In late March, Mr. Gray Powell, an Apple computer engineer, inadvertently left what was a secret prototype Fourth Generation (4G) iPhone at a bar in Redwood City, California. R. Brian Hogan found the phone and ultimately sold it to a technology blog site called Gizmodo for $5,000. Gizmodo's president Jason Chen was instrumental in inspecting, photographing and describing the iPhone 4G on the Gizmodo blog. There were no attempts to reverse engineer the phone, download or copy any programming code or break into systems. There were just some basic external and internal observations, photos and video that Gizmodo released on its blog.
When the story broke on the blog, Apple immediately sent Gizmodo a letter asking for its "device" back. Gizmodo promptly turned the phone over to Apple and it looked like the matter was over.
Shortly after returning the phone, Jason Chen was served with a search warrant at his home that authorized seizure of essentially all of Chen's computer and electronic equipment. The warrant was based on potential violations of various California penal statutes, including theft of trade secrets. Representatives from Apple branded the prototype as "invaluable," and stated that release of photos and information about the prototype would damage Apple since it would entice consumers to delay purchases of new iPhones until the 4G phone was launched. When served with the warrant, Chen had no option but to comply and his equipment was seized.
Mr. Chen has not been charged with any crime. Neither has Mr. Hogan, who found the iPhone 4G and sold it to Chen. The iPhone 4G has been returned to Apple and Apple has not initiated any civil proceedings against anyone regarding this matter. It even appears that the engineer who lost the phone in the first place remains employed by Apple.
However, this story continues to raise interesting legal questions and some lessons from an intellectual property perspective. Though Chen has not been charged with any crime yet, what could he possibly be charged with? He bought a phone. That phone was found by someone at a bar. If the phone was found, could not returning it to its owner make it a theft? Could Chen then have liability for buying stolen property or misappropriation of trade secrets? In addition, issues surround the search of Chen's house and seizure of his computer equipment. Beyond these criminal law and search and seizure issues, there are potential First Amendment issues involved in this case. Since Chen was acting as a reporter for the Gizmodo blog through all of this, the First Amendment and its protection of the press is implicated and the government is very limited in what it can seize from the press relating to a story it is covering. Thus, the entire seizure may be improper and no evidence obtained could be used against Chen—when and if he is charged with anything.
Also, it appears that another alleged iPhone 4G prototype has surfaced in Vietnam. There, someone claims he purchased an iPhone 4G in the United States, for $4,000, in connection with the purchase of an iPad and returned to Vietnam with both items. The phone then turned up in the hands of a Vietnamese technology blogger who, like Gizmodo, posted photos, videos and descriptions of the phone's exterior and interior. How this will play out in Vietnam is uncertain at this point in time.
Lost in all of this is the actual iPhone 4G at the root of the story and what protection it deserves as a prototype. When one envisions a next generation product under development, like the iPhone 4G, one thinks trade secret. That is, new products are generally kept confidential during development and before release to the public. This is one of the tenets of trade secret law: the owner of a trade secret, which is something not generally known that gives the owner an advantage over competitors, must take affirmative steps to maintain its secrecy.
Here, the iPhone 4G was out in public for some reason, perhaps field testing. An item out in public will generally no longer be "secret." Once the phone left Apple's offices, was carried to a bar and was then left for lost, it may have transmuted into something no longer "secret." Further, once in public, readily visible aspects of an item are no longer "secret." Here, Gizmodo took photos and video of the iPhone 4G's exterior and interior components and offered observations and comments on same. Gizmodo did not try to reverse-engineer the phone, break into its code or software, or otherwise delve into the programming that makes the iPhone 4G what it is. What Gizmodo did was reproduce what is readily visible on the exterior and interior of the item.
Based on this, though issues remain in this matter regarding theft, search and seizure, and First Amendment, the question as to whether there has been an infringement or theft of Intellectual Property rights likely going to be a minor element. However, this iPhone saga provides a powerful lesson nonetheless. Trade secret protection for prototypes will generally apply only where the items are cloaked in secrecy, even in public. If a company is going to field test prototype products and wants to maintain secrecy over them, it must take precautions to prevent the public at large from using, viewing or obtaining the prototype, and take steps to avoid letting the product fall into the hands of the public at large and the press.
Vol. 53, June 2010