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iPhone Antitrust and Computer Fraud Claims Upheld 273

LawWatcher writes "On October 1, 2008, a federal judge in California upheld a class action claiming that Apple and AT&T Mobility's five-year exclusive voice and data service provider agreement for the iPhone violates the anti-monopoly provisions of the antitrust laws. The court also ruled that Apple may have violated federal and California criminal computer fraud and abuse statutes by releasing version 1.1.1 of its iPhone operating software when Apple knew that doing so would damage or destroy some iPhones that had been 'unlocked' to enable use of a carrier other than AT&T."
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iPhone Antitrust and Computer Fraud Claims Upheld

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  • Re:Yay! (Score:5, Informative)

    by Free the Cowards ( 1280296 ) on Friday October 03, 2008 @06:17PM (#25251615)

    What gives is that they're talking about Apple's contract with AT&T, not your contract with AT&T. The reason you can't buy an iPhone and use it with T-Mobile in the US (unless you hack it) is because of Apple's exclusive contract, which currently runs for five years.

  • by HTH NE1 ( 675604 ) on Friday October 03, 2008 @06:26PM (#25251689)

    They seriously need to be taken down a notch legally so they don't lawyer up at every opportunity.

    Everybody has a right to an attorney. Even a corporation.

    (And even an unlawful enemy combatant, but that's another topic for another time.)

  • by Anonymous Coward on Friday October 03, 2008 @06:39PM (#25251759)

    Nothing has been "Upheld", all that has happened is that the court denied Apple's 12b6 motions for dismissal. (Failing to state a claim upon which relief can be granted.)

    This case is still pre-trial. Discovery has not happened yet. Apple can still file for summary Judgment.

    If the complaint survives Apple's inevitable motion for summary judgment, then the case will go to trial. Then there will be appeals.


  • by mr_matticus ( 928346 ) on Friday October 03, 2008 @06:39PM (#25251765)

    D. None of the above.

    People who bought the iPhone and are allegedly stuck with AT&T for five years as a result, despite having agreed to a two-year contract.

    The exclusivity agreement, according to the complaint, prevents any iPhone customer from going anywhere else once their contract is up. The problem is that (a) no one's contract has expired, so there is no evidence for or against Apple and AT&T as to what happens at that time, (b) there are already tools to unlock the iPhone and use the device on other networks, which, after the AT&T contract and the product warranty expires, Apple could not care less about for end users, and (c) the "legal action" discussed does not extend to people unlocking their handsets for the purpose of lawfully connecting them to another provider's network.

    This, furthermore, is not a finding of fact or law. It is not an opinion. It is simply a rejection of a dismissal motion. It by no means suggests the final outcome, nor does it endorse any of the allegations made by the plaintiffs. It is entirely possible that this suit will be dismissed further along in the discovery process, dismissed during trial, or that Apple/AT&T will win at trial. It will likely provide nothing of value to consumers either way, with the possible exception of an announcement of an "official" unlocking tool for customers whose initial contracts have expired.

    It is important to note that such a tool being offered upon completion of your term commitment would entirely moot this case.

  • by LionMage ( 318500 ) on Friday October 03, 2008 @07:10PM (#25252017) Homepage

    This isn't just about Apple. The document cites, for example, that AT&T Mobility does not (or is not required to) subsidize the cost of the iPhone, contrary to standard industry practice, yet they still charge a $175 early termination fee.

    I am with the court on this one! Early termination fees only make sense if the carrier is subsidizing the cost of the handset.

  • by adam ( 1231 ) on Friday October 03, 2008 @07:30PM (#25252195)
    They're suing in relation to a breach of the Magnuson Moss Warranty Act of 1975, as well as the Sherman Anti-Trust Act.

    The Warranty Act is related to the product tieing, and bricking of unlocked phones. Essentially (and amongst other things) the MM Warranty Act says that it's illegal for a vendor to sell a product and require a tieing of services. From the FTC's web site:

    "Tie-In Sales" Provisions Generally, tie-in sales provisions are not allowed. Such a provision would require a purchaser of the warranted product to buy an item or service from a particular company to use with the warranted product in order to be eligible to receive a remedy under the warranty. The following are examples of prohibited tie-in sales provisions. In order to keep your new Plenum Brand Vacuum Cleaner warranty in effect, you must use genuine Plenum Brand Filter Bags. Failure to have scheduled maintenance performed, at your expense, by the Great American Maintenance Company, Inc., voids this warranty.

    They are arguing that tieing to AT&T, and then firmware releases bricking phones that have been unlocked to another carrier is an illegal/tortious act on the part of Apple. They allege Apple has told customers that downloading of unapproved software (but software that should be legal to install, under the MM act, imo) will void their warranty. Furthermore they have a vested financial interest in "approved" software from the Apple store, and obviously refuse to allow unlocking software to be included in that store. They refuse to provide customers who have lawfully canceled their AT&T contracts with unlocking codes so they may use their device with another carrier (again, covered by MM act). The list of allegations goes on. Full text of 15 USC Chapter 50 [], which is the section of the statute they have sued under (although I believe Title 16 - Commercial Practices, Chapter I - Federal Trade Commission, Subchapter G - Rules, Regulations, Statements and Interpretations under the Magnuson-Moss Warranty Act, Part 700 Section 102 also deals with warranty denials, text here []).

    They are alleging illegality on the part of Apple in that they monopolized the market for iphone applications, and also apple+AT&T for voice and data service monopolization. And of course the alleged illegality I spoke of above (services ties, denying consumers the ability to break these ties, pushing software updates that intentionally break the phones of users who have circumvented product ties, and then denying warranty coverage for these affected users)

    I hope that was somewhat helpful.

  • by SenseiLeNoir ( 699164 ) on Friday October 03, 2008 @07:33PM (#25252213)

    Because it breaks the idea of subsidies.I am not sure how these things are like in the USA, but here in the UK, when you buy a phone it is likely to be SIM Locked to the network as the cost of the phone is subsidised to the monthly contract.

    I am on T-Mobile (UK) myself.

    T-Mobile, Vodafone, Orange and 3, typically do that. They also typically customise the phone in such a way, to usually make it easier to use on their network. The customisations can be subtle in the case of T-Mobile (excluding the N95/VOIP fiasco), where the phone is not vastly modified, to outright butchery in Vodaphone/Orange, and 3.

    Nevertheless, once a phone is out of the subsidy period, it is YOUR phone, and legally you should be able to unlock it to all networks. In the case of T-Mobile (and I suspect the others) they will on request (and possibly for a small admin fee) provide you with the sim unlock code, to unlock the phone. I have heard that in many cases, they even gave the code, even before the subsidy term was over.

    T-Mobile promised the same deal for the upcoming G1 Android phone, in that it CAN be unlocked once the sub period is over.

    I personally buy my upgrades via Carphone Warehouse, as they source it idependantly, so phones are unlocked, and unbranded to T-Mobile, so I get the best of both worlds, a subsidised UNLOCKED phone.

    O2, intrestingly do NOT usually simlock their phones, unless its a specific O2 made phone. O2 is the UK's Exclusive network for the iPhone, and the iPhone is the first GENERAL phone O2 provides which IS simlocked.

    The point being is that, after the 2 year contract period with AT&T (or O2 in the UK) you STILL will not be able to unlock the iPhone, and use it with other networks, so in effect you still ARE locked into AT&T/O2. It is YOUR GSM phone, that has no TECHINCAL reason why it should not work on any other network, other than plain nastyness by Apple/AT&T/O2.

    This may not be totally legal in the UK (and same in the USA), especially as it is sold as a GSM phone. If Apple/O2/AT&T allows to unlock after 2 years, then they are ok, but something tells me that will not be the case.

    Note: this may be also why the Pay As You Go version was pulled from O2, as technically you own the phone straight away.

  • by Space cowboy ( 13680 ) * on Friday October 03, 2008 @09:34PM (#25253035) Journal

    Sorry to reply to my own post, but:

    Wikipedia (of course!) talks about HCF [] - style instructions, and also mentions the killer poke [] specifically as "a killer poke is a method of inducing hardware damage (i.e., actual physical, irreversible damage) on a machine and/or its peripherals by the insertion of invalid values, via e.g. BASIC's POKE command, into a memory-mapped control register."

  • Re:Precisely (Score:5, Informative)

    by DECS ( 891519 ) on Friday October 03, 2008 @09:51PM (#25253127) Homepage Journal

    Wrong; the judge has only denied the motion to dismiss the case. Whether there was any violation of law remains to be determined.

  • by randomc0de ( 928231 ) on Friday October 03, 2008 @11:15PM (#25253525)

    (5) The term "warrantor" means any supplier or other person who gives or offers to give a written warranty or who is or may be obligated under an implied warranty.

    Oh shit, looks like it covers everyone.

    (c) Prohibition on conditions for written or implied warranty; waiver by Commission No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer's using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name; except that the prohibition of this subsection may be waived by the Commission if -

    Oh double shit, looks like you forgot to actually read the act before opening your mouth.

  • by shmlco ( 594907 ) on Saturday October 04, 2008 @03:31AM (#25254567) Homepage

    "Apple wouldn't provide access to other carriers ..."

    Which, since since it's US law we're talking about, and since it's a GSM-based phone, I suspect the use of "carriers" (plural) is mistaken, as only one other mobile carrier in the US is GSM-based. (Leaves out Verizon and Sprint.) Further, in the case of the iPhone 3G, even unlocking the phone to use T-Mobile isn't much help, as T-Mobile's 3G network isn't frequency-compatible with AT&T's.

  • by squiggleslash ( 241428 ) on Saturday October 04, 2008 @12:20PM (#25256295) Homepage Journal
    Verizon's announced plans to move to LTE (the 4G version of GSM.) It's quite conceivable that within two years both AT&T and Verizon will be rolling out their 4G LTE networks, and Apple will have released an iPhone 4G to go with it. So don't count out the possibility yet!
  • by Stu Charlton ( 1311 ) on Saturday October 04, 2008 @12:37PM (#25256399) Homepage

    Product & Service tie-ins are not illegal.

    Magnusson-Moss just involves restrictions on WARRANTIES , i.e. opting-out of a service tie-in, or using an alternative source, cannot void a warranty.

    Just take a look at enterprise software products (e.g. Oracle's database, Microsoft's SQL Server, IBM's anything) which have been sold this way since the 1970's:

    - Usually they are sold by a license fee and then a 21%-of-license fee support/maintenance contract annually, with the first year being mandatory.

    - If you cancel your support contract after the first year, then the vendor has the right to terminate your support for *all* products you own by that vendor, and if you renew it, you have to renew it for *all* products, and pay retroactive fees with a penalty for the time you weren't in support.

    Both of these entitle you to product upgrades & support resources (ie. email, phone, bug fixes and maybe a support-representative on site if you're big enough). But they don't void your warranty if you cancel it (a lot of enterprise software is under customized warranty -- long-term or even perpetual, depending on negotiations).

  • Nonsense (Score:3, Informative)

    by unassimilatible ( 225662 ) on Saturday October 04, 2008 @04:43PM (#25258337) Journal
    Umm, warranty law specifically makes reference to it being illegal for a vendor to sell a product and require a service tie-in. Just what part of the law would you really know, sir? Magnusson-Moss had lots more in it than just warranty.

    Great, another jailhouse Slashdot lawyer. Well I am an actual lawyer, since you called out my knowledge. As Stu points out [], MMWA, as the name suggests, is a restriction on warranty law, not tying products and services together, which celcos have been doing for years, Sparky.

    As is typical here, Slashdot submitters and commentators, so critical of judges not knowing tech, know nothing about how the law works. A 12b(6) motion is Apple arguing "you cannot sue for that." The motion is challenging solely on legal grounds - for the purposes of the law, all the facts are considered true. In other words, the facts aren't even being considered in a 12b(6) hearing. The motion was denied, but that is a long, long way from the plaintiffs winning. And they will likely lose a summary judgment, which considers the facts, or lack of them, supporting the suit.

    Disclaimer: IAALBNYL. (I am a lawyer but not your lawyer) This is not legal advice, so don't rely on it. Not that you can tell most of the know-it-all jerks on Slashdot anything anyway. If you told them the time of day they'd probably argue with you. But I digress. Do not rely on this as legal advice.
  • by RMH101 ( 636144 ) on Monday October 06, 2008 @10:49AM (#25273219)
    The PAYG iPhone's on direct sale from O2 in the UK. []

    I would expect to be able to phone O2 after 2 years of ownership and say "unlock this, please" and have them do it. Mind you, I'd also expect within 12 months to be bored stupid of my handset and have changed it for something else, and I expect their 2 year contract (which is otherwise unheard of in the UK) takes this into account and expects most users to swap out for an iPhone gen 3 in a year, and further extend their contract.

Air is water with holes in it.