Considering firmware as part of the hardware from a higher-level view is not necessarily that weird in itself. It really depends on the details. I.e. a simple microcontroller with a program in ROM is also "firmware", but not all that different from a pure electronic ciruit. For more complex systems it becomes a more difficult question.

Also, why would detecting a closed iPad sleeve require "electro-magnet based communication"? Seems like detecting presence of a magnet would be enough.