AI device startup that sued OpenAI and Jony Ive is now suing its own ex-employee over trade secrets

A secretive competition to pioneer a new way of communicating with artificial intelligence chatbots is getting a messy public airing as OpenAI fights a trademark dispute over its stealth hardware collaboration with legendary iPhone designer Jony Ive.

In the latest twist, tech startup iyO Inc., which already sued Ive and OpenAI CEO Sam Altman for trademark infringement, is now suing one of its own former employees for allegedly leaking a confidential drawing of iyO’s unreleased product.

At the heart of this bitter legal wrangling is a big idea: we shouldn’t need to stare at computer or phone screens or talk to a box like Amazon’s Alexa to interact with our future AI assistants in a natural way. And whoever comes up with this new AI interface could profit immensely from it.

OpenAI started to outline its own vision in May by buying io Products, a product and engineering company co-founded by Ive, in a deal valued at nearly $6.5 billion. Soon after, iyO sued for trademark infringement for the similar sounding name and because of the two firms’ past interactions.

U.S. District Judge Trina Thompson ruled last month that iyO has a strong enough case to proceed to a hearing this fall. Until then, she ordered Altman, Ive and OpenAI to refrain from using the io brand, forcing them to take down the web page and all mentions of the venture.

A second lawsuit from iyO filed this week in San Francisco Superior Court accuses a former iyO executive, Dan Sargent, of breach of contract and misappropriation of trade secrets over his meetings with another io co-founder, Tang Yew Tan, a close Ive ally who led design of the Apple Watch.

Sargent left iyO in December and now works for Apple. He and Apple didn’t immediately respond to a request for comment.

“This is not an action we take lightly,” said iyO CEO Jason Rugolo in a statement Thursday. “Our primary goal here is not to target a former employee, whom we considered a friend, but to hold accountable those whom we believe preyed on him from a position of power.”

Rugolo told The Associated Press last month that he thought he was on the right path in 2022 when he pitched his ideas and showed off his prototypes to firms tied to Altman and Ive. Rugolo later publicly expanded on his earbud-like “audio computer” product in a TED Talk last year.

What he didn’t know was that soon after, Ive and Altman would begin quietly collaborating on their own AI hardware initiative and give it a similar name.

“I’m happy to compete on product, but calling it the same name, that part is just amazing to me. And it was shocking,” Rugolo said in an interview.

The new venture was revealed publicly in a May video announcement, and to Rugolo about two months earlier after he had emailed Altman with an investment pitch.

“thanks but im working on something competitive so will (respectfully) pass!” Altman wrote to Rugolo in March, adding in parenthesis that it was called io.

Altman has dismissed iyO’s lawsuit on social media as a “silly, disappointing and wrong” move from a “quite persistent” Rugolo. Other executives in court documents have characterized the product Rugolo was pitching them as a failed one that didn’t work properly in a demo.

Altman said in a written declaration that he and Ive chose the “io” name two years ago in reference to the concept of “input/output” that describes how a computer receives and transmits information. Neither io nor iyO was first to play with the phrasing – Google’s big annual technology showcase is called I/O – but Altman said he and Ive acquired the io.com domain name in August 2023.

The idea was “to create products that go beyond traditional products and interfaces,” Altman said. “We want to create new ways for people to input their requests and new ways for them to receive helpful outputs, powered by AI.”

A number of startups have already tried, and mostly failed, to build gadgetry for AI interactions. The startup Humane developed a wearable pin that you could talk to, but it was poorly reviewed and the startup discontinued sales after HP acquired its assets earlier this year.

Altman has suggested that io’s version could be different. He said in a now-removed video that he’s already trying a prototype at home that Ive gave him, calling it “the coolest piece of technology that the world will have ever seen.”

What Altman and Ive still haven’t said is what exactly it is. The court case, however, has forced their team to disclose what it’s not.

“Its design is not yet finalized, but it is not an in-ear device, nor a wearable device,” said Tan in a court declaration that sought to distance the venture from iyO’s product.

It was that same declaration that led iyO to sue Sargent this week. Tan revealed in the filing that he had talked to a “now former” iyO engineer who was looking for a job because of his frustration with “iyO’s slow pace, unscalable product plans, and continued acceptance of preorders without a sellable product.”

Those conversations with the unnamed employee led Tan to conclude “that iyO was basically offering ‘vaporware’ – advertising for a product that does not actually exist or function as advertised, and my instinct was to avoid meeting with iyO myself and to discourage others from doing so.”

IyO said its investigators recently reached out to Sargent and confirmed he was the one who met with Tan.

Rugolo told the AP he feels duped after he first pitched his idea to Altman in 2022 through the Apollo Projects, a venture capital firm started by Altman and his brothers. Rugolo said demonstrated his products and the firm politely declined, with the explanation that they don’t do consumer hardware investments.

That same year, Rugolo also pitched the same idea to Ive through LoveFrom, the San Francisco design firm started by Ive after he left Apple. Ive’s firm also declined.

“I feel kind of stupid now,” Rugolo added. “Because we talked for so long. I met with them so many times and demo’d all their people – at least seven people there. Met with them in person a bunch of times, talking about all our ideas.”