In the B2B payments world, manufacturers often find themselves having to agree to severe penalties for non-performance such as late deliveries. This can be frustrating if the delays are unavoidable and if those penalties mean the difference between profit and loss. In one extreme case involving Apple and a sapphire glass manufacturer, those differences have sent that manufacturer to bankruptcy court seeking protection.
The most interesting detail to come out of that legal battle between GTAT (which would have made the Sapphire glass for the new iPhones, had Apple not changed its mind about using it) and Apple is Apple’s contractual penalty for violating its non-disclosure agreement: $50 million per occurrence. (As a long-time fan of unnecessary legal phrasing, I must point out that Apple didn’t specify $50 million per occurrence. It specified “an amount equal to $50 million per occurrence.” Quick quiz: How many numbers out there are equal to $50 million?)
The beautiful part of that agreement are the sheer lack of any details. Who determines if there’s been a violation? If a detail that 200 people knew gets reported somewhere, how does Apple prove that this came from that manufacturer? And how does one define an occurrence? If someone leaks that the size will be 2x3x5, does each of those numbers reflect a leak occurrence, suggesting a $150 million fine? And what if the disclosed detail had already been leaked by an Apple employee? Does these penalties only apply to the first time the information is leaked?
And what constitutes disclosure? If some obscure blog—read by 2 people a year—runs the detail and no one notices, does that constitute disclosure? Does the disclosure need to cause Apple any hardship before a fine is charged?
Does the level of obviousness play a role? Would a panel comment in June that said “Yes, Apple is preparing new iPhones” have justified a $50 million penalty?
But secrecy isn’t the only area where Apple promised painpoints. Once a product delivery was four days late, a $320,000 penalty was charged. Offer the glass to anyone else—a violation of an exclusivity deal—gets a $640,000 penalty for each sapphire boule produced and used. There were also penalties if the supplier didn’t replace a key employee with a “suitably qualified individual” quickly enough.
The upshot? “GTAT had originally been tipped toproduce sapphire crystal displays for the iPhone 6, but when both handsets launched, they were said to use ‘ion-strengthened glass,'” reported Engadget. “The announcement sent GT’s share price tumbling, and now it needs the court’s help to save it from total collapse, since it owes Apple almost $600 million in advance payments for displays it won’t or couldn’t use. “