Apple Suing OpenAI for Stealing Trade Secrets, Former Meta Director of AI on Muse Spark

0:13Stephanie Palazzolo:Welcome everyone to the information's TITV. My name is Akash Pasricha. It is Monday, July 13th. Before we get started, this is TITV's one year anniversary week. We'll be coming to you from the Bay Area all week, filming special episodes in San Francisco and across Silicon Valley. Tomorrow is our 250th episode. You do not want to miss it. We have a jam-packed lineup. On today's show, Apple is suing OpenAI in a stunning development for the growing rivalry between these two companies. We'll bring on our Apple reporter to unpack the latest on that. We're then talking about Wall Street's biggest bet on blockchain yet with our crypto reporter.

0:55Stephanie Palazzolo:Stephanie Palazzolo, author of our AI Agenda newsletter, is back from the big ICML AI research conference in South Korea. We'll chat with her about her key takeaways from the event. And we'll wrap things up with a conversation with the Laud Institute about the big themes that they're watching in AI research and their reaction to the latest big model releases. is. It's going to be a fun show, so let's get right on into it. Apple is suing OpenAI, accusing the AI company of stealing company secrets. The lawsuit was filed Friday in the Northern District of California. I want to bring on our Apple reporter, Aaron Tilly, to break down what we know and where this is likely to go from here.

1:37Stephanie Palazzolo:Aaron, welcome back to the show. It's great to have you here. Thank you. Okay. Big lawsuit. Tell us what's in it. Let's start there yeah so apple um filed a lawsuit uh against open ai alleging that there has been a systematic effort uh on behalf of uh at open ai on the devices team to steal proprietary apple knowledge related to product development all the way to supply chain in manufacturing methods So this has been the allegations Apple's making is very serious. The companies, the OpenAI is doing things in a very sneaky way. Apple alleges that OpenAI folks are purposely hiding their efforts and trying to bypass Apple's security.

2:35So pretty serious allegations.

2:38Stephanie Palazzolo:I want to go through some of the big allegations in here, but there are two people that are at the center of this lawsuit, Tang Tan and Chang Liu. Tell us about who they are and why they are so central to this lawsuit. yeah so tang is currently the chief hardware officer at open ani he was a long time over two decades apple hardware engineer near the end he led all of apple's uh just iphone product development so very important for person at apple he left in 2024 he co-founded io products alongside former Apple design chief, Johnny Ive, and then OpenAI acquired it for$6.5 billion in stock last year.

3:29So he leads all of OpenAI's device hardware projects. And then Chang is a little more of a younger, one of the younger employees, less seasoned, but very experienced engineers from Apple that OpenAI recently brought over. He left Apple in January to join OpenAI, so it's only been there for a couple months. But yeah, Apple accuses him of bypassing Apple security and accessing Apple networks on an ongoing basis while employed OpenAI.

4:04Stephanie Palazzolo:And so the details in this lawsuit are pretty stunning. I mean, some of the details here, from what I recall. I mean, it's the idea that they asked people when they were interviewing for OpenAI, they were at Apple, they asked them to basically bring parts, you know, components, I guess, of hardware to the OpenAI office. Am I recalling this correctly? Yeah, they accused Tang of, during interviews, of requesting engineers to bring actual parts and do a sort of quote-unquote show-and-tell. And so, you know, taking parts to these interviews and then also accused Tang of asking about ongoing secret projects using project code names and asking about updates for that.

4:57So, yeah, using his already, you know, pretty substantial knowledge about Apple and kind of use it to dig more information out from current Apple employees.

5:11Stephanie Palazzolo:So Aaron, I want to just take a step back here for a minute. You've been covering Apple for a long time. Apple has one of the most extensive supply chains, if not the most extensive supply chain in technology today. Have you ever seen a lawsuit like this? I mean, a show and tell? I mean, we'll get to what OpenAI is saying about this in a second. We'll get to their response. But, you know, are these types of lawsuits, are they common in the hardware business? Have you seen anything like it? There are echoes of previous lawsuits. For example, Apple went after a chip startup in 2019 called Nuvia.

5:53It was co-founded by former Apple engineers, and the company ended up recruiting a large number of Apple chip engineers. and Apple really didn't like that. They accused the company of sort of similar behavior. Well, somewhat different, not a serious kind of feeling, but -

6:15Stephanie Palazzolo:Not a show and tell, but - Not a show and tell of chips, but would certainly, you know, this has some echoes of that. You know, I just think of Apple really doesn't like, you know, former employees going after current employees to recruit them and kind of the systematic effort that OpenAI certainly undertook is not something Apple's been happy about. And we've seen it in the past. So similarities, but certainly the allegations of theft from OpenAI's part, that's quite serious and pretty wild. And what is the evidence that Apple presents in the lawsuit for these things having happened? I mean, they say they did an investigation.

7:04Stephanie Palazzolo:Do they present any of their findings in detail? Bill? Yeah, they quote messages that they were able to retrieve, especially from Chang. They had a peers like ongoing access to messages he would send either to current employees. And it seems like they were able to do this because he retained an Apple work laptop. So perhaps, you know, they don't lay out specifically, but, you know, their security apparatus was able to access ongoing messages he was sending, even though he was a former Apple employee at that point. They also have just messages and conversations taking place between Tang and current employees.

7:53So they were probably able to retrieve that through interviews with current employees that went through the OpenAI interview process. Right.

8:01Stephanie Palazzolo:So now what is OpenAI saying about this? What's their response? They haven't said much. So I think they are caught flat-footed when it all came out Friday afternoon. So far, it's just been, you know, we have no interest in other companies' trade secrets, and we want to innovate for everyone. so pretty pretty small response there short response you put out a story after this lawsuit broke talking a little bit about how the tensions between OpenAI and Apple have been growing for quite some time leading up to the lawsuit walk us through a little bit of your reporting there because I think we all recall the flashy Apple keynote where they unveiled that part of their AI would be powered by open AI.

8:59Stephanie Palazzolo:It was a union that I think surprised some people, but it hasn't been so great since then, according to your reporting. Yeah. So 2024, Apple's Worldwide Developers Conference, they come out with their sort of AI, LLM. This is the generative AI. This is their strategy. And part of that strategy is partnership with OpenAI. Sam Altman was at the conference and it seemed like a very positive start to the relationship. But that didn't really last too long. You know, it's been two years now, and the partnership hasn't yielded much for OpenAI. They're not getting much out of it. It was a very sort of like very superficial integration where OpenAI, ChatDBT was accessed in a very limited fashion via Siri and other Apple AI features, and it really didn't work out very well.

10:00And on top of that, OpenAI has begun a very aggressive endeavor of recruiting Apple hardware engineers from this TangTang team.

10:12Stephanie Palazzolo:And OpenAI is now just starting their own devices. I mean, we don't have a clear idea as to what it is, but I mean, this hardware play is a direct competition to Apple. For sure. Yeah, so that's been going on. And OpenAI now has over 400 Apple engineers working on this device project. And that's been very difficult for Apple. There's very senior hardware folks going over there. Some of their best working on iPhone and Apple Watch and new hardware products that haven't been released. So this talent drain has been pretty rough for Apple. and one name that wasn't included in the lawsuit joanie i've was was not uh i mean he's such a central figure i was surprised what what do we know about you know the joanie i've factor here i mean i mean i guess it was it was a clean transition for for lack of better words from what we know yeah that was interesting they really kept him out of it um and i i i think that's like maintaining some sort of friendly relations with him I think is very intentional not to dip their toe, go too far.

11:32Suing the former chief design officer, the heir of the Thieves Jobs design philosophy would maybe be a step too far for Apple. So they went one rung below that to Tang and kept it a little less aggressive.

11:50Stephanie Palazzolo:So then I guess what I'm thinking about then is even though Joni Ive is not named in the lawsuit and he's kept separate from all this, to what extent do you think this lawsuit stifles OpenAI's progress, Joni Ive's own capabilities here to develop the devices that they are set to release? I mean, you know, there was a report out today that they're still aiming to get a device out in the next year or two. Do you think that this stifles their progress at all? I can't imagine how it won't stifle the progress. Yeah, they plan to release the first device February of next year. Part of this lawsuit is demanding that the company doesn't use proprietary Apple information, this device.

12:38I don't know how OpenAI can work around that. They've already been working on this for the past year, whatever plans they have in place. They can't just kind of up in that and go a completely different direction. So the device that comes out, Apple is going to be scrutinized intensely, and I'm sure they can find something to go after OpenAI about. So that could really stop the release of this product, stop the sales of this product. They could get course to intervene here. I'm sure this is going to be very tricky for OpenAI to navigate.

13:15Stephanie Palazzolo:And just to recap, as best we know, OpenAI, is it a smart speaker type device that they're working on? What's the latest on that? That's our understanding of the first OpenAI device, a smart speaker. though we understand you know a phone is is uh in the works and hopefully maybe second device third device who knows it's the intention is a family of products open a opens helps to release but um a smart speaker is the first one okay and last question for you i mean i'm sure you're talking to uh lawyers and legal experts in the background about this what is your understanding of the timeline here for this lawsuit, what we can expect to happen next.

13:59Stephanie Palazzolo:Is this a matter of months, years? I mean, how long is this going to take to play out? Yes, months, years, years definitely. All of the above. The long-running legal battle. We'll have a flip phone by then. We'll be back there. All right. Well, Aaron, I want to thank you for coming on. I trust that we will need more of your insight on this in the weeks to come. That is Aaron Tilly, our Apple reporter, here at The Information. This week, a major stock market infrastructure company is set to demonstrate stock trading on blockchain. This is a transition that many people in crypto have been endorsing for a long time.

14:42Stephanie Palazzolo:The Information's crypto reporter, Yueqi Yang, has the latest. She published a piece on it this morning. I want to bring her on to talk all about it. Yueqi, welcome back to the show. It's great to have you here. Hey, Akash. All right. So let's talk about this company here, the Depository Trust and Clearing Corporation. Not a name that I thought we would be talking about on the show. You wrote a whole story about them. Who are they? Why do we need to know them? So DTCC is the most important company that basically - I get it. It's cool. DTCC. It allows the U.S. stock market to function because it provides a few services, mostly including the clearing of the stocks.

15:26The stock market clears at the DTCC for about$20 million worth of stocks per day, so it's a huge amount. They provide a settlement of the stock, and then they also provide custody of the shares of the stocks. So they are getting into tokenization, which means they're starting to allow their members to move assets onto the blockchain. And the first step of that will happen this Wednesday when they demonstrate a few live real production trades of assets, including stocks, ETFs and other treasuries and other assets that are going to move on the blockchain.

16:06Stephanie Palazzolo:Have they picked which shares they're going to put on the block? Are these specific companies? Do we know anything about that? Yeah, so they're allowed to pursue this tokenization effort because last year, DTCC got the green light from the SEC to provide tokenization of assets, including the largest U .S. stocks that are making up the Russell 1000 index. And so that's going to be part of it. And the other assets like treasury bonds are also going to be part of the launch. Now, is DTCC, are they the first to do this? Because, I mean, crypto companies have been talking a lot about doing this. I mean, my recollection, I feel like this has happened before or am I wrong?

16:55They're approaching it with different methodology and different vantage point. So a few crypto companies, especially the crypto exchanges like Binance, Bybit, most recently Coinbase, are starting to list tokens that are backed by stocks. And then these tokens are usually issued by third-party providers rather than the issuer themselves. And then their play is more gearing towards retail distribution of these tokens. DTCC is different because they're a market infrastructure provider. They're providing a tokenization service to the members of the DTCC, which mostly includes big banks, trading firms, brokerages, etc.

17:45So this is more about institutional play.

17:48Stephanie Palazzolo:So let's talk about the advantages and then also the limitations of tokenized stock trading. I mean, one clear advantage I think we've talked about is the 24-7 nature of blockchain and the fact that that is what it could bring to stock trading. is it cheaper too? What are the benefits that we see? That's a great question. I think whenever you read about companies pursuing blockchain initiative, the first question to ask is really what are the benefits and what are something that blockchain enables that they can pursue in the traditional setup? And I think for the DTCC effort, there are a few benefits that they're trying to target.

18:33The first one is they're providing the ability for stocks that are already cleared, already settled, and are currently sitting at custody at DTCC to be tokenized so that companies can transfer these stocks in token format to each other. And why do you do that? That unlock a few benefits, including companies pledging these tokens as collateral so that they can get funding from another company and they can do this 24 7 do it real time and on the weekend as well um so like like margin margin trading is

19:13Stephanie Palazzolo:that the idea it enables enable oh i oh i guess margin trade this would be posting literal shares as collateral not just on margin to get margin to get right right okay so that's that's one benefit. I could see how that would allow some more risky behavior, call it. Margin chain always exists. Posting collateral, this process always exists, but you can do it in a different way on the blockchain, which brings some additional benefits with speed. Yeah, so there are other benefits as well, and personally I find it, the one that I find to be most interesting is that it potentially provides this bridge between the U.S.

19:59stock market and the crypto market. Because one potential outcome in the future is that for all these crypto exchanges that are providing crypto tokens backed by U.S. stocks, they can potentially use the DTCC tokenized stocks as the underlying asset backing the crypto tokens. And that could, in theory, be a superior method than the current method because it's a more direct claim to the real stock that's sitting at the center of the most important market infrastructure we have in the U.S.

20:39Stephanie Palazzolo:What about limitations to tokenized stock trading? Are there any? I think it's important to point out that DTC is not using blockchain to clear stocks. That's one of the most common misconceptions. DTCC itself said using blockchain to clear stocks is just impractical because every day it clears more than$20 trillion worth of stock. It's just there's no way to and they net out a big percentage. Most of these stocks at the end of the day, meaning that companies trade back at fours, so they don't actually need to transfer money for each of the transactions. They net it out at the end of the day and they only settle a small portion of those stocks.

21:27So this whole process of clearing and settlement is unchanged. They're not using blockchain for it. And they're really using blockchain to target a small part of this process, which is what you do with stocks that are already cleared, already settled, and just kind of sitting idly there at the DTCC.

21:47Stephanie Palazzolo:And based on what they're saying, I mean, are they sort of suggesting that they won't ever be able to clear on blockchain? Are they saying that's a much bigger lift? I mean, is this a clear limitation or is it just that they haven't gotten to it yet? I think for now, they don't have plans to use blockchain to clear trades. Right. Yeah, they gave me a statement saying that settlement models that rely entirely on growth settlement, which are common in some blockchain environments, simply do not work at this scale because there's not enough money in the system to support it. Hmm. You actually, I mean, big picture here, is this moving faster or slower than you thought?

22:33Stephanie Palazzolo:I mean, we've been talking about trading stocks on the blockchain for quite some time. There were big ambitions for it. Is this, what's your overall perspective on it and your opinion on how this is shaking out? I think this is going to be a year long, years long effort. DTCC has been working on tokenization for many years already. This is an important step. It now has the support from regulators. So I think they are making meaningful progress. But I also spoke to market structure experts for this story. One of them, Larry Tapp at Bloomberg said he doesn't expect DTCC tokenized stocks to reach even half of a percent of the value of total traditional stocks.

23:26And then he mentioned this is just a really long, complex process. And so it's going to take time.

23:36Stephanie Palazzolo:Yueqi, I want to ask you very quickly about another story that we've been following. Circle got the green light for its bank charter. This was another story that has been in the works for a couple years now. What is the significance of this bank charter? What does it allow them to do? Circle got approval for a national trust charter. This is the widely expected news because Circle and a few other companies got the conditional approval of it late last year. And the significance of this approval is that it basically allows Circle to now have a federal regulator, which is the OCC. And this is as intended by the Genius Act.

24:17It means that there's a national regulator who's now regulating Circle stablecoins. And then in terms of additional services, they can provide Circle with this charter. They can now provide institutional custody using this national trust charter and they can also manage the reserve assets backing up their stable coins and it's important to note that this is not a traditional full service bank charter it doesn't mean circle is becoming a retail facing bank they're not going to take your deposit they're not going to lend you money this is a specific type of charter called national trust charter and you actually do

24:56Stephanie Palazzolo:you expect other companies to go after this bank charter now other crypto companies yeah um it's a very popular charter for crypto firms to pursue this year, especially for the ones that are intending to issue stablecoins. So there are a few notable applicants. I think Stripes Bridge is also another important one to watch. They also applied for this National Choice Charter. Great. Well, Yuachi, I want to thank you for coming on. That is Yuachi Yang, our crypto reporter here at The Information. Stephanie Palazzolo, our AI reporter and author of The Information's AI Agenda newsletter, is fresh off a trip to South Korea where she attended the International Conference on Machine Learning.

25:42Stephanie Palazzolo:It is a big deal in the land of AI research. She wrote up some of her big takeaways for her newsletter today. I want to bring her on to talk about all of them. Stephanie, welcome back to the show. It's great to have you here. Thanks. It's great to be back. How was the trip? It was good. It was super fun. I am definitely jet lagged, but it was worth it. So ICML. Okay, this is not an acronym that people needed to pay attention to a couple years ago. It is now one of the hotspots for AI research and innovation. You wrote about some of the key takeaways this morning in your newsletter. Let's go through a couple of them.