The hearing was before a federal magistrate judge and was largely administrative. Binding precedent wouldn't have been set until the case hit a higher court on appeal (which would have been inevitable regardless of who won as both sides had significant incentives for appeal). The DOJ could have dropped the case at any point before then to avoid an undesirable precedent. Until that point, a negative ruling wouldn't have been an insurmountable problem even if other, similar cases were brought. At worst, it could be pointed to as a point of persuasive authority ("here's what another judge did, your honor - doesn't that sound grand?"), but that's not binding. A lot of coverage and discussion confused an eventual precedent with the magistrate hearing.
The most likely reason for dropping the case would have had nothing to do about precedent and everything to do with the fact that they couldn't proceed without lying to the court. The entire basis for the case was that the government had no other choice but to compel Apple to build "GovOS." The moment they became aware of the existence of an alternative method, they had a duty to update their brief and inform the court. And at that point, with the entire basis for their case effectively gone, they were pretty much out of options.
From the FBI's perspective, that was rather unfortunate. They probably figured this was the perfect case to pursue to try and gain the sort of precedent they wanted (an instance of Islamic terrorism on American soil? It checks all of the boxes for manipulating the public into supporting the FBI). Most likely, they never expected Apple to fight back for fear of the PR consequences of impeding a terror investigation. Minor miscalculation, that.
>a negative ruling wouldn't have been an insurmountable problem
It was setting them up for a precedent-setting legal decision in a higher court that may very well have not gone the government's way.
>they couldn't proceed without lying to the court
You're assuming that this mysterious third party that showed up the day before the initial hearing with a method to crack the phone actually exists, and that this method was successful. That is certainly a possibility, but it is also possible that they never intended to see this through and hoped that they could intimidate Apple into doing exactly what they wanted.
There were rumblings about a company that could do this weeks ago. Snowden brought up it was possible, and likely even hit upon the method.
I think the "mysterious third party" absolutely exists. I just think that the plan all along was to compel apple to do this, and then fall back on this if Apple pushed.
The most likely reason for dropping the case would have had nothing to do about precedent and everything to do with the fact that they couldn't proceed without lying to the court. The entire basis for the case was that the government had no other choice but to compel Apple to build "GovOS." The moment they became aware of the existence of an alternative method, they had a duty to update their brief and inform the court. And at that point, with the entire basis for their case effectively gone, they were pretty much out of options.
From the FBI's perspective, that was rather unfortunate. They probably figured this was the perfect case to pursue to try and gain the sort of precedent they wanted (an instance of Islamic terrorism on American soil? It checks all of the boxes for manipulating the public into supporting the FBI). Most likely, they never expected Apple to fight back for fear of the PR consequences of impeding a terror investigation. Minor miscalculation, that.