The Lost Fourth-Gen iPhone and Apple's Angst

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(Reuters) – Fearing “huge” losses in sales after pictures leaked of its fourth-generation iPhone, Apple Inc convinced police to launch a felony investigation and Chief Executive Officer Steve Jobs contacted the offending Web site himself to try and recover the gadget.

A California court unsealed a search warrant on Friday in the case of the lost or stolen prototype 4G iPhone whose inner workings ended up on popular gadget site Gizmodo — weaving a bizarre tale of beer gardens, paranoid lawyers and emails to the Apple chieftain.

Apple, which has released a new iPhone in each of the past three summers, is known for its secrecy. It is widely believed to be releasing its latest model this summer.

The story of the missing iPhone that belonged to an Apple engineer has captivated Silicon Valley since news broke last month. The missing phone apparently caused concern among Apple executives, according to a meticulously detailed April 23 search warrant by Matthew Broad, a detective with the San Mateo County Sheriff’s office.

An outside lawyer for the company considered the missing prototype “invaluable” and publication of its details “immensely damaging” to Apple’s future sales, Broad wrote. The detective is a member of the county’s squad that investigates high-tech crimes.

The loss of the prototype, owned by Apple employee Robert Gray Powell, in late March prompted a meeting between company executives and law enforcement.

“Riley stated the publication of the device and its features is immensely damaging to Apple,” wrote Broad in the warrant, referring to Apple’s outside counsel, George Riley of O’Melveny and Myers.

Apple’s director of information security, Rick Orloff, and the company’s general counsel, Bruce Sewell, were also at the April 20 meeting.

Riley said Apple customers would delay purchases until the new iPhone was released, “thereby hurting overall sales and negatively effecting Apple’s earnings,” the detective wrote.

“Riley stated he could not currently provide an estimated loss, but he believed it was ‘huge,'” Broad wrote.

Apple officials were not available for comment.

BEER AND BETRAYAL

The incident began when Apple engineer Powell lost the prototype iPhone while at a German restaurant and beer garden in Redwood City, in the San Francisco Bay Area.

It was then either found or stolen by Brian Hogan, according to the search warrant.

But Hogan’s room-mate, worried that the iPhone could be traced back to her after he plugged it into her computer, tipped off Apple that he had sold it to Gizmodo for $8,500.

Photos and details of the new device — ripped apart to reveal its inner workings — subsequently appeared on the website.

The device featured several improvements on the current generation model, including video, according to Gizmodo.

Jobs then contacted Gizmodo’s editor Brian Lam who replied in an email that the device would be returned if Apple acknowledged that it was indeed the iPhone prototype, according to Broad’s report.

Lam then gave Apple the address of Gizmodo employee Jason Chen, to arrange for the iPhone’s pickup.

Police later seized some 22 items, including an iPhone iPad, 3 Macbooks, an Apple base station and other devices, from Chen’s residence.

San Mateo District Attorney Chris Feasel told Reuters no charges had been filed but the investigation was ongoing.

“We are working with Chen’s attorney to expedite the search of the computers,” he said.

A San Mateo County Superior Court judge had sealed the search warrant on April 28, but ordered it unsealed on Friday after petitioning by a coalition of media outlets.