Attorneys have applied for a class action lawsuit against Apple, claiming the company violated antitrust law by tying sales of the Apple iPhone to AT&T's cell service and by "iBricking" the phone for users who installed unlocking software.
On behalf of plaintiff Timothy P. Smith, lawyers M. Van Smith and Damian R. Fernandez claim that iPhone customers have been damaged both by the exclusive deal with AT&T and by the 1.1.1 firmware update that made many iPhones inoperable. The suit claims that Apple's actions constitute an illegal trust in restraint of trade. Although the complaint is attempting to create a class action lawsuit, only one person, Smith, has signed up for the class thusfar.
"Apple forced plaintiff and the class members to pay substantially more for the iPhone and cell phone service than they would have paid in a competitive marketplace either for the iPhone or for AT&T's cell phone service," the complaint says.
Protected or Not
We asked intellectual property lawyer Denise Howell for her thoughts on the suit. "I don't think they [will] get out of the gate on those claims given that Apple has no monopoly in the cell phone business (indeed, this is its first foray), and AT&T similarly has none when it comes to cell service," Howell said.
The suit also asserts that unlocking cell phones is an activity protected by the Digital Millenium Copyright Act, which provides an exemption for "the sole purpose of permitting owners of cellular phone handsets to switch their handsets to a different network."
That exemption protects users from civil or criminal lawsuits but it does not provide protection from a company disabling their hacks, as Apple did here. "The plaintiffs are trying to suggest there is an antitrust policy underlying the exemption -- i.e., fostering competition -- but that's at best an implication," Howell said.
"It would be difficult if not impossible to prove that the purpose of Apple's firmware updates is to thwart the DMCA exemption," she added. However, she added, "it's conceivable a plaintiff could get lucky in discovery and unearth the smoking gun that shows an update was targeted at and designed to brick unlocked phones." The odds of hitting that home run, she said, are "a long shot."
Steve Jobs as Marie Antoinette?
While conceding that Apple warned users that the update may result in their iPhones becoming "permanently inoperable," the complaint asserts that "Apple acted in defiance and without sufficient consideration of consumers' rights" because the company "took no steps to issue an update with unlocked firmware or otherwise issue its update to prevent damage to unlocked iPhones."
The suit says the Apple-AT&T arrangement is an illegal "tying" of two products or services. By installing software locks on the iPhone, Apple "substantially
lessens competition and tends to create a monopoly in the trade and commerce of the iPhone and AT&T's cell phone service," the complaint says.
Apple's response to customers complaining that their $600 phone had been rendered into a brick was "[let them] purchase a new iPhone," Apple spokeswoman Jennifer Bowcock reportedly told the New York Times. But, the complaint called that suggestion "Marie Antoinette-like," referring to the Queen of France who ultimately became a symbol for wanton extravagance.
The Competitive Angle
In arguing that the AT&T/Apple deal constitutes a substantial restraint of trade, the plaintiff points out that under the agreement, Apple is restrained for some time from developing a version of the iPhone that works on faster G3 networks, which use CDMA technology.
"The restraint on Apple's development of the iPhone for CDMA networks is
significant because AT&T's rivals use CDMA technology," the suit says.
Howell said that the action may not even pass muster as a class action suit, "both because the purported class (those with hacked iPhones) is small and because of the variety of hacks available."
"Not all hacks unlock the SIM, and thwarting those that don't, doesn't fit the profile of supposedly anticompetitive activity," she said.