Apple's Partnership with OpenAI Unravels, Potentially Paving the Way for Litigation

Strained Partnership: OpenAI and Apple at Odds Over AI Deal

Apple Inc.'s partnership with OpenAI, formed two years ago, has hit a rough patch. According to sources familiar with the matter, OpenAI is preparing possible legal action against the iPhone maker, alleging breach of contract. The AI startup has failed to reap the expected benefits from the deal and is now seeking outside legal counsel.

OpenAI's lawyers are working with an outside firm to explore various options, including sending Apple a notice alleging breach of contract without filing a full lawsuit. The deliberations are private, and those involved have chosen to remain anonymous. OpenAI had initially believed that the partnership would generate billions of dollars in subscriptions annually, but the actual revenue has not come close to meeting those expectations.

The partnership, announced in June 2024, aimed to integrate OpenAI's ChatGPT technology into Apple's operating systems. However, the implementation has been limited, and features can be hard to find. Apple customers are more likely to use the standalone ChatGPT app rather than accessing OpenAI's technology through Siri and other Apple services. OpenAI executives believe that Apple has not sufficiently promoted the integration across the iPhone, iPad, and Mac ecosystem.

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As part of the agreement, iPhone users could sign up for ChatGPT memberships directly from the iOS settings menu, with Apple taking a portion of the subscription revenue generated through its platforms. However, OpenAI executives now believe that the relationship has deteriorated, and their attempts at renegotiating the deal have stalled.

Apple's use of OpenAI technology has been limited, and responses are more constrained than those available through OpenAI's standalone app. The integration has also hurt OpenAI's brand with customers. OpenAI initially believed the deal was an opportunity to acquire a giant number of customers and have distribution in a big mobile ecosystem, but the deal ended up being a failure for the startup.

OpenAI is poised to lose its unique role within Apple software as the iPhone maker opens up its platforms to rival providers later this year. Apple is testing integrations with both Anthropic PBC's Claude and Google Gemini, and a revamped Siri with this capability is slated to be introduced at Apple's Worldwide Developers Conference on June 8.

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The OpenAI executive said that Apple's embrace of other AI providers isn't driving the company's legal action, as the partnership wasn't meant to be exclusive from the start. The new integration system in iOS 27, known as Extensions, might even better promote ChatGPT, presenting users with an AI model picker that includes both Siri and outside alternatives like OpenAI's offering.

Apple's underlying AI models are being revamped with technology from Google's Gemini team, a deal struck late last year after earlier weighing a broader arrangement with OpenAI. OpenAI was not interested in working with Apple on the new models because it felt burned by the initial relationship. Apple is paying Google roughly $1 billion annually to use its AI technology.

At the same time, OpenAI has emerged as a potential Apple competitor in hardware, acquiring a next-generation devices startup co-founded by former Apple design chief Jony Ive. Apple executives have been fuming over the way OpenAI has recruited engineers from its hardware team, offering stock-based packages worth millions of dollars more than Apple provides.