Sapphire supplier settles dispute with Apple rather than face $1B in claims from Cupertino
- 30 October, 2014 00:21
Apple's ex-sapphire supplier caved to its former partner because "protracted litigation against one of the largest corporations in the world with over $100 billion of cash would be challenging and expensive," court documents revealed.
In papers filed late Monday with a federal bankruptcy court, GT Advanced Technologies, of Merrimack, N.H., said it had settled its dispute with Apple because doing otherwise would have let the Cupertino, Calif. company smother it with "liquidated damages claims for in excess of $1 billion."
GT and Apple struck a deal last year under which the former would produce large quantities of scratch-resistant sapphire at an Arizona plant, with the latter agreeing to pre-pay $578 million so that GT could equip the factory with the necessary sapphire-growing furnaces.
The deal unraveled, according to other court documents filed Monday, because of cost overruns and production issues that cost GT over $900 million. GT filed to reorganize under Chapter 11 protection on Oct. 6.
After the 2013 agreement became public, industry and Wall Street analysts expected Apple to use sapphire as the display covering for its iPhone. But when Apple unveiled the new iPhone 6 and 6 Plus last month, they instead relied on Corning's Gorilla Glass to protect the screen.
The settlement, which Apple also signed, cuts most ties between the two companies by terminating all previous contracts, the goal of GT. Apple will be able to recoup the $439 million it had already paid through sales of all sapphire-producing furnaces that GT sells over the next four years, including the more than 2,000 in place at the Arizona factory.
GT feared being dragged into protracted and expensive court battles if it did not settle with Apple, the company told the court -- and in essence the other creditors, who must now get in line behind Apple. "The Settlement Agreement allows GTAT to consensually unwind its business relationship with Apple and free itself from the restrictions of the Apple Agreements, including all exclusivity provisions in the Apple Agreements, without the substantial costs, delay, and uncertainty associated with litigation with Apple," GT's settlement submission stated.
The cards that GT held, it said, were threats to drag Apple into court to contest the claims arising from the deal and contracts it had signed. "Without a global settlement with Apple, GTAT would not only have to defend against substantial liquidated damages claims by Apple, but it would also be compelled to investigate and eventually assert causes of action against Apple relating to the Apple Agreements and the business relationship with Apple," said GT.
Apple may have simply not wanted the bother, or more likely, the possibility that its business dealings with GT would become more public than they already have.
As part of the settlement, GT will file a motion to expunge the documents it filed earlier this month that spelled out how and why the company collapsed. Those documents have remained sealed by the court, and Apple has moved to block any public disclosure of GT's explanation, so they are obviously of concern to Apple. Copies of the document are also to be destroyed, with some exceptions.
Instead, GT filed a replacement of sorts on Monday. Although the substitute declaration remained critical of Apple, it did not go into specifics.
The GT-Apple settlement awaits court approval, which could come at some point after a hearing scheduled for Nov. 25.