Steve Kondik, also known by his nickname Cyanogen, is an independent Android hacker who builds a custom version of the Android ROM people can install on their Android mobile phones. His version of the ROM is very popular, and is seen as actually better than the stock Google variant, especially in the performance department.
However, these custom ROM images do carry the proprietary Google applications within them, such as Android Market and Google Maps. This is not exactly something Google seems to like, as they sent a cease and desist letter to Kondik regarding his ROM images. This is rather unusual, as other mobile platform vendors have always looked the other way. Custom Windows Mobile ROMs are everywhere, and there are even entire websites dedicated to the practice. It's all relatively harmless, as only advanced users will perofrm these tricks; if it all fails and handsets blow up in puffs of fairy dust, it's not the vendor's concern.
Kondik is of course not happy - to put it mildly - with the whole situation, but he is working with Google to try and find a solution. His current plan is to create a tool which will back up the Google applications from your phone's stock Android ROM, and carry them over the custom ROM. This way, the custom ROM does not violate any copyright, but users will still have their Google applications. There are also efforts under way to replace Google's closed bits with open source replacements.
Google itself also responded to the issue, but their response is rather dry and not very helpful. "These apps aren't open source, and that's why they aren't included in the Android source code repository," Google's Dan Morrill states, "Unauthorized distribution of this software harms us just like it would any other business, even if it's done with the best of intentions."
While Google has the right to protect its legal rights, one has to wonder whether this is really helpful when you're claiming you're building an open source mobile operating system and open platform, which everyone can improve upon and use in their handsets.