Apple's Jobs Asked Gizmodo to Return `Stolen' IPhone

Steve Jobs asked technology blog Gizmodo.com to return a secret iPhone prototype that Apple Inc. says was stolen after a company engineer lost it in a bar, according to court documents released today.

The lost iPhone is being investigated as a possible trade- secret theft, according to California state court documents made public after media organizations including Bloomberg News asked they be unsealed. Apple reported the device stolen last month.

The legal wrangling is over a product that, at $13 billion, accounted for more than 30 percent of 2009 sales for Apple, which closely guards details about unreleased products. An Apple lawyer said publicity about the “invaluable” prototype was “immensely damaging to Apple” because it would hinder iPhone sales, according to an April 23 affidavit by Detective Matthew Broad of the San Mateo County Sherriff’s Office.

“I want to get this phone back to you ASAP and I want to not hurt your sales when the products themselves deserve love,” Gizmodo editor Brian Lam said in an e-mail to Jobs, Apple’s chief executive officer. “But I have to get this story of the missing prototype out and how it was returned to Apple with some acknowledgement it is Apple’s.”

Photographer: Ryan Anson/Bloomberg

Apple CEO Steve Jobs. Close

Apple CEO Steve Jobs.

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Photographer: Ryan Anson/Bloomberg

Apple CEO Steve Jobs.

He was writing in response to Jobs, who contacted Gizmodo on about April 19 seeking the return of the prototype after the blog dissected it and posted pictures detailing its features. Lam said he would return the phone if Apple provided him with confirmation that it belonged to the company, according to Broad’s unsealed affidavit.

Sales ‘Hurt’

“By publishing details about the phone and its features, sales of current Apple products are hurt,” Broad said, recounting a conversation with Apple lawyer George Riley of O’Melveny & Myers LLP. “Riley could not provide an estimated loss, but he believed it was huge.”

Gizmodo posted a copy of a letter from Apple’s General Counsel Bruce Sewell, dated April 19, asking for return of “a device that belongs to Apple.” Gizmodo said it gave back the prototype to Cupertino, California-based Apple that day. Sewell picked up the prototype at the home of Gizmodo editor Jason Chen, according to Broad.

Gizmodo, which is owned by Gawker Media, said it purchased the phone for $5,000 after it was found at a bar in the San Francisco suburb of Redwood City. The phone was lost on March 25 by Apple engineer Gray Powell, according to the affidavit.

Revealed by Roommate

Apple and law enforcement learned the identity of the man who sold the iPhone to Gizmodo, college student Brian Hogan, after his roommate contacted Apple, concerned that she might be implicated in the theft because Hogan had hooked up the prototype to her computer and it might be traced to her, Broad said in his affidavit.

Based on Apple’s claim that an iPhone prototype was stolen, the county’s computer crimes task force last month broke down the front home door of Chen, and seized computers and electronics, court filings show. Gawker Media is challenging the seizure of Chen’s equipment, citing laws that protect online journalists from having newsroom equipment taken.

“The goal of the investigation is to find out every single person who came in contact with that phone from the moment it left the restaurant and ended up back in the hands of Apple, and to find out every person who handled it, what they knew and in the course of that if there was any crime committed,” Deputy District Attorney Steve Wagstaffe said yesterday in a phone interview.

Broad said in his affidavit seeking a judge’s permission to search Chen’s home that there was reason to believe a crime was committed.

‘Evidence of the Theft’

“I believe that evidence of the theft of the IPhone prototype, the vandalism of the IPhone prototype and the sale of its associated trade secrets will be found in” Chen’s home, Broad wrote in the document.

The search warrant affidavit released today indicates that the iPhone 4G prototype was disguised to look like an IPhone 3GS, the latest generation model available in retail stores.

Apple fell $4.54 to $253.82 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have more than doubled in the past year.

According to Broad’s statement, Hogan, with the help of a friend, packed up his computer and other equipment and removed it from his home before law enforcement officials arrived. Hogan and the equipment were found at his father’s home, according to the affidavit.

Judge’s Ruling

Judge Clifford V. Cretan in Redwood City today ruled against the San Mateo County District Attorney’s office, which argued that unsealing the documents will reveal identities of potential witnesses and compromise the investigation. Media organizations argued they should have access to the documents based on constitutionally protected free-speech rights.

“It’s a great victory for the people’s right to know about the evidence and information that was available to law enforcement and the court when a search warrant was issued to search the house and seize the computer of a journalist,” Roger Myers, a lawyer for the media organizations, said in an interview after today’s court hearing.

Media organizations sought to have the documents unsealed to determine whether the county had a legal basis for the warrant used to break into Chen’s home.

“Otherwise, there is no way for the public to serve as a check on the conduct of law enforcement officers, the prosecutors and the courts in this case,” the organizations argued in court filings.

No Special Influence

Chris Feasal, a San Mateo County deputy district attorney, said he’s disappointed with the ruling though he respects the judge’s decision. He declined to discuss the contents of the warrant documents or any names contained in them.

Apple had no special influence in the investigation or getting it started, he said.

“We are investigating it just as we are any other criminal investigation. We are looking for evidence of criminal behavior.”

Feasal said he’s not sure whether release of the warrant documents will impede the investigation.

“We are just going to have to wait and see,” he said.

Myers represents the First Amendment Coalition, a San Rafael, California-based group, and six media organizations, including Bloomberg News, CBS Corp.’s CNet News and the Los Angeles Times.

Apple declined to comment today, spokeswoman Amy Bessette said.

The case is In Re Sealed Search Warrant Records, 2010-0034, San Mateo County Superior Court (Redwood City, California).

To contact the reporters on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net.

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