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iPhone criminal case gives Apple more options

Last year, Apple's lawyers warned Gizmodo's parent company that offering cash for prototypes was "illegal." New criminal charges make it easier for Apple to file a civil lawsuit.

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Declan McCullagh
Greg Sandoval
2 min read

Criminal charges recently filed against two men who allegedly sold a prototype iPhone to Gizmodo.com have a not-so-obvious side effect.

A successful conviction in San Mateo County will make it easier for Apple to win a civil suit against the gadget blog, if it pursues one as its lawyers threatened last year, legal experts tell CNET.

Prototype iPhone and Gizmodo's Jason Chen
Gizmodo editor Jason Chen in a video embedded in an April 2010 post titled "This is Apple's next iPhone." Gizmodo/Screenshot by CNET

"Will the criminal case help them? Absolutely," says Hanni Fakhoury, a staff attorney at the Electronic Frontier Foundation who's a former federal public defender. "They're going to learn a lot more about what happened." (See related story on Apple's history.)

The reason is that it will likely shake loose more details about the two defendants--Brian Hogan and Sage Robert Wallower--and any interactions they had with Gizmodo and its parent company, Gawker Media. CNET was the first to report that Wallower was involved.

Even if there is a plea bargain, prosecutors could require the men to sign a formal affidavit describing what happened. It would surprise no one if Apple, the aggrieved party, has suggested to authorities precisely that. The company signaled its keen interest in this case early on by having CEO Steve Jobs meet with police.

To be sure, no civil lawsuit has been filed, and Apple declined to respond to questions from CNET. Gawker's normally acerbic founder, Nick Denton, said only that: "You're the very first to raise the question, to me at least."

Related stories:
Gawker may learn Apple is touchy about secrets
Prosecutors file charges in prototype iPhone case
Gizmodo e-mail to Jobs: 'We have nothing to lose'
Lost iPhone prototype spurs legal action (roundup)

But Apple's lawyers at the Menlo Park, Calif., offices of the Orrick law firm sent a cease and desist letter to Gawker in January 2010, warning them that an offer to provide cash for a prototype iPad was "illegal" under various laws, including "California trade secret law."

Far from being discouraged, Gawker <="" a="" rel="nofollow" class="c-regularLink" target="_blank">gleefully published the letter with a snarky headline suggesting that Apple had unintentionally confirmed its tablet plans.

A few months later, Gizmodo paid $5,000 to Hogan for a prototype iPhone that had been left in a bar, according to court documents.

The new criminal charges "will help Apple either way," says Gregg Leslie, legal defense director for the Reporters Committee for Freedom of the Press.

Apple "can get their hands on whatever material is gathered during the criminal trial," Leslie says. "And even if they're found not guilty, Apple would have a lower standard of proof in a civil suit--preponderance of evidence, rather than proof beyond a reasonable doubt."

In other words, even if Hogan and Wallower are acquitted, Apple could still use a civil lawsuit to challenge the legality of Gawker editors offering cash for not-quite-legally obtained hardware.

Under a California law dating back to 1872, any person who finds lost property and knows who the owner is likely to be--but "appropriates such property to his own use"--is guilty of theft. In addition, a second state law says any person who knowingly receives property that has been obtained illegally can be imprisoned for up to one year.

State courts have interpreted this broadly. "Possession of stolen property, accompanied by an unsatisfactory explanation of the possession or by suspicious circumstances, will justify an inference that the property was received with knowledge it had been stolen," an appeals court has ruled. In addition, state law says that lost property valued at $100 or more must be turned over to police.

Another reason Apple might pursue a civil lawsuit is its deterrent value: would anyone else be as likely to offer cash rewards in the future?

Apple has not exactly been reticent about filing lawsuits before. In 2005, it sued Mac enthusiast site Think Secret, alleging that recent postings on the site contained Apple trade secrets. A settlement in that case required Think Secret to cease publishing.

In 2004, Apple sent subpoenas to PowerPage.org and Apple Insider in an effort to find out who leaked information about Asteroid, a FireWire audio interface for the GarageBand music program.

Apple's lawsuit at the time claimed such Web sites are not "legitimate members of the press" when revealing details about forthcoming products. Apple abandoned the lawsuit in 2006 after an unfavorable court ruling.

Gawker's original post last year did say: "We encourage you to stay within the bounds of the law and our standard contest rules apply."

But Apple's response indicated it viewed that disclaimer as a fig leaf to cover up illicit activity. "You and your company have crossed the line by offering a bounty for the theft of Apple's trade secrets," said the letter, written by Orrick partner Michael Spillner.

"Apple could argue that the offer was an inducement that led to this incident" of Gawker buying the prototype iphone," says Milord Keshishian from Milord & Associaties, a Los Angeles firm that handles cases dealing with intellectual property and trade secrets.

Keshishian, who says he has no knowledge of whether Apple will sue, says: "Even the stipulation that Gawker included in the offer about not violating the law, Apple could argue was a wink-wink thing."

There's another potential defendant in a civil suit, who nearly everyone has forgotten about by now.

A teenager who apparently lives in Tennessee and seems to be something of a Justin Bieber aficionado posted a photo of what appears to be the iPhone 4 in February 2010. Apple finally announced the iPhone 4 in June 2010.

The teen said in a followup message that "I found this photo while doing a Twitter search." If history's any indication, expect Apple to be keenly interested in who leaked it in the first place.