Apple claims huge loss over iPhone leak; knew who sold prototype to Gizmodo same day story broke

invisibleSHIELD case for iPad“Apple officials told police investigators that the publication of photos of an iPhone prototype was ‘immensely damaging’ to the company and represented a ‘huge’ loss, recently released court documents show,” Gregg Keizer reports for Computerworld.

“Those documents, released Friday by a San Mateo, Calif., county judge, reveal details of a meeting between police and Apple officials that ultimately led to the seizure of several computers from the home of Gizmodo editor Jason Chen,” Keizer reports. “The next day, April 20, Detective Matthew Brand of the San Mateo County Sheriff’s Office met with Bruce Sewell, Apple’s chief counsel, Rick Orloff, the company’s director of information security, and George Riley, a lawyer from the Los Angeles law firm of O’Melveny and Myers, which represents Apple. During the meeting, Riley told Brand that the premature disclosure of iPhone details had been ‘immensely damaging’ to Apple.”

“‘By publishing details about the phone and its features, sales of current Apple products are hurt wherein people that [sic] would have otherwise purchased a currently existing Apple product would wait for the next item to be released, thereby hurting overall sales and negatively effecting [sic] Apple’s earnings,’ Riley said, according to the affidavit Brand swore out for a search warrant of Chen’s residence,” Keizer reports. “When Brand asked Riley to put a dollar amount on the loss, Riley said he could not estimate it, but believed it was ‘huge.'”

Keizer reports, “The affidavit also revealed that Apple knew the identify of the man who sold the prototype iPhone to Gizmodo on the same day that the blog published its story.”

Full article here.


  1. The imbroglio over returning lost property is a matter for the criminal courts.

    The issue of loss, and its size, is a matter for the civil courts.

    It’s like this: If I steal your car, that’s a crime. Have the authorities prosecute me.

    If you lose business because I stole your car, that’s damages. Sue me.

    Apple’s claims of loss, while interesting, should have little bearing on a criminal investigation.

  2. Leaking the update of the hottest product for many years running for a multi-billion dollar company is very damaging for s multitude of reasons that don’t even need to be explained.
    On top of that laws were allegedly broken while profits were made by the offenders.

  3. At the very least, $5,000 is enough to make it a felony. Millions of dollars is enough to drive up the penalty.

    BTW – How do you know the iPhone was left on a barstool? That’s just what Gizmodo said. How do you know he wasn’t targeted?
    If I was pickpocketed, I would have gone home saying, now where did I leave that wallet/iPhone?

    Damn! Must have left it on the barstool.

  4. I saw a man with his 4G sitting on a table at lunch yesterday at my local burrito joint. He noticed that I spotted it, promptly put it in his pocket and left.

    He didn’t have a case on it and it looked just like the leaked photos.

  5. While I am on Apple’s side in most of this, I am rather skeptical about their “huge loss” claim. Given Apple’s now established pattern of releasing a new model every June/July, anybody who wanted an iPhone was pretty much certain that a new one was coming. There were more than enough rumors floating around about the phone’s specs as well. The Gizmodo article did not tell us anything new – it might have confirmed several rumors but nothing more than. I doubt if Apple will lose any more sales than they would have otherwise lost (had this whole affair not occurred).

    – HCE

  6. @HCE
    I was wondering when someone would say that.

    The average person, even iPhone purchasers, do not read tech blogs regularly. They are neither aware of nor care to keep track of the sales patterns of tech companies. They hear about launch dates from mainstream media, not geeks. My friends politely nod their heads as I yak about tech this and tech that, but it’s mostly in one ear and out the other. This reality keeps geeks employed, but it does not lead to a technologically informed society as a whole.

    We may read this stuff, but the world does not revolve around us, Apple, or even *gasp!* Steve Jobs. The consumer costs to Apple are real because even my 93 year old grandfather heard about the Gizmodo uproar. Once the Today Show and CNN – on the frontpage – started discussing the incident, awareness of the product became widespread in a manner that deviated from the norm.

  7. @wiredzen

    I have plenty of friends who have never read a tech blog in their lives and all of them were aware that a new iPhone was coming around June/July. That has been reported on mainstream news websites as well as the tech blogs. The mainstream sites may not have gone into all the rumored features of the phone but I then I doubt if people could name the new features of the 4G iPhone even after this story broke.

    – HCE

  8. “pretty much certain”, is not the same as “certain”, when it comes to a buying decision.

    Yes, the specs were not anything we couldn’t have guessed, but the Osborne Effect is real.

  9. “The affidavit also revealed that Apple knew the identify [sic] of the man…”

    If you’re going to go to lengths to call out other people’s verbal gaffes (even though the quotation marks makes the “sic” redundant), you might want to tighten up your own writing, Gregg.

  10. If it is a BLOG then almost by defintion it is a bottom feeder.

    By lowering the hurdle to enter the public media what we get is every kind of wrong, misleading and most of all self serving BS you can find.

    This isn’t to say mainstream media is without fault, doesn’t make mistakes, and is otherwise without sin…it’s just that an editorial process is just that…it’s a filter for information that in the past precluded what blogs now swim in every day. If you see the word BLOG…you should instantly put on your skeptics hat.

  11. @HCE

    It would be unreasonable to assume that every non-sale of an iPhone since the story broke was due to the leak. It would also be unreasonable to assume it had no effect. That’s why we have courts.

    I think a reasonable compromise would be forfeiture of every dime of revenue made on the story…+ a healthy sum. Message to tech blog community: your financial gain will never offset your losses when you steal to create news.

  12. @HCE and wierdzen

    Got *three* friends who have just got iPhone contracts in the last 2 weeks – all of whom have no idea about Apple release cycles. They *all* missed the Gizmodo story. I reckon if they had known they would have waited.

  13. Apple flatters itself! I would love to see Jay Leno do a man on the street interview regarding news headlines. Have three fake news story headlines and the iPhone leak being accurate and see which news story is selected as being true.

    I could say Apple’s Secrecy leads to just as much off sales as any leak of a future iPhone photo hurts sales of the current phone for a MacHead Cultist like me. I mean, I hear rumors again regarding Verizon but don’t know if true or not and Apple is not talking. Therefore, while the iPhone 4 looks tempting, I’m holding off for the summer to see what new rumors bubble up. It’s not like they are loosing a sale. They are just not getting it sooner then they probably would have wanted.

  14. In an (Industrial) Economic Espionage case, the criminal proceedings and economic loss are tied together. Apple has to define the loss. Since it was a prototype iPhone and not commercially available, was considered stolen (under CA law), was sold for $5000 (felony sale of stolen goods), purchaser published corporate proprietary information that was gained only through criminal means, Apple is within their right to claim economic damages under this Act. I think those damages range from $10M or double the loss, which ever is greater. Whether you like Apple or not, Gizmodo stepped into a very big problem. This is about the theft and release of information. This is all in addition to the iPhone being stolen and sold.

  15. @Now, Now…

    Apple controls the release of information vary carefully because it is important when the press coverage happens. The 4G will be old news to some people because of the prolonged press coverage. You want your coverage to peak at the release of your new product.

    In my opinion Apple is the best in the industry at this. You will notice that they also do not introduce another product shortly after a big product release. They have spaced the release of the iPad and the iPhone perfectly. Just as coverage of the iPad starts to die down they bring out their next product.

    The current 4G coverage probably effects both iPhone and iPod sales and nether in a good way. If you compare Microsoft and Apple, Microsoft starts talking about their next product before they even ship their recently announced product. This has to effect sales. It is a strategy used by a company that is behind because they always promise that the next one will be better and they hope to stall peoples buying decisions until they have a good product.

    Firms like Apple want to generate maximum sales in the shortest period of time so they can sell you the next great thing.

  16. @HCE and wierdzen:

    Agree that it is ultimately up to the courts to decide. From a simplistic (and non-legalistic) geekview, the simplest assessment of revenue damage would be to compare the sales curve drop-offs of the next release to historical ones…the difference between the two would be what was due to the publicized leak.

    However, since everything is debatable, there’s other factors, such as the state of the Economy, etc, etc.

    In the end, however, what will matter as much as (if not more than) “fiscal justice” will be the mathamatics of business, and if Apple runs the risk of a financial downturn in sales if they are perceived by the public as being the bully in pursuing a small fish despite this is legally correct for them to pursue.

    This factor potentially puts Apple in a no-win predicament: go win in court but lose out in sales (damage to image), or win in sales by choosing to not win in court (damage to justice).

    As such, I’d personally expect for Apple to be carefully gaging the winds of public opinion with their lawyers, to look for guidance on how best to proceed … interests of the share-holders and all of that … I can only personally hope that they show the backbone of doing things on <U>principle</U> (as they’re currently doing with Adobe, AFAIC) and make a public statement that is direct and to the point to bring this out to the forefront: ie, “We recognize that this lawsuit will probably cause us to lose sales due to negative press, but let’s not lose sight of the real issue: a thief is a thief, and justice means that he shouldn’t be able to evade justice because of <u>’business considerations'<u> regarding corporate profits.” . Or something like that.


  17. The idea that the release of a new iPhone in the summer created a “huge” loss is one that I do not believe. I’m sure some portion of society had no clue, but if those people are merely putting off buying an iPhone, then is it not a loss, it is merely a delay.

    I understand Apple’s motivation here – to scare off anyone from doing anything like this again. They need to show that they will seriously and fully pursue this.

    I just do not think they got hurt that much by this. They may have some delay in sales, but they also got a crapload of media coverage for free. Zero sum, in my opinion.

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