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GT Advanced court filings reveal $50M penalty Apple imposes for leaking product information

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Not much is known about Apple’s deals with its suppliers, but court filings by former sapphire supplier GT Advanced reveal that the contract included a $50M penalty for any leak of Apple product information, reports the Financial Times.

While the amount of the penalty clause may vary according to the size of the supplier, it seems likely that a substantial leak penalty is a standard condition of supplying product components to Apple – though the number of leaks over the iPhone 6 suggests that such penalties offer limited protection.

Contracts between Apple and its suppliers will undoubtedly be subject to strict non-disclosure agreements, but lawyers for GT Advanced are asking the court to allow details to be made public … 

Ahead of a court hearing on Wednesday in New Hampshire, GT’s lawyers are arguing that even more information about its relationship with Apple should be published, in the interests of creditors and shareholders.

The argument is that Apple’s supplier agreement was “oppressive and burdensome,” suggesting that shareholders might seek compensation from Apple over the bankruptcy of GT Advanced.

Apple originally signed a five-year contract with the sapphire manufacturer, lending the company more than half a billion dollars to set up the plant in Arizona. It had been strongly rumored that at least high-end models of the iPhone 6/Plus would have a sapphire display, with Tim Cook fuelling speculation during an ABC interview (at the 2:30 time-point):

GT Advanced’s stock fell sharply when this turned out not to be the case. While Time suggested that this was never in Apple’s plans, the WSJ reported that it had been Apple’s intention to use sapphire for the iPhone, but that GT Advanced had been unable to meet this requirement – and that it was this that led to the company’s collapse.

The demise of GT Advanced is unlikely to impact Apple’s plans for the Apple Watch, says KGI, as there are sufficient competitor suppliers able to provide sapphire in the smaller sizes needed for this.

Should the court agree to the request, we may learn more about Apple’s contractual relationships with its suppliers in the coming days and weeks.

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Comments

  1. mpias3785 - 9 years ago

    Holy smoke! When Apple comes up with an NDA they don’t mess around!

  2. I haven’t heard that leaked info was one of the reasons for Apple to withhold that 150M from GT so I am much more interested in the other clauses of that contract: does Apple unilaterally quality controls the output? Did they designate whole batches as unsatisfactory? How far along production was GT at?

    • mpias3785 - 9 years ago

      I’m pretty sure Apple holds a VERY tight grip on quality. It wasn’t that long ago that third party monitors were disassembled only to find Apple rejection stickers on the displays.

      • Alex (@Metascover) - 9 years ago

        You’ve also talked about that on MacDailyNews but do you have any actual source claiming that, I can’t find one.

      • mpias3785 - 9 years ago

        I wish I could remember. It was probably a year ago and it was regarding a very popular 27″ monitor being sold on Ebay for a nice price. It might have been an article on Ars Technica, Anandtech or other tech site, but memory fails me. All I recall was that a number of monitors were disassembled and most, if not all the displays were marked as Apple rejects. It wasn’t as if the monitors were defective, or bad in any particular way, just not up to Apple standards. I doubt this is an urban legend as I clearly remember reading this on a reputable site (disreputable sites wouldn’t go through the trouble of buying multiple samples), I just don’t recall which one. Sorry. I read (don’t remember where either, but it was a LONG time ago) that when you hit about 45 the brain says “Hard Drive Full” and I passed that point longer ago than I’d care to discuss. :-)

      • Gen0 (@_Gen0) - 9 years ago

        It’s very likely that a batch as rejected based on a bad sample. All of the batch would have received stickers despite it being very likely that over half of the units would have passed. This is the nature of panel manufacture, semiconductor manufacture and a lot of other fab based batch manufacturing.

        It’s far more expensive to test each unit fully than it is to lose a few batches and only take a few test samples per batch.

      • mpias3785 - 9 years ago

        @Gen0, you’re probably right. I worked in QC/QA for years. Standard operating procedure was to separate an incoming shipment into individual lot numbers and test a percentage of each lot (the percentage would vary depending on the supplier’s past performance). We kept the good lots and returned the bad. The rejected tested samples would be marked and returned as a separate batch and would likely not be able to be sold as new. This might explain the low price of the monitors being sold on Ebay.

  3. icrew - 9 years ago

    The thing I haven’t heard yet was how Apple could have possibly coerced GT Advanced into signing this “oppressive and burdensome” contract. If this contract was so bad, GT Advanced should be looking in the mirror for the people to blame.

    It sounds to me that the more plausible answer is that the GT Advanced management team got blinded by the star power of “Apple” and “iPhone,” and either didn’t do appropriate due diligence when reviewing the contract they signed, or decided to take on a highly-risky deal in the hopes of a very high reward. Either way, I don’t see how Apple is to blame here–GT Advanced could always have said “no thanks” when Apple came knocking.

    • rgbfoundry - 9 years ago

      I’m sure GT management saw a bright future with the company that was loaning them millions and shared optimism about sapphire. GT could have turned Apple away, but Apple was (in essence) offering to “make” the company. I’m just sorry they re-tooled for sapphire screens. They have other promising technologies. Somebody will end up owning the hyperion technology. I just hope it doesn’t sit idle.

      • icrew - 9 years ago

        True, Apple may have been offering to “make” the company, but that doesn’t excuse GT Advanced’s management team from the need to bargain hard, to insist on contractual clauses that would have mitigated their risk, etc.

        GT Advanced is trying to claim that it’s this horrible contract with Apple that bankrupted them, and therefore the bankruptcy is somehow Apple’s fault. I could understand them taking this position if they were claiming that Apple violated the contract and therefore put them out of business, but that’s not what’s happening: they’re claiming that the “oppressive and burdensome” terms of the mutually agreed-upon contract put them out of business. I guess I’d just like an answer to why they agreed to such “oppressive and burdensome” terms in the first place, if those terms were really so bad.

      • Another thing I’ve seen after signing a big contract with an outside contractor is they feel the hard part is done by getting the contract and they lose some of that urgency and drive to continue to develop, innovate and out-perform… Obviously a responsibility for management to keep the pressure and maintain productivity but it can be a difficult dynamic to reverse once its there

      • Gen0 (@_Gen0) - 9 years ago

        I have to say though, if you think about it. If GT made $10 profit on every iPhone sold, they would have made $100m in the first week of iPhone sales.

        That kind of money can completely warp an entire board’s thinking.

        It is a damn shame there was no contractual commitment from Apple to actually purchase a minimum amount or something.

    • Kawaii Gardiner - 9 years ago

      It can almost be guaranteed that there was wording to the effect of an initial batch at the beginning and the ‘possibility of a large order” with the disclosure that it would be used in the Apple watch – next minute you have executives going crazy thing that the Apple Watch will be as successful as their iPhone so therefore they’ll need more capacity in the belief that when Apple comes knocking for more supply they’ll be in a position to supply it all to Apple hence the rapid expansion in capacity. An example of executives reading too much into a contract and expanding too quickly before getting the order.

      • Gen0 (@_Gen0) - 9 years ago

        The alternative would have been not having the capacity to produce when the order offer comes in the door and not getting the contract at all.

  4. airmanchairman - 9 years ago

    Loose lips sink ships…

  5. thinkman12345 - 9 years ago

    GT…… I was going to call you a pack of losers, but aϟϟholes would be more apt. I hope Apple sues you out of existence for lying to them about your capabilities in a technology you seem to know little about! Yet you have the gaul to not only blame them for your inability to deliver on what you promised, to the detriment of Apple’s sales, but by divulging Non-disclosure terms, you are doing exactly that, i.e., divulging classified information!

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Avatar for Ben Lovejoy Ben Lovejoy

Ben Lovejoy is a British technology writer and EU Editor for 9to5Mac. He’s known for his op-eds and diary pieces, exploring his experience of Apple products over time, for a more rounded review. He also writes fiction, with two technothriller novels, a couple of SF shorts and a rom-com!


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