Reality check: the company has previously done design work for Palm on the Treo and from what it seems for Microsoft on the Xbox. And from what we learned about the Foxconn slave worker scandal, that company works for not only Apple but just about everyone in the electronics business.
So that makes it obvious that Apple is not in any way opposed to having close ties to contractors who also work for their competitors.
Yes, there was some sort of fallout here, but it cant have been any fault on the part of this company because it it was, then Apple would have sued them.
So clearly Apple wanted to exert control over the activities of this company, above and beyond any contractual obligation, but was not willing to pay for the privilege.
Good move on the part of this small company. If they have marketable skills then they need to get paid market rate for it. In any case, Apple didnt exactly invent the tablet computer or anything, so if they are not willing to pay their partners enough, then this sort of this will of course happen.