Apple Inc. recently gave a Taiwanese supplier of its popular iPods a small slap for labor conditions at its Shenzhen factory in southern China. Media reports in Britain and China portrayed work conditions as substandard.

So what has the supplier done in turn? It’s trying to ruin the Chinese reporters who helped bring the story to light.

The supplier, a subsidiary of Taiwan’s Foxconn Technology Group, has filed a whopping defamation suit against two journalists at a leading Chinese financial newspaper and is seeking $3.75 million in damages.

In response to the suit, a court in Shenzhen has frozen the personal assets of reporter Wang You and Weng Bao, his former supervisor. According to the Shanghai Daily, the move froze the apartments, car and bank accounts of the two journalists.

As the EastSouthWestNorth blog asks, “Does Apple's Supplier Code of Conduct have anything to say about their suppliers intimidating reporters through ruinous litigation in order to prevent reporting?”

Good question. Would Apple permit a subsidiary in the U.S. to go after an American journalist like this? The story is spreading around the Chinese internet.

One of the most popular Chinese-language news portals, Sina, is having a field day, collecting all news coverage on the matter for a special section and setting up a blog for the sued journalists. Foxconn, better known as Hon Hai Precision, may have just opened the door to its worst PR crisis ever.

Notice that Foxconn hasn't gone after the Daily Mail of London, which published a story on the Shenzhen factory conditions before the Chinese newspaper did. Perhaps Foxconn knows it could face a costly countersuit, as well as further scrutiny of conditions at its plants.