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Apple’s trade secret lawsuit against OpenAI is putting a spotlight on a growing battle over physical, consumer-facing AI products as Silicon Valley pushes toward the next phase of the technology’s development.
The high-stakes suit centers on allegations that OpenAI stole confidential information about Apple hardware, as the ChatGPT maker reportedly pursues its own smartphone.
The battle between Apple and OpenAI is part of the brewing competition around hardware for “physical AI” products like phones, computers, and robotics. Legal and industry experts said it could be just the beginning of such disputes.
“This case underlines that the next phase of the AI battle will be fought in factories and living rooms, not just in data centers,” Paolo Pescatore, a tech analyst and founder of PP Foresight, told The Hill Tuesday.
“The AI race is moving beyond models and chatbots towards who controls the device, interface and direct relationship with the consumer,” Pescatore said. “As AI becomes physical, industrial design, components, manufacturing expertise and supply-chain relationships are becoming every bit as valuable as algorithms.”
Apple filed the suit last Friday, accusing OpenAI and two former employees of stealing Apple’s confidential information and handing it over to the AI firm when they joined the company.
Attorneys for Apple alleged OpenAI has “instructed” the company’s employees to bring proprietary information like design prototypes, tools or communications with vendors to interviews to discuss details about their work.
One of the named defendants is Tang Yew Tan, worked for Apple for 24 years, most recently as vice president of product design for the iPhone and Apple Watch, before joining OpenAI as its chief hardware officer.
Apple accused Tan of meeting with OpenAI or its collaborators before he left Apple, discussing company meetings with a supplier and emailing himself information about Apple’s supplier. At OpenAI, he allegedly sought insider knowledge from Apple employees when interviewing them for roles at the company.
While the suit centers on trade secret law violations, industry and legal observers suggested it is driven by the fierce competition between the tech giants, which partnered in a deal less than two years ago.
“This lawsuit isn’t just about the trade secret claim, it’s in my view an early indication of the battle over AI and that it’s moving from software into physical products,” trade secrets attorney Jeffrey Farrow told The Hill.
“For the past few years, technology companies have competed over foundation models and cloud infrastructure and in the future, they’re going to compete over who builds the devices that people interact with every day,” added Farrow, a partner and litigation department chair at Michael Robinson.
OpenAI has one of the most popular AI products, but the iPhone maker still has a decades-long grip on consumer technology and design.
OpenAI has reportedly been developing a smartphone with AI agents that could compete directly with Apple’s landmark iPhone. OpenAI CEO Sam Altman said last November the forthcoming device will be more “peaceful and calm” than an iPhone, while court records indicate the firm is also looking into custom earphones.
The company stoked more speculation last year when it acquired the AI hardware startup io, which was co-founded by Tan and Apple’s former design chief, Jony Ive. The latter was notably not named in the suit.
When asked about the suit, tech analyst Dan Ives said the io acquisition has madeOpenAI “a lot more competitive” to Apple.
The suit claims more than 400 former Apple employees now work for OpenAI, though Silicon Valley firms are known for their revolving doors and highly competitive offers.
OpenAI has shared few specifics about its device plans and timeline, though Chris LeHane, OpenAI’s chief global affairs officer, said in January the company is “on track” to unveil its first device in the second half of this year.
Ives suggested OpenAI may not be an immediate threat to Apple, but “down the road, Apple needs to defend their territory.”
“It was a smart move for Apple to kind of put a stake in the sand and make sure than OpenAI knows where Apple stands,” Ives said.
Altman wrote on X he is “not afraid” of Apple, but has “tremendous respect,” for the company, calling it “s-tier,” a phrase denoting one as the best in their class
Still, the suit is likely to inflame an already-tense relationship between the two firms, which first partnered in 2024 to integrate ChatGPT into Apple’s devices.
Reports emerged in May that their partnership had strained and OpenAI was considering legal action over failing to get the expected benefits from the deal.
Apple is asking the court to issue a preliminary injunction to stop the named defendants from using the trade secrets and confidential information, along with monetary damages.
The suit could be a major obstacle not only for OpenAI’s hardware ambitions, but also its plans to launch an initial public offering.
Bryan Sterba, a partner at the tech litigation firm Lowenstein Sandler LLP, said the case, especially if it does not settle quickly, could “really, really slow down OpenAI’s plans to go to market,” and “hang a cloud” over the firm’s other transactions.
“If the trade secrets at issue referenced by Apple are relevant to all of those physical AI consumer products, that would tremendously hamper their ability to commercialize in the near term,” Sterba said. “This will really affect their ability to continue doing [research and development], to continue investing.”
Apple’s lawsuit is the latest challenge Altman has faced involving formerbusiness partners or employees. Just months ago, the OpenAI founder fended off a challenge from SpaceX CEO Elon Musk, who formed OpenAI alongside him in 2015.
A California federal jury unanimously rejected Musk’s claims over the company’s alleged shift away from its founding mission.
The jury found Musk took too long to file the lawsuit, missing the deadline for the three-year statute of limitations, and the judge threw out all of the claims.
“With the trillions of dollars up for grabs, there’s going to be a lot of competition for employees, and you’re going to see a lot of moves in Silicon Valley and companies are going to do what they need to do to protect themselves,” Ives said.
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