GTAT: Apple refused to negotiate, pressured company into contract
According to GTAT COO Daniel Squiller's testimony, Apple told the company to not waste its time trying to negotiate contract terms because the it doesn't negotiate with suppliers. He added that when GTAT pushed for what it saw as better terms, Apple said the terms were standard for its suppliers, and it needed to “put on [its] big boy pants and accept the agreement.”
Those terms included demands that GTAT fulfill Apple's purchase orders on whatever date Apple set, or buy the additional material to complete the order at its own cost. The contract also included a US$50 million per incident penalty for disclosing confidential information.
GTAT signed the deal with Apple a year ago to produce synthetic sapphire glass for the Apple Watch, iPhone 6 and iPhone 6 Plus. The company wasn't able to follow through on its commitment, leading to spiraling expenses, missed deadlines, and ultimately bankruptcy. The company previously called Apple's terms “oppressive and burdensome.”
Apple had agreed to front US$578 million in a series of payments so GTAT could ramp up its sapphire production. Apple also bought and leased factory space to the company to house the furnaces needed to produce the glass.
Mr. Squiller went on to say that GTAT didn't have any input in the Mesa, Arizona, sapphire manufacturing plant Apple financed, and that Apple put some of its own staff in the factory who then tried to boss GTAT's own workers.
The contrat GTAT ended up signing was the result of what he called “bait-and-switch” tactics, and that it was an “onerous and massively one-sided deal” in Apple's favor. Mr. Squiller said their relationship became unsustainable after Apple refused to take responsibility for cost overruns resulting from its efforts to control GTAT's production process.
He added that the manufacturing equipment Apple purchased for the sapphire production couldn't “economically produce a product that Apple would accept.”
Other documents Judge Boroff released today paint a different story where Apple continued to fund GTAT's production despite the company's failure to deliver sapphire in the quantities it needed.
Regardless of Apple's negotiating tactics, GTAT wasn't obligated to sign on the dotted line. The company could've walked away at any time and carried on with business as usual, but instead Mr. Squiller said GTAT said the company felt it had to sign because it had already invested so much time in working out a deal.
The outcome of that decision was that Apple didn't have sapphire glass to use for the iPhone 6 and iPhone 6 Plus display, GTAT is in bankruptcy court, and over 700 employees are looking for new jobs. If the terms were that onerous, maybe GTAT should've turned the deal down.