Beer, betrayal, a lost iPhone in Apple device tale

SAN FRANCISCO Sun May 16, 2010 12:44am EDT

Customers try out the new iPhone 3GS on the first day of its sale at the Apple Store in Zurich, in this June 19, 2009 file photo. REUTERS/Christian Hartmann/Files

Customers try out the new iPhone 3GS on the first day of its sale at the Apple Store in Zurich, in this June 19, 2009 file photo.

Credit: Reuters/Christian Hartmann/Files

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SAN FRANCISCO (Reuters) - Fearing "huge" losses in sales after pictures leaked of its fourth-generation iPhone, Apple Inc convinced police to launch a felony investigation and Chief Executive Officer Steve Jobs contacted the offending Web site himself to try and recover the gadget.

A California court unsealed a search warrant on Friday in the case of the lost or stolen prototype 4G iPhone whose inner workings ended up on popular gadget site Gizmodo -- weaving a bizarre tale of beer gardens, paranoid lawyers and emails to the Apple chieftain.

Apple, which has released a new iPhone in each of the past three summers, is known for its secrecy. It is widely believed to be releasing its latest model this summer.

The story of the missing iPhone that belonged to an Apple engineer has captivated Silicon Valley since news broke last month. The missing phone apparently caused concern among Apple executives, according to a meticulously detailed April 23 search warrant by Matthew Broad, a detective with the San Mateo County Sheriff's office.

An outside lawyer for the company considered the missing prototype "invaluable" and publication of its details "immensely damaging" to Apple's future sales, Broad wrote. The detective is a member of the county's squad that investigates high-tech crimes.

The loss of the prototype, owned by Apple employee Robert Gray Powell, in late March prompted a meeting between company executives and law enforcement.

"Riley stated the publication of the device and its features is immensely damaging to Apple," wrote Broad in the warrant, referring to Apple's outside counsel, George Riley of O'Melveny and Myers.

Apple's director of information security, Rick Orloff, and the company's general counsel, Bruce Sewell, were also at the April 20 meeting.

Riley said Apple customers would delay purchases until the new iPhone was released, "thereby hurting overall sales and negatively effecting Apple's earnings," the detective wrote.

"Riley stated he could not currently provide an estimated loss, but he believed it was 'huge,'" Broad wrote.

Apple officials were not available for comment.


The incident began when Apple engineer Powell lost the prototype iPhone while at a German restaurant and beer garden in Redwood City, in the San Francisco Bay Area.

It was then either found or stolen by Brian Hogan, according to the search warrant.

But Hogan's room-mate, worried that the iPhone could be traced back to her after he plugged it into her computer, tipped off Apple that he had sold it to Gizmodo for $8,500.

Photos and details of the new device -- ripped apart to reveal its inner workings -- subsequently appeared on the website.

The device featured several improvements on the current generation model, including video, according to Gizmodo.

Jobs then contacted Gizmodo's editor Brian Lam who replied in an email that the device would be returned if Apple acknowledged that it was indeed the iPhone prototype, according to Broad's report.

Lam then gave Apple the address of Gizmodo employee Jason Chen, to arrange for the iPhone's pickup.

Police later seized some 22 items, including an iPhone iPad, 3 Macbooks, an Apple base station and other devices, from Chen's residence.

San Mateo District Attorney Chris Feasel told Reuters no charges had been filed but the investigation was ongoing.

"We are working with Chen's attorney to expedite the search of the computers," he said.

A San Mateo County Superior Court judge had sealed the search warrant on April 28, but ordered it unsealed on Friday after petitioning by a coalition of media outlets.

(Editing by Edwin Chan, Richard Chang and Leslie Gevirtz)

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Comments (5)
Trooko wrote:
By allowing the engineer to go around with the prototype, Apple should have accepted the risk that the design would be exposed to the media in one way or another. Despite that the event was preventable, I feel Apple is using its Corporate status to get whatever it wants. (Possibly, free promotion for its new product)

May 16, 2010 12:23pm EDT  --  Report as abuse
cambrown66 wrote:
Apple & Mr. Job’s are starting to show the colors of pushy industrial giant. Modern Nazi/Big brother (call it what you will). Their “rules” about Adobe, google iphone apps, and now this. Looks like a Nazi, smells like a nazi, hmm.

May 16, 2010 1:42pm EDT  --  Report as abuse
Tofu_sammich wrote:
@Trooko – The prototypes must be tested in the real world; do you have a better plan?

Any media outlet that might get hands on a prototype from any company and runs a story on it knowing on a common sense level that it is very likely an actual unpublished prototype is breaking the law.

Gizmodo broke the law and damaged Apple’s sales just as surely if a new model car prototype was revealed before launch. ANY company would call the police because it is a FELONY to reveal trade secrets. Apple has a responsibility BY LAW to their shareholders to defend their trades secrets and not allow damage to their sales. To not respond to the issue would be negligence.

Would you be so critical if Ford or Toyota called the police concerning a blogger who dismantled and photographed and published the new features of a misappropriated, highly anticipated prototype car?

You Apple haters are so biased and tiresome.

May 16, 2010 8:08pm EDT  --  Report as abuse
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