The ongoing legal struggle between Apple and the Department of Justice shifted dramatically as federal officials dropped their effort to force the Cupertino tech giant to grant access to the iPhone used by Syed Farook, the terrorist who perpetrated the San Bernardino attacks.

Through means which have yet to be disclosed, DOJ gained access to the phone’s contents on its own, raising questions about its methods which may be revealed to Apple as the focus of litigation shifts away from Riverside, California, to New York.

Cracking the code

“F.B.I. investigators have begun examining the contents of the phone but would not say what, if anything, they have identified so far,” the New York Times reported. “The Justice Department also remained tight-lipped about how it was able to finally get into the smartphone after weeks of furious public debate.

“A second law enforcement official who spoke on the condition of anonymity to reporters in a conference call said that a company outside the government provided the F.B.I. with the means to get into the phone used by Mr. Farook, which is an iPhone 5C running Apple’s iOS 9 mobile operating system. The official would not name the company or discuss how it was accomplished, nor would officials say whether the process would ultimately be shared with Apple.”

But according to industry sources cited by NBC News, the Israeli firm Cellebrite was contracted to do the job. “The firm has been rumored to be behind the FBI’s newfound ability to access the device, thanks to a previous and unconfirmed report from an Israeli newspaper,” The Hill noted. Though Cellebrite and the Department of Justice have not confirmed the rumors or the reports linking the two, Bureau officials have “routinely contracted Cellebrite over the last five years,” The Hill added. “The company, which publicly boasts of its ability to hack into Apple devices, has received over $2 million in purchase orders from the agency since 2012.”

Another shoe to drop

Nevertheless, the details of the government’s behind-the-scenes efforts could soon come to light. “Apple is in the middle of a separate case in Brooklyn, New York, in which the Justice Department wants the company to unlock an iPhone used by an alleged drug dealer. So far, Apple has resisted,” as CNET observed. But if federal officials press forward with litigation, “both sides would have to exchange information and evidence. That’s when Apple could demand that the DOJ explain how it hacked Farook’s iPhone[.]”

According to Reuters, a federal magistrate ruled last month in the Brooklyn case “that he did not have authority to order Apple to disable the security of an iPhone seized during a drug investigation. The Justice Department then appealed to a district court judge.”

“After filing that appeal, U.S. prosecutors notified the magistrate in the San Bernardino case that a third party had demonstrated a new technique which could access the iPhone in question. The Justice Department disclosed the new technique to the judge one day after the demonstration, and then confirmed its success on Monday, according to court filings, though it did not reveal how its solution works.”

Notably, the means whereby the Department of Justice might access the contents of the alleged drug dealer’s cellphone could well differ from those used on Farook’s phone. That’s because “the Brooklyn phone runs an older version of Apple’s mobile operating system, iOS 7, than the phone in San Bernardino, which ran iOS 9,” as Quartz pointed out. “As such, it’s likely that the Brooklyn phone is easier to access. For example, hacking tools can be bought on eBay to unlock some phones running iOS 8 or earlier.”

Edward Snowden recently made headlines by claiming that the FBI lied about needing Apple’s help at the beginning of the controversy because of a relatively easy-to-implement passcode workaround.

The first is because it will remind the public that Silicon Valley-based Apple, Google and Yahoo all have histories with U.S. spies that many find unnerving — even if they weren’t eagerly cooperating, as AT&T reportedly did. The second is because the AT&T leak illustrates yet again that the U.S. government isn’t good at keeping secrets — meaning past examples of corporate cooperation with mass invasions of privacy could come to light in the future.

But the third reason may be the most consequential: the potential fallout this could have for Silicon Valley’s designs on the constantly growing China market. Vinod Aggarwal, a UC Berkeley business and political science professor and the director of the Berkeley Asia Pacific Economic Cooperation Study Center, warns that revelations about ties between tech firms and U.S. spies could easily be used as a reason to keep U.S. products out of any foreign market — China in particular:

The fallout from the NSA scandal is already starting to crimp U.S. corporate expansion plans in Europe. Analysts had expected AT&T to acquire Vodafone Group, whose cellphone operations cover many EU states. Accusations that AT&T gives the NSA data on customers’ telephone calls is raising red flags in those European countries, like Germany, where privacy is taken seriously. Regulators and legislators are already making noises about this deal. If AT&T does go ahead – and even if it prevails and acquires Vodafone — there will be strings attached and much more oversight from European government agencies. Potential regulatory risk has suddenly soared for AT&T.

 

For many foreign companies and governments, there is a certain justice in AT&T paying a price for its links to the U.S. government. After all, it was Huawei’s apparent links to the Chinese military that so enraged one U.S. congressional committee that they recommended that no U.S. public agency or firm should buy Huawei’s telecoms equipment. That effectively shut Huawei out of the U.S. market.

That’s from an essay that Aggarwal co-authored in the Harvard Business Review in late 2013 after the first mass wave of leaks by former NSA contractor Edward Snowden, which included inflammatory revelations about AT&T that hinted at the company’s vast cooperation with the NSA that was reported this week.

Apple’s biggest market may be imperiled

This hostility toward Huawei could easily be invoked by Beijing to hamper Apple at any time. Given that the Cupertino-based company sees China as absolutely crucial to its future, it may consider taking Aggarwal’s advice that tech companies need to sell themselves as international brands, not American ones, so they’re not seen as “as an extension of a troubled hegemon.”

In April, Apple confirmed that China had passed the U.S. in iPhone sales. As Quartz magazine reported in June, Apple has deliberately cultivated the Chinese market.

When Apple first made the iPhone available in gold color — with the 5S in 2013 — smart observers identified it as a play for the Chinese consumer. And, Tim Cook says, the glitter has proved golden in the world’s largest smart-phone market.

 

In an interview with the the Hong Kong edition of Bloomberg Businessweek (available only in print), the Apple CEO points to the gold iPhone — subsequent generations of the phone and the iPad are available in that color — as but one example of how the company localized for the Chinese market.

 

“A big reason for why we released the gold iPhone as because many Chinese consumers like the color gold,” Cook told the publication. “To be clear, sales for the gold iPhones in China have far, far exceeded other markets.”

 

Cook also noted how the introduction of third-party keyboards in iOS 8 was partially inspired by requests from China’s iPhone owners. Typing in Chinese can be very tedious, and many of China’s most popular third-party keyboards had moved from PC to Android seamlessly but weren’t available on Apple phones.

China’s economy and stock market have had a rough few weeks. The Beijing regime is already accused of trying to distract the public from its economic headaches with saber-rattling in the South China Sea, building a military airstrip on a disputed island over the strong objections of the U.S. and Japan. Adopting policies that invoke economic nationalism to keep out or limit Silicon Valley firms in the world’s most populous nation would be an even bigger distraction.

By Joseph Perkins

I imagine that Jeremy Potash, executive director of the California-Asia Business Council, winced this week while watching the foreign policy debate between President Obama and Gov. Mitt Romney.

Her group is trying to increase trade between California, the world’s ninth-largest economy, and China, the world’s second-largest economy.

And it certainly did not help that the president and the governor spent the last 15 minutes of their debate bashing China, each trying to persuade protectionist voters that they’d be tougher on Beijing than his opponent.

The pandering by both Obama and Romney was no doubt driven by polls showing that Americans view China as a threat to their economic well being.

For instance, a survey this past spring by Pew Research Center found that 78 percent of respondents said the large amount of U.S. debt held by China is a “very serious problem” for this country; 71 percent said the same of U.S. job losses China; and 61 percent about our trade deficit with China.

Yet, while our indebtedness to Beijing, our trade deficit with China and our real or imagined job losses to the People’s Republic are legitimate concerns, the very last thing California needs is beef with China and its 1.4 billion consumers.

California exports

Indeed, California exports to Mainland China increased to $14.2 billion in 2011 from $9.7 billion in 2009, according to the U.S. Commerce Department. That’s nearly a 50 percent increase in sales of California goods and services to China in just a three year span. And it was especially welcome during a time the state was recovering from the Great Recession.

California even benefits from all the Chinese-made goods that flow into this country, including the low-priced Chinese-made tires Obama railed against during his meet up with Romney in Boca Raton, Fla.

That’s because the Ports of Los Angeles, Long Beach and Oakland handle, among them, 45 percent of the waterborne containerized cargo shipped to the United States. Those Chinese imports support tens of thousands of port-related jobs, including wholesale trade, warehousing and transportation.

Chinese imports also are a boon to California consumers, who are able to save a considerable amount of their disposable incomes by purchasing goods “made in China” for American companies.

That includes California-based companies Apple, whose iPhone is made in China; Gap, which outsources some its clothing manufacturing to China; and Mattel, which entrusts much of its toy making to Chinese elves.

All told, Chinese imports make up less than 3 percent of total U.S. personal consumption, according to a report last year by the Federal Reserve of San Francisco, authored by senior economist Galina Hale and senior research advisor Bart Hobijn.

And of that amount, more than half the value of those “made in China” consumer goods actually redounds to U.S. companies (and their workers). Like Apple and Gap and Mattel.

No state profits as much from trade with China as California.  And no state stands to lose as much if the protectionist banter this week between Obama and Romney is translated into actual trade policy by whichever man the voters elect.