he asked about the project in the interview. And Apple saw this and they're like, "Wait, this is like an established pattern," is what they call it, where candidates study confidential material before the interviews, like it was exam prep. Because Tan was so familiar with the internal workings at Apple, he already knew all of the insider projects, the things that weren't released, but he didn't know all of it. So what he did is he, he had these people come for interviews and he said, "Hey, I know you're working on this project. Tell me all about it. Explain it to me, and if you explain it well, you'll get a job here." And the reality is is that they were just filling in the blanks on the places that he wasn't either up to date on or he didn't fully know. And this was this way of allegedly, at least, this way of kind of filling the gaps in his knowledge base to fully understand what's going on at Apple so that they could emulate it. And inside of OpenAI, a similar thing happened where he told people how they could offboard themselves in a way that was discreet and could get them the most information out of Apple. He encouraged them to not say who the new employer was, allowing them to get two additional weeks of access to the servers to continue to collect information and share it with their new employer, and kind of reverse-engineering the exit process at Apple to optimize it for leaked information going to OpenAI.
These allegations are pretty insane. This is like a lot of proprietary data. And when you're thinking about companies who you would want to steal trade secrets from, I don't think there's one better in the world than Apple, who has created exactly what OpenAI has been trying to make, and they've done it at a larger scale than just about anyone else. So, this is like a huge amount of allegations that if found guilty, you have to imagine it's going to cause some serious problems for their, uh, their hardware team over there at OpenAI.
>> It also just seems so sloppy from these two executives at, uh, at OpenAI.
>> It's a mess. Like asking someone to literally email their personal accounts is like so obviously out of practice when you're at a company that has confidential information. Like, I don't know why you would even try to do that, but obviously they thought they had some kind of advantage. Um, but I don't think they made any kind of attempt to, uh, kind of keep it discreet. I mean, 400 employees from Apple have now moved over to OpenAI. Predominantly, the most of them are working on the hardware thing specifically, which brings me to the question, why is Apple going out of their way to file a lawsuit to what is relatively basically just still a startup? Um, they don't have the cash balance. They don't have the profit margins that Apple has. Why are they worried about this startup OpenAI? It brings me to think that they know OpenAI has built something quite effective.
Now, the rumor mill basically says that OpenAI has been working on some kind of a screenless device, maybe a series of different devices that can sit innately on your desk and listen to everything you say, that can see things that you see, potentially maybe even an earbuds with a camera. Now, if that sounds familiar, that's because a lot of the leaks from Apple themselves is that they're releasing a suite of devices that are going to look and sound very similar to that. And so, it, I'm kind of piecing the, uh, the puzzle pieces together in my head right now. And I'm realizing, oh, maybe they did blatantly just copy the designs that Apple had and they're trying to beat them to the punch.
Now, Apple's timeline is they're supposedly meant to announce three new devices: a bunch of AirPods that have cameras on it, some kind of necklace pendant device that can either sit in your pocket or sit around your neck, as well as a pair of smart glasses that can see everything you see. They're looking to announce it by, uh, the end of the year, which I think is around the time that OpenAI is planning to do theirs, but OpenAI is planning to launch theirs officially, so start distributing them by February of 2027. And they're aiming, according to Sam, for 100 million units. So, it got me thinking, this is probably one of the better marketing schemes for OpenAI, even though it comes in the form of a lawsuit. It's just interesting to see.
In the case, it doesn't completely derail their hardware efforts, which according to Mark Gurman, I was reading his tweets earlier, he is like the guy when it comes to Apple leaks, he's saying in the immediate aftermath of the lawsuit, OpenAI still believes that it's on track to release their first product early in 2027. That's the February release date, which is on track again with the kind of end of year announcement that we're planning to get in terms of what the product's going to look like, hopefully how much it's going to cost, kind of showing the usability of it. He says the problem most likely is that they will now have issues with their suite of products and any sort of iPhone competing device because of a lawsuit like this, depending on how it goes. So the hope is is that we still get that OpenAI device version one, but the second version of that, the third version, the family of devices might find some complexities if it's found out that this is true and that OpenAI really is guilty in a lot of these things.
And I have to think about Apple of today versus the Apple of maybe 15 years ago and how different they've handled these situations because this has been going on for a while now, right? It's like this has been happening since February. They found out about it, which is funny because there was a lot of people who went to WWDC and were talking to the Apple executives about the OpenAI partnership, and it wasn't really very warm the way they were talking about it, but nobody knew why. And it's because they were aware of what was going on in the background, but they didn't actually do anything until so much later.
And if you remember, there's that current partnership with OpenAI and Apple where Siri is serving a lot of queries to ChatGPT directly, which is crazy because I mean, we have this leaked email on screen from Steve Jobs back from 2005 where they had a similar thing happened where Adobe started to hire a few engineers from Apple. And this was a big no-go for Steve because nobody tries to poach engineers from anybody's companies. They have to earn them through merit. And he says, "Adobe is recruiting from Apple. They have hired one person already and are calling lots more." And this was only one person. He said, "I have a standing policy with our recruiters that we don't recruit from Adobe. It seems you have a different policy. One of us must change our policy. Please let us know who." That was one employee. Could you imagine 400 employees with trade secrets going to another company and what that would have looked like? OpenAI would have been that contract would have been ripped apart the next day. iPhones would not have been serving any queries, and they would have been in an all-out war probably in the public within 24 hours. This has been going on for what, close to six months now? And this is the difference in Apple. It's like Tim Cook is, is very much the peacetime CEO. He was great at building a business, great at building revenue, not much of a jerk. Apple hasn't really had a jerk in charge in a long time. And that's what I'm hopeful that John Turnis can start to do. Hopefully, he is kind of maybe the one pushing this. We know John Turnis is very much in the hardware industry. He would be very close to this. In fact, he worked very close with, I think it was Tan, in terms of the guy actually wanting to take John Turnis' job as the lead of hardware. He didn't get it. John Turnis wound up being CEO, but he's very deeply involved and he understands this. And I have to imagine that's probably where the lawsuit came from is Turnis kind of stepping into a CEO role and saying, "No, I'm not going to stand for this."
And if you're wondering, uh, the measures or the extents that Apple goes to to try and catch you, uh, leaking their information, uh, we have a list over here. So the tweet goes, they include invisible watermarks in documents and files, subtle color changes for one pixel in an image so they'll know if it's used, specifically that shared a specific artifact externally outside of the company. So you can imagine that it's, it ranges. It's individual for a particular employee. Typeface, one letter in a memo italicized or different font size. File name, slightly different identifiers for a file. Basically, they run through this entire list to make sure that they can not only know when someone's leaked information, but catch the specific individual responsible. And I wonder if they made this same assessment when they figured out that Tang Yu and Changlu were the ones that leaked all of this information.
Now, it's interesting the point you made around, um, you know, John Turners is assuming the new CEO role in a couple months now at Apple, and he is a hardware expert. And Apple, I think, has realized over the last two years as they've missed the entire AI model race that their number one moat, aside from having the most consumer users for any kind of tech company in history, is hardware. It's one thing being able to have a really cool AI model. It's another thing being able to distribute it effectively to billions of people all over the world. It is something that, uh, the company Snap is trying to figure out. It's something that OpenAI is trying to figure out. It's something that Google's trying to figure out with Android and their mobile phone distribution. But Apple has been the number one winner. It's the reason why they're like the number two or three most valuable company in the world. And I think that Apple realizes that OpenAI poses a significant threat if they're poaching not only 400 of their employees, but all their trade secrets completely.
Now, if you're wondering how the software and the hardware component kind of like melds together, imagine you're talking to an AI model every single day on your laptop, or it builds up this personal history of you. You want it to travel wherever you go. You want it to eventually leave the computer and see the things that you see and ingest the information that you see. Why? Because the more information that you feed these AI models, the smarter and more intelligent they become around you. So, imagine the best way to do this is I'll have it on my iPhone. I mean, Josh, you probably interact with your AI agents or your AI models from your phone pretty frequently. I know. I know. I do it as well. I speak to it in voice mode. And I always wonder like, hm, I wonder if you could see what I see. I mean, I already do it. I take pictures of different things and I send it to my chatbot. I'm like, hey, can you explain this to me? Or like, this is what I'm looking at. This is the information that you need. And it just reads it and ingests it. It would be cool if it did it 24/7, or if you could hear the conversation or the meeting that I was in. And all these different software features, all these different, uh, kind of inputs for all these, uh, various parts of data are kind of fractured at the moment, but Apple is the number one company that can pull off an amazing hardware suite. And so they know this and they see OpenAI stealing their stuff and they're like, "I'm not going to let you do this." So I kind of understand the extent and measures that they're taking. And I hope John Turnis goes ham on this. I hope the lawsuit yields something quite interesting.
OpenAI currently is the only major Frontier lab that has faced like, I don't know, what is it, five lawsuits. I saw, uh, Elon Musk taking a dunk earlier, but he actually forewarned this in 2024. He's patently absurd that Apple isn't smart enough to make their own AI yet is somehow capable of ensuring that OpenAI will protect your security and privacy. He's referring to the deal that they signed with OpenAI where ChatGPT will be used in Apple products. So I get it. Like, I see why he's doing this. Yeah. I think Apple needs to harden up a little bit. And it's been funny actually seeing the commentary from Elon publicly because he is just really leaning into Sam and he has been roasting Sam on Twitter for the last couple of days. It's been rough.
But you mentioned all the safeguards that they do to keep leaks from happening. And yet simultaneously, just, I think at the end of June, like a couple weeks ago, there was a 630 GB leak of the new iPhone product suite from their Indian manufacturer, Tata, I believe the name is. And it was the biggest leak in Apple history by far. It had all the quality assurance testing. It had literal images and CAD design files of the next iPhone that we're going to be getting in September. And it was this huge leak that kind of showed a lot of company secrets just open to the public. 630 gigabytes of leaks. So Apple has a serious problem on their hand. They need to harden up. They need to lock things down because it seems like they're really just running on these, these processes that have existed for a very long time, but there's no one there to really enforce or strengthen them. And I really hope that Apple gets hard again. And with John at this as the leadership position, he starts to clamp down and he starts to actually cause some havoc. It's like Apple has been run by by Mr. Softy for a long time. He's an incredible CEO and he's done amazing things, but like Apple is very much in wartime right now. The iPhone legacy is not going to last much longer with all these incumbents kicking their ass in AI and building somewhat competitive hardware products, TBD, assuming they're allowed to get them out the door. But like they're, OpenAI is doing what they need to do to win, and Apple is not really doing anything to stop that or to put their foot on the gas. We haven't had any new products from Apple in a long time in terms of categories. They still have not shipped the new Siri. So, we have a, there's there's definitely a bone to pick with Apple there, and I hope this is the first step of them really turning it around and shifting the tides.
It's also important to note that like OpenAI tried to sue Apple earlier this year, which I thought was funny for not really fully, um, doing what they promised for their contract around ChatGPT integration. And the reality is is that they probably clawed that back real quick once they found out what was actually going on. It's just a disaster. It's been a train wreck for everybody involved. Apple actually reached out to OpenAI in February alerting them of all of these findings and happenings. OpenAI did not reply. So, it's like this, this whole thing is kind of a train wreck here, and it's going to be interesting to follow the lawsuit and see what else comes out because if this is already public and this is just in the initial filing, oh my god, the emails that are going to be leaked are going to be spectacular.
>> Well, that, that's one thing about this entire thing. If the lawsuit does go to court, we are, like, OpenAI has to give out their confidential information. We're going to see the designs. We, we're going to know exactly the code names of what hardware devices they're trying to build, what that looks like. Uh, all exposed for, for everyone to see. I saw a blog post from Satya Nadella over the weekend. I don't know if you saw this, Josh, but it was called, uh, "The Reverse Information Paradox." Now, it's a long essay, but I'll summarize what he's basically saying. He's basically saying that typically in an information world where you have a buyer and a seller of information, the seller bears all the risk. Meaning, in order for a buyer to know that the information is good, they have to see the information first. So technically, they're getting the product before they even buy it, and then, you know, if a seller, kind of like, shows a buyer and they're like, oh, well, I don't really, kind of like, want this anymore, but they have the information, they can just get away with it. In the world of AI, it's reversed. If you are an AI lab like OpenAI, like Anthropic, you and I use these models. We impart all our information over, right, which becomes more valuable for the model to train and become more intelligent. But we're just giving that away for free. In fact, we're paying them for the privilege. We pay hundreds of dollars a month to access this model that only gets smarter from personal information that we voluntarily give them. And so the point that Satya Nadella was making here is, in a world where this is the case, enterprises need to safeguard their information. They need to harden down their systems and they need to make sure that there's no proprietary information leaking. This is the exact same thing that's happening with Apple, just on hardware secrets specifically. But I think it's going to become a growing issue for all these major companies. Whether you're Salesforce, whether you're Microsoft, whether you're Google, whether you're Apple, you need to contain your secrets because the more that leaks out to these models, it'll just be trained from these frontier AI labs, and technically they can replace and do what you do. Now, of course, there are physical constraints. You need to get the supply chain manufacturers and all that kind of stuff, but that's just a matter of time, in my opinion. Um, and it's this weird kind of internal warfare that's waging between the tech industry that I, I honestly haven't seen before. It's very, very weird.
The the value of proprietary IP is so high, huge, and the cost of it leaking is so high. It's like when you think about an LLM breakthrough, well, how much code is actually put into a transformer? There's not that much. And if there's a small efficiency breakthrough to be had anywhere, the downstream implications of that are billions to hundreds of billions to trillions of dollars. And that could be something as short as 40 lines of code. So the, the proprietary information, this IP has never been more valuable. And therefore, these stakes have never been higher to try to capture whatever amount of it as you can and make that value apply to your company. So, it's going to be a wild race. I'm sure this isn't the last instance we're going to see of somebody stealing IP, stealing employees. I mean, this is only becoming a more vicious trend.
We found out before starting this recording that California does not enforce non-competes, which is a crazy thing that I learned today. So, anybody who's working in California can just leave and go work at a competitor the very next day. So you have to imagine that plays a big role in all of this, and it's kind of baked into the culture. This is just what happens, and companies have to work really hard to try to retain their talent, retain their IP, and just do the best they can. But that is the lawsuit. I think that's that's what we know so far. Oh, I cannot wait for this to go into court if it does. We're going to read through every single one of those emails.
Josh, let me, let me ask you a question before we round out. Um, do you think Apple is concerned and worried at OpenAI, or do you think this is just a tactic where they're like, uh, I just kind of want to put the little guy down? What do you think?
>> I think they have to be concerned. I think it, it'd be irrational not to be concerned. OpenAI has what, a billion plus monthly active users, and they have figured out AI in a way that Apple has not. AI is very clearly ascending, and the traditional consumer software space is clearly descending. There's, there's going to be this increased trend towards an AI-first operating system in a way that an iOS operating system is not. And I think that's like a serious cause of concern. I mean, you have the guy who designed all of the flagship Apple products over at OpenAI now working on this new hardware suite. We know what him and his team are capable of. Now that they have the manufacturing capabilities probably, and they have a lot of the secrets of how Apple works, that's a serious threat. I mean, if they can create consumer-grade products at Apple level with a software stack that OpenAI is capable of, that's a really compelling product. And this might be the first time that I actually buy a device other than an Apple device to use as my daily driver. Like, I can't think of the last time I used anything other than an Apple device on a day-to-day basis. I have my AirPods, I have my MacBook, I have my iPhone, I have my Apple Watch. If OpenAI releases a hardware product, I'm buying their version of it. If there are smart AirPods with cameras with full AI baked in that look really cool, like those cufflinks, I'm buying. And I think that's a serious threat to Apple. So, I would be concerned if I was them. And I think this probably comes out of a place of concern. Should they have done it sooner? Yes. After they filed that they reached out to OpenAI in February, they probably should have just filed a lawsuit back then. But I guess now the evidence that they've acquired is undisputable, and now they have a pretty strong case. So, yeah, from Apple, I'm, I'm a little worried about this.
>> I think they're worried. Um, but I also think a year from now, this will be seen as like the kick up the butt that they needed. I mean, like, listen, the bar is so low at Apple right now when it comes to AI stuff. They haven't even launched their revamped Siri AI right now that's going to be powered by a version of their Apple Foundation models and the Google Gemini model as well. So, we're going to see a lot of that start to release at the end of the year. Apple will finally make their comeback. And I honestly think that Apple hasn't even tried at this point. And so, um, if the question that is being asked is OpenAI versus Apple, is this a serious threat? My honest take is like, no. Um, to the point that we mentioned earlier, OpenAI still has a ton of challenges to overcome aside from this lawsuit, which is like figuring out the supply chain, manufacturing relationships, scaling this thing. Remember, like they only announced, uh, that ambitious goal, this is from Sam's words, not mine, uh, of 100 million units. Apple has currently 3.5 billion live devices out there right now. To catch up to that is going to take a while. In a world where supply resources are super constrained, like we had an episode last week where we talked about the memory wars and the fact that prices have hiked up 500% in the last year and a half, that isn't going to get satiated over the next couple of years. It's going to take decades to do. So, OpenAI still has a mountain to climb. And this is just another one. And it, it comes literally like two weeks after they settled the Elon lawsuit. So Sam can't catch a break, but, um, you know, I wish them the best of luck and we'll see how this plays out. We will be the first and only AI podcast to cover this in meticulous detail. But I believe that takes us to the end of this episode. Josh, any any final thoughts?
>> Um, no, I cannot wait to see this freaking device, man. We've been waiting since the inception of this show.
>> Something I know.
>> All I want to do is just see the device. Just show me the damn thing. Show me how worse and pick. Tell me what I'm going to get it in my hands and how much money it's going to cost. That's it. That's all I want to know. Everything else is just like whatever. Listen, if they have to steal a couple secrets to make it better, like that's fine by me. So, I mean, sucks for Apple. But that's an Apple problem. That's not
>> We're winners at the end of the day. The listeners, the consumers are the winners. Like, let these guys fight it out and we just get a sick product sooner. Hopefully. Sooner. Hopefully. But that's it. That's the story. So, if you enjoyed, as always, please do not forget to share with a friend, subscribe to our newsletter, leave us a review on your favorite podcast player, and with that, we part ways. We do have to ask about sponsors, too. EJ, you have a little message about sponsors.
>> Yes, I do. I do.
>> So, Josh, myself, and Luke, the producer, have been keeping the lights on ourselves. Uh, we've spun out. We're officially independent, and we are looking for the most amazing partners to work with. Um, what that would look like is if you have a company, a product, or a service that you would want to put in front of our audience. We reach up to like a million of you, uh, every single month. We would love to hear from you. We use tools, features, new ones that we don't even talk about on the show, every single day, and we would love to talk about your product. Um, a few of you have already reached out, but we would love to hear from more of you. And remember, this doesn't need to necessarily be you or your company or your product or service. If you know someone, if you have a friend, please reach out to them and let them know. Our email is in the description. You can reach out to us on X, wherever we are. We would love to hear from you. But yeah, that's it.
>> Thank you as always. And that's the episode. Thank you so much for watching as always, and we will see you guys in the next one. See you guys.