They secretly developed multi-touch Android and when Jobs found out about it... the project was some way along the way, he was pissed.
Jobs had no right to be pissed. Apple did not invent multi-touch, nor were they the only ones to think of using it on a smartphone, even if he mistakenly thought so. Google only held back multi-touch on Android as long as they did, because Schmidt was naively trying to please his idol Jobs.
However, when Palm came out in 2009 with the multi-touch Pre model, Google had no choice and turned on their multi-touch as well -- in early 2010, THREE YEARS AFTER THE IPHONE WAS SHOWN OFF.
That is when Jobs threw his infamous "it's a stolen product, I'm going thermonuclear" hissy fit. He was talking about taking ideas any time after it had been shown off.
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NOTE 1: Jobs of course immediately threatened Palm with patent lawsuits... just as he did when Palm's CEO rejected Jobs request to join the illegal group of companies blocking their HRs from recruiting each other's employees. Palm's CEO pointed out to Jobs that Palm had a lot of patents too. Jobs backed down, and apparently vented his anger at Google instead.
NOTE 2: Apple actually tried to get a trademark on the word "Multi-Touch". They almost did, too, until Jeff Han (you remember his TED demo that was before the iPhone) wrote a 75+ page letter to the USPTO explaining that it was an industry standard term and should belong to no one.
No, Google didn't copy Apple's code with Android, but they copied what they did. Google found out what Apple was doing and turned around and betrayed Jobs with the leaks coming from Schmidt. The reason why Apple doesn't just sue Google is because their working relationship is complex.
The reason Apple doesn't sue is because there's nothing to sue over. Neither Apple nor Jobs ever accused Schmidt of stealing any secrets while on the Apple board.
The fact is, there was no need to steal anything during the few months he was there in late 2006. After the iPhone was shown off in January 2007, anyone could easily copy it. The ignorant idea that it required inside information is something that fanboys made up totally on their own.
It was not until three years after the iPhone was shown off, and over a half year after Schmidt left the Apple board, that Jobs started his public ranting about Android being a "stolen product".
Jobs was talking about iPhone concepts being stolen AFTER it was shown off to the world, NOT beforehand.