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Apple, AT&T sued over terms of iPhone usage

updated 04:15 pm EDT, Wed October 10, 2007

Apple, AT&T iPhone suit

Apple and AT&T are facing a class-action lawsuit seeking damages of no less than $600 million concerning the terms by which iPhone owners must abide after purchasing the handset, according to AppleInsider. Washington state resident Paul Holman and California resident Lucy Rivello claim that Apple and AT&T illegally agreed to prevent owners of the cellular device from using programs or services that do not generate revenues for the two firms. The Plaintiffs are seeking "no less than $200 million" in damages on some counts, and demand "no less than $600 million" in other requests. Apple and AT&T are charged either jointly or separately with six formal counts that include alleged violations of California Business and Profession's Code, The Cartwright Act, The Sherman Act, The Federal Trade Commission Act, The Communications Act of 1934, and The Telecommunications Act of 1996 alongside rules and policies set by the FCC.

The Plaintiffs -- based on "information and belief" -- claim that both Apple and AT&T agreed to go beyond their current unlawful tactics of locking customers into their services and software by moving to render inoperable the lawfully unlocked iPhones of consumers hoping to use non-Apple/AT&T SIM cards, or who installed third-party software. The formal complaint says that the update was also designed to cause damage to the iPhone when detecting any non-Apple/AT&T products, according to the report.

Citing Apple's September 24th public warning to owners of unlocked iPhones, the complaint says none of the harmful changes were technically necessary in the recent iPhone software update, and claims that the changes were designed solely "to advance Apple's unlawful purposes and conduct."

Apple and AT&T are also charged with illegally trying to hinder competition from third-party developers looking to write and sell applications designed for the iPhone. Both companies imposed an unjustifiable AT&T service termination fee -- given that the smartphone is unsubsidized -- and made false claims to customers about third-party software as well as unlocking techniques that void the iPhone's warranty.

"To protect its unlawful market position and the anticipated unlawful profits Apple and AT&T expected to earn, Apple repeatedly announced that any attempt to unlock the iPhone SIM or to install Third Party Apps would void the Apple warranty," the complaint reads. "This assertion was false as a matter of federal law, and was known by Apple to be false when made. The Federal Magnuson-Moss Warranty Act prohibits conditioning the iPhone warranty on the use of Apple products only, or on the use of AT&T service only, [...], which is effectively what Apple's warranty approach unlawfully does."

The suit also accuses Apple of instructing retail employees to deny service to customers who experienced adverse effects from its latest iPhone update, despite the fact that it was technically feasible to restore the device from the effects of the iPhone software update 1.1.1. The Plaintiffs also allege that Apple told its spokespeople to suggest that customers affected by the update halt their efforts to receive help and "buy a new iPhone."

An example of the alleged illegal policies cites Plaintiff Holman's travels for business purposes to a country not covered by AT&T's "worldwide" plan. Where Holman had previously unlocked his phones to accept other SIM cards to use a local service provider overseas, the Plaintiff -- using the iPhone and restricted to AT&T's service agreement -- racked up a $381 bill in roaming charges for three days of data use, which he claims consisted primarily of downloading email messages.

Attorney's for both Plaintiffs said they are seeking to expand the class-action suit to cover all individuals and entities who purchased an iPhone on or after the product's launch on June 29th of 2007. The attorneys say the current size of the Plaintiff Class is greater than 100, but that the exact number cannot be determined without discovery of accounting records from both Apple and AT&T.

Second class-action suit for Apple

The new complaint follows a prior suit which surfaced earlier this week naming the primary Plaintiff as Timothy Smith, a California resident. That suit also claims that Apple's iPhone violates The Cartwright Act because it "prohibits iPhone consumers from using and purchasing a cell phone service other than through AT&T." The suit also claims that unlocking a cellular phone is legal under both normal copyright law and the Digital Millennium Copyright Act.

by MacNN Staff




  1. michaele

    Joined: Dec 1969


    Pass me the barf bag

    These people make me sick. They break the rules they agreed to. Then they find some leech (lawyer) to concoct phony grounds to base a suit on. Then again maybe the lawyer found them rather than the other way around. When will people ever take responsibility for there own actions? These are the creeps that make EVERYTHING we buy more expensive.

  1. shmoolie

    Joined: Dec 1969



    boring. just more idiots duped by lawyers thinking they'll get rich.

  1. Roehlstation

    Joined: Dec 1969


    Doing you a favor

    None of these morons can see the writing on the wall. At this point Apple has locked the phone until Mac OS X 10.5 is released, I have a feeling they will open the iPhone at that point. There really is no point for these "developers" to create stuff for the iPhone if the entire platform is about to change.

  1. Flying Meat

    Joined: Dec 1969



    So i see this sort of thing causing orphaned products at an even greater pace. Buy it from the company as is, and never expect no updates for it. EVER!

    You bought it. You support it.

  1. freudling

    Joined: Dec 1969



    No, this is not boring. This is a very, very good thing for the consumer. They have legal grounds to sue Apple and AT&T. The closed iPhone has pxxed me off since the beginning. Unlocking is lawful, and Apple trying to relock your phone through software updates, which can actually do harm to your phone, doesn't seem lawful.

    Moreover, lying about voiding your Warranty is illegal, if indeed Apple said that the Warranty would be voided if you unlocked your phone.

    Further, the Cartight Act gives even more legs to this. I commend them for this. Cell phone locking should be oblierated. All it does is promote monopolization of a product, something illegal in most Capatalistic societies.

  1. zwiebel_

    Joined: Dec 1969


    don't care

    about 3rd party apps or hacks. But, if this lawsuit grows legs it can only be beneficial for us consumers. May even set the wheels in motion to put and end to the lock-in practices of the telecom monopolies.

    Go get them...

  1. dwoodruff

    Joined: Dec 1969


    do they mean....

    do they mean the terms they agreed to when they purchased the phone?

    As for the warning, imagine if they didn't give that warning, and folks who had hacked the phone would seriously be screwed....

  1. vasic

    Joined: Dec 1969


    Bad for consume

    If the lawsuit gains traction (and especially if plaintiff prevails), this will be very bad for consumers. There would never be an iPhone if there weren't for the means of protecting its revenue. The only reason we can now buy it for $400 is because AT&T is subsidising to the tune of additional $300 to $500 over the period of two years. Would any of you have bought unlocked, unrestricted iPhone for $750?

    Cellphones have been mainstream in the US for almost ten years. Throughout this time, subsidies, and consequently, SIMM locking, have been the dominant way. Suddenly, now, when there is a device finally worth paying for, people are waking up.

    There is absolutely nothing monopolistic in Apple's method of protecting its revenue. They have found a way to get the iPhone into the hands of consumers for only $400. Free market made sure they had a level playing field (having established cellphone market as a multi-billion dollar business). The lawsuit is absolutely absurd and, for the sake of consumers in the US, as well as abroad, it should fail. If it wins, iPhone will be the last version of a cellphone out of Apple.

  1. bobolicious

    Joined: Dec 1969


    The balance seems off...

    ...between protecting incentives to invent & encouraging a competitive & diverse market that innovates & benefits beyond - these suits will no doubt prove interesting - Apple has a long history of proprietary technology development but has never been so popular & thus possibly a political/social & hence a legal issue...

  1. Terrin

    Joined: Dec 1969


    That is a bit silly


    Don't be silly. AT&T is not subsidizing the iPhone. First, several break down sites have put the initial iPhone parts at around $200. These sites can be trusted because the cost of the parts are no secret. Add in the cost of manufacturing and marketing and that brings the current iPhone price right up on the high side of where Apple likes pricing in terms of profit margins. Second, if AT&T were subsidizing the IPhone, the iPod Touch, which is essentially an iPhone, minus a few inexpensive parts, would cost close to seven hundred dollars as well. Yet, it is priced a hundred dollars less the the iPhone. You cannot tell me Apple is taking a loss on the Touch which essentially has all the same manufacturing related costs as the iPhone.

    With that said, I think the lawsuit should fail because Apple should be allowed to set the terms under which it will give you warranty service.Nobody is forcing you to buy the iPhone. Moreover, Apple is acting no different then any other company out there.

    On the other hand, I think consumers should be allowed to hack the iPhone provided they take responsibility if they break the device and thereby void the warranty.

    Apple sold its soul to AT&T for two reasons. One, continuos revenue over and above the profit it makes on the sale of the phone. Two, AT&T was the only company willing to let Apple control the whole user experience.

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