Apple's Need for Secrecy in Supplier Bankruptcy Questioned by Judge

Scant information has emerged since GT Advanced Technologies Inc filed for bankruptcy last week, wiping out most of its market value and triggering speculation about what may have soured its Apple relationship and torpedoed its prospects.

Key court filings revealing the reasons for the bankruptcy, which are routine in most Chapter 11 cases, have been filed with the court in secret. GT Advanced cited strict confidentiality requirements in its Apple contracts which, if violated, carry fines of $50 million.

At a hearing in U.S. Bankruptcy Court in Springfield, Massachusetts, Judge Henry Boroff told a lawyer for Apple that the documents do not seem to contain much proprietary information. Boroff instructed Apple to provide him a list by Monday of exactly which elements of the filings are sensitive.

"I've got a foot-high stack of documents, and it can't be that it all must be sealed," Boroff said.

Boroff said Apple and GT Advanced appeared to have made a complex series of agreements. The two made a deal in November for GT to set up a factory in Mesa, Arizona, to make scratch-resistant sapphire glass exclusively for Apple.

"I'm seeing what looks incredibly like a construction suit, where a homeowner says to the contractor, 'It didn't come out the way I wanted to,' and the contractor says, 'Well, it would have come out that way if you didn't continue to change the specifications.'"

Apple is widely seen as running one of the most efficient supply chains in the world but the Cupertino, California, company is also known for exacting standards and pricing that often leave its suppliers little room for profitability.

Boroff's comments came during a hearing that was meant to consider a motion by GT Advanced to keep certain documents sealed and begin the process of winding down its operations. But those issues were postponed until next Tuesday, in light of the recent appointment of GT Advanced's official creditors' committee.

The committee, tasked with representing the interests of all of the company's unsecured creditors, needs more time to get up to speed, Luc Despins, a lawyer for GT Advanced, told the court.

Despins added that the company will cease new production of sapphire and will begin sending notices to employees under the Worker Adjustment and Retraining Notification, or WARN, Act, which requires employers to warn workers of impending mass layoffs.

With the exception of Apple, parties in the case, including regulators and creditors, are pushing for more transparency. Earlier this week, the U.S. Department of Justice's bankruptcy watchdog in court papers said sealing information about GT Advanced's downfall would "thwart" the objectives of bankruptcy laws and "unjustifiably undermine" the system's fairness.

© Thomson Reuters 2014