May 14, 2010
An Apple lawyer told police investigating a missing iPhone prototype that pictures of the device published in an online magazine were "immensely damaging" to the company, and could hurt sales, court documents show.
The April 20 meeting, detailed in an affidavit unsealed Friday, resulted in the well-publicized search three days later of the home of Gizmodo editor Jason Chen. The tech journalist published the photos April 19, and Gizmodo acknowledged paying the man who found the prototype $5,000. The documents, released by San Mateo County, Calif., Superior Court, provide a detailed description of the chain of events that led to the search and started more than three weeks earlier when an Apple employee identified as Robert "Gray" Powell lost the prototype at a bar. A man identified as Brian Hogan, 21, of Redwood City, Calif., was given the phone by a drunken man who thought it was his. Hogan later sold it to Gizmodo. The police raid on Chen's home drew national attention and sparked criticism against Apple for its part in what has been seen by some as heavy-handed action on the part of police. In addition, Gizmodo owner Gawker Media argued the search was illegal, saying Chen is protected as a journalist under California's shield law. But in meeting with investigators, Apple lawyer George Riley said the publication of the photos and descriptions of the device's features were "immensely damaging to Apple," according to the court documents. Riley said Gizmodo's story could convince people not to buy current products, and wait until the new device was released, "thereby hurting overall sales and negatively effecting Apple's earnings." "Riley stated he could not currently provide an estimated loss, but he believed it was 'huge,'" said the 10-page affidavit that led to a court-approved search warrant for Chen's home. Apple Chief Executive Steve Jobs considered the missing iPhone serious enough that after Gizmodo published the photos, he called Editorial Director Brian Lam and asked that the device be returned, the affidavit said. Gizmodo is owned by Gawker Media. Lam arranged to have Chen return the phone, after Apple agreed to confirm, in Lam's words, that the device is "real, from Apple, officially." "I want to get this phone back to you ASAP. And I want to not hurt your sales when the products themselves deserve love," Lam wrote in an e-mail to Jobs, according to the affidavit. "But I have to get this story of the missing prototype out, and how it was returned to Apple, with some acknowledgment it is Apple's." The affidavit also revealed that Hogan's roommate, identified as Katherine Martinson, called Apple's director of information security, Rick Orloff, on April 29, and told him Hogan had sold the iPhone to Gizmodo. Martinson contacted Apple because Hogan had connected the device to her computer, and she was afraid Apple would be able to trace the phone back to her. "Therefore, she contacted Apple in order to absolve herself of criminal responsibility," the affidavit said. In the days leading up to the sale of the device, Martinson and other friends tried to talk Hogan out of selling it to Gizmodo, saying that it would ruin Powell's career as an engineer. His response, according to an interview Martinson gave to police, was, "Sucks for him. He lost his phone. Shouldn't have lost his phone." According to Martinson, Hogan told her he received $8,500 for the iPhone prototype and said Gizmodo promised a cash bonus, if Apple made an official product announcement. Martinson could not explain the discrepancy between what Gizmodo said it paid for the iPhone and Hogan's account, the affidavit said. Police on April 21 were in the process of seeking a search warrant to search Hogan's home, when Martinson tipped them off that Hogan and a friend identified as Thomas Warner "were aware of the investigation and were in the process of removing evidence from the residence," the court documents said. The tip led police to Hogan's father's home, where they found him and his girlfriend sitting in an upstairs bedroom. Hogan agreed to cooperate and he and his girlfriend put police in touch with Warner. Police eventually recovered a black, Hewlett-Packard desktop computer and a flat screen monitor that were left at the Sequoia Christian Church in Redwood City. They also recovered a Memorex thumb drive and Lexar Media compact flash card near a bush and a sticker from the iPhone prototype that was found near the entrance to a convenience store. No charges have been filed in the iPhone fiasco, which has been turned over to prosecutors. In obtaining the search warrant for Chen's home, officers with the San Mateo County Sheriff's Office cited possible crimes of stealing trade secrets by photographing the iPhone prototype, maliciously damaging the device by opening it up to take pictures of its insides and buying or receiving stolen property, which is a felony. Under California law, lost property can be considered stolen, if the finder does not make a reasonable effort to locate the owner and return it. According to the affidavit, Hogan had told Martinson that he learned that Powell was the owner of the iPhone through the social network Facebook. In an interview with police, Powell said it was "unlikely" the iPhone was stolen from his bag, where he had placed it at the Gourmet Haus Staudt bar and restaurant at Redwood City. "Powell said that his bag was knocked over at one point in time and it was possible the prototype iPhone fell out of the bag and onto the floor."
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