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Apple Inc. vs. the FBI Reaches an Unexpected Conclusion, but It's Not Over

By Leo Sun - Apr 1, 2016 at 11:06AM

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The government doesn't need Apple's help.

Apple's (AAPL 0.11%) standoff with the FBI recently ended after the agency abruptly announced that it had unlocked the iPhone of one of the San Bernardino shooters without the tech giant's help. A few days later, the FBI reportedly agreed to help an Arkansas prosecutor unlock an iPhone and iPod owned by two teenagers accused of murder.

Source: Apple.

The Wall Street Journal previously reported that the U.S. government was trying to unlock "about a dozen" iPhones for similar purposes, so more requests for the FBI's help will likely follow. This unexpected development could be bad news for Apple and other tech companies engaged in privacy battles with law enforcement agencies.

Why this is bad news for Apple
In an open letter to customers on Feb. 16, Apple CEO Tim Cook warned that providing law enforcement agencies with a "master key" to its devices would "undermine decades of security advancements that protect our customers -- including tens of millions of American citizens -- from sophisticated hackers and cybercriminals."

But now the FBI has found its own way to unlock iPhones, and it's unlikely to share the technical details with Apple, which would try to patch the vulnerability. To make matters worse, the hacking community could figure out the exploit before Apple, which would endanger the iPhone data of all owners. Such a blow would exacerbate Apple's current security headaches, which include a new malware outbreak on iPhones and iPads and a new "ransomware" attack on Macs. Hacks and attacks like these tarnish Apple's reputation for selling devices that are "more secure" than those running Android or Windows.

The enterprise and overseas markets
The FBI's announcement could also impact Apple's ambitions in the enterprise market and in China. Over the past few years, Apple's iPhones have been approved for various high-security organizations and enterprises which previously only used BlackBerry (BB 2.96%) devices. Cook has repeatedly claimed that enterprise demand will save the iPad, sales of which have fallen for eight consecutive quarters.

Source: Apple.

In February, The New York Times reported that Apple was developing security measures that would make it "impossible" to unlock its phones. Unfortunately, Apple's recent security headaches and the FBI's new ability to unlock iDevices probably haven't impressed enterprise customers with sensitive data.

Apple's reputation could also take a hit in overseas markets, which have grown increasingly suspicious of U.S. tech companies after the Snowden leaks revealed their connections to the NSA's PRISM surveillance project. To allay concerns in China, its fastest growing market, Apple reportedly let the government run security checks on all Apple devices and moved Chinese users' data to Chinese servers. Unfortunately, the revelation that the U.S. government now owns a "master key" to its iDevices might hurt Apple's sales in China, which generated nearly a fourth of its sales last quarter.

Bad news for other tech companies
Many tech companies rallied behind Apple in its battle against the FBI for similar reasons. One major supporter was Microsoft (MSFT 1.12%), which is currently engaged in a standoff with the U.S. government over a request for an American customer's emails stored on its Irish server. Like Apple, Microsoft faces similar scrutiny overseas -- the German government once warned that Windows 8 could be used as an NSA backdoor, and the Chinese government banned the installation of Windows 8 on its government computers.

The key conflict is that U.S. tech companies are trying to distance themselves from the Snowden and PRISM debacle, but U.S. law enforcement agencies believe that tech companies are obligated to unlock their products if they contain vital information for a criminal case.

No easy answers
There aren't any easy ways to resolve this conflict of interest. Some will argue that the U.S. government shot itself in the foot with PRISM, and that tech companies shouldn't be treated like extensions of law enforcement agencies. But others will claim that tech companies are adopting a naive and dangerous position, which empowers and emboldens criminals -- like the inmate who reportedly called Apple's encrypted OS a "gift from God" -- while protecting their overseas interests.

It's unclear if Apple can stop the FBI from unlocking iDevices, but the rules of the game have certainly changed. Law enforcement agencies might stop asking tech companies for help and hack the devices themselves, which would raise troubling questions about data privacy.

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