Assault on Intellectual Property – It Pays to be Paranoid

They really are out to get you (your IP)!

Today’s link-bait award goes to Silicon Alley Insider for this gem of a headline – Reuters Reporter Assaulted While Investigating Apple’s Top-Secret China Suppliers

Reuters set out to do a mini exposé on Apple’s (AAPL) secrecy and security policies and the tactics Apple uses to guard its intellectual property (IP), even from key partners such as Foxconn (trademark of Hon Hai Precision). The report is largely based on “off the record” anecdotes whispered by anonymous sources. To illustrate the extreme level of security, the story includes an account of an assault on the reporter (article author) at the hands of over zealous Foxconn security guards.

Reuters seems to equate Foxconn’s security practices with Apple. Never mind that the Reuters article was written on an HP (HPQ) laptop manufactured by Foxconn* and transmitted over Cisco (CSCO) equipment, also built by Foxconn, it’s Apple that Reuters’ wants focus on, and that apparently necessitated an unauthorized and unwelcomed photo-shoot at Foxconn facilities in Shenzhen.

*Foxconn, makes products for Apple, Sony, HP, Amazon, Nokia, Motorola, Nintendo, Microsoft, Dell and Cisco (and just about everyone else)

Foxconn factory Guanlan, China - Credit: REUTERS/James Pomfret

The assault story is a tad less sensational than most Jerry Springer Show lover’s quarrels, and there are no action shots (lens cap was on during the dustup). We only have the Reuters reporter’s account of the tussle, but I have little doubt that there was a confrontation at the front-gate of Foxconn’s Guanlan, China factory. The uninvited reporter was snapping photos of the Foxconn plant and he did not immediately heed security staff’s warning to holster his camera and vacate the area. Note to Reuters’ reporter: This is not Berkley, California, it’s China where tweaking authority can sometimes be perilous to your health and personal freedom. Ask the unknown and forever “disappeared” Tank Man.

So after a bit of loud gesticulating, shouting and some physical contact (the reporter was allegedly kicked once, grabbed and dragged by the arm) the police were called in to mediate. Fortunately, the cops saw things the Reuters reporter’s way and they even offered to allow the reporter to file charges against the Foxconn guards (he declined) …

You’re free to do what you want,” the policeman explained, “But this is Foxconn and they have a special status here. Please understand.”

Now back to the base premise of the Reuters’ story – “over the top” security. The press love to cast aspersions upon Apple for their über secrecy at home (internal) and ultra-strict security policies with key partners such as parts suppliers and manufacturers – Foxconn being the most prominent. What the media typically fail to acknowledge, however, is that “lockdown” protection of Apple’s intellectual property is absolutely essential. Industrial espionage is alive and well, and there are a wide array of gadget producers who would love to get sneak peeks of “yet to be released” Apple products.

MiniOne (M8) iPhone copycat launched Feb 2007

Point in fact … Apple first unveiled the iPhone in January 2007 with an announced launch date later that summer (June 2007), yet surprise, surprise … copycat (Shanzhai) iPhones hit the market within days of the January unveiling. How did the “iClones” make it to market so impossibly fast? The answer is simple. Knockoff manufacturers knew what was coming. Not every detail or internal specification, but enough leakage to rush to market with “pretty on the outside” (but crippled underneath) iPhone copycats.

Another example is Apple’s iPad. This new device was copied in China even before it was first publicly displayed (January 27, 2010). How did cloners catch on? Despite extreme security, Apple had to collaborate with dozens of iPad parts suppliers, and the 9.7” screen size was first leaked to the press in summer of 2009. Based on various bits of iPad intel, one well known Shanzhai manufacturer (Shenzhen Industrial) was able to launch a very “iPadesque” tablet device – the P88 – last Fall and now claims (humorously to those who understand how long Apple has been at work on iPad), that Apple is copying their design and IP. What’s the Chinese term for chutzpa?

Apple iPad v P-88

It is not just leaks of Apple’s new product specs that competitors lust after, it’s also beta versions of Apple’s hardware. Point in fact … during the summer of 2009, an iPhone 3GS prototype went missing from Foxconn’s Longhua factory. The employee, charged with custody of the prototype (one of 16 units to be shipped to Apple in Cupertino), underwent intense questioning by Foxconn security. A short time later the employee, 25-yearold Sun Danyong, took his own life by leaping off the roof of his apartment building. Many have questioned the circumstances of Danyong’s death, but there’s simply no evidence to suggest that this was anything other than a tragic suicide.

iPhone 3GS

Without assigning blame for the Foxconn security breech (a futile exercise, particularly given the outcome), I will go out on a limb and say that the iPhone prototype was not simply lost. Where did it go? Did any money change hands? It’s more likely that Amelia Earhart’s plane will be discovered before we learn what really happened to the missing iPhone. That said, it’s a fair bet that this (then unreleased) iPhone 3GS model found its way into the hands of a competitor for teardown analysis.

It’s a sad commentary on business ethics, but the fact is this – what can be stolen, will be stolen. Unlike many electronics manufacturers, who might as well slap a “FREE” sign on their new technology and leave it at the curb, Apple has something worth stealing. So as a fanboy and shareholder, I fully support Apple’s need to maintain Area 51 level security around new products and intellectual property (IP). Apple isn’t being paranoid … someone really is out to get (steal IP from) them.

courtesy: AFP/Getty images

If you think IP protection isn’t mission critical, just ask Google. They recently found religion. Google was the subject of recent well-publicized cyber attacks. There are many who believe Google’s IP was targeted (successfully purloined?) by cyber sources in China and also by a spy (spies?) who infiltrated Google’s engineering team in China. In the scandal aftermath, an outraged Google is still struggling to define their “new role” in China, and they have enlisted the help of the National Security Agency (NSA) to investigate what hit them (Operation Aurora). Now who’s being over the top? Read > Google’s China gambit less about censorship and more about defense of IP

Bottom line … if you have something worth stealing, it’s wise to be paranoid about security. But please don’t smack around the press-credentialed paparazzi outside the gate! They are under-funded and generally harmless.