Apple and AT&T: Time to Wake Up and Smell the Class Action

Apple and AT&T: Time to Wake Up and Smell the Class Action

Summary: A federal judge has thrown down the gavel at Apple and AT&T and has allowed a class action lawsuit to proceed against the two companies. What are the short-term and long-term implications?

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TOPICS: Apple
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A federal judge has thrown down the gavel at Apple and AT&T and has allowed a class action lawsuit to proceed against the two companies. What are the short-term and long-term implications?

As with Karma, in the world of litigation, what goes around, comes around.

Apple has been extremely busy in the last year with its legal attacks and defense against HTC and a number of other firms (most recently NTP) which have threatened its lofty position in the smartphone market, particularly as it relates to patents and other intellectual property held by the company.

Many believe that with its huge war chest of approximately $25 billion and its army of high-paid lawyers that the company is impervious to just about any legal threat from a combatant of any magnitude, as long-term litigation is costly and difficult to stomach.

However, this time Apple may have run out of luck. While everyone else was keeping an eye on Spain and the Netherlands and blowing their Vuvuzelas this last weekend, a federal judge in California decided that several civil lawsuits filed against Apple and AT&T since 2007 -- which address a number of antitrust concerns -- could now be consolidated into a single class action in federal court and could proceed accordingly.

Who is now considered a plaintiff in this new class action suit? Well, that would be:

"All persons who purchased or acquired an iPhone in the United States and entered into a two-year agreement with Defendant AT&T Mobility, LLC for iPhone voice and data service any time from June 29, 2007, to the present."

In other words, anyone who bought an iPhone since day one.

I am not a lawyer (IANAL) and do not even pretend to be one, but there are a number of issues here that are going to be brought into the forefront as a result of this lawsuit which in my opinion have screwed up the wireless industry in the United States for years and have begged to be remedied.

Also Read: $99 iPhones will not improve the wireless customer experience (June 2009)

The first is the issue of carrier/device lock-in, and is what the main thrust of the new class action will be about.

The plaintiffs contend that even though they entered a two-year agreement when they bought their iPhones, they were really forced into a five year agreement for voice and data services on their devices without their consent, and Apple and AT&T violated the Sherman Antitrust Act, the Magnuson-Moss Warranty Act (15 U.S.C. §§ 2301 et seq) and the Computer Fraud and Abuse Act (18 U.S.C. §§ 1030) in the process.

After two years, they could not unlock their phones and take them to another compatible carrier, such as T-Mobile.

The plaintiffs also contend that Apple monopolized 3rd-party applications for the iPhone (this presumably was before Apple introduced the app store in 2008, approximately a year after the product's launch) and that the iPhone became unusable if a customer had unlocked it for use on another service provider (such as T-Mobile).

While a class action is a significant litigation in and of itself and the outcome has potentially serious implications for Apple and AT&T, there is certainly the possibility that this could now expand into a much larger federal case much like DOJ vs. Microsoft from the previous decade, especially since the US Justice Department has reportedly been investigating Apple regarding monopolistic practices with iTunes and the iPhone 4 SDK.

Regardless of which venue the trial ends up in -- and how many aspects of Apple's business and the wireless carrier's business that it eventually touches -- one can hope that this will result in providing increased freedom of choice for the consumer.

Carriers should not be allowed to have exclusive agreements with handset makers, and customers should be able to easily migrate from one carrier to another with a compatible network with their handsets.

While it is likely that the iPhone will probably end up on Verizon with a new device compatible with that network sometime in 2011, there is no reason why the phone should also not be offered up on Sprint or T-Mobile as well. The same could be said of the iPad, which uses a modular PCB design for the 3G version and could easily be used on T-Mobile's, Verizon's or Sprint's networks provided a SIM and/or compatible transceiver daughterboard is swapped out.

Most importantly, Apple (and any handset manufacturer) should not be able to monopolize the sale of applications for its handsets or tablet computers. While the complaint presumably applies to 1st generation iPhones that only had pre-loaded Apple applications, it could be argued that the App Store "Walled Garden" where Apple fully controls what Apps can and cannot be installed on an iPhone is also a form of monopolization and could be included/expanded as part of the class action or a larger government legal venue, such as the DOJ itself.

Wherever this class action goes, I'm very interested to see how it ends up. Do you think it will be beneficial for consumers and carriers or will Apple and AT&T continue to take unfair advantage of their customers and bully software developers after all is said and done, when the litigation is finished possibly years from now? Talk Back and Let Me Know.

Topic: Apple

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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216 comments
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  • This is excellent news

    I hope Apple is ordered to pay billions of dollars for this. :)
    NonZealot
    • No going to happen ...

      @NonZealot

      The app store arguments seem to be utter nonsense. However, I do hope this piece gets addressed:
      <i>After two years, they could not unlock their phones and take them to another compatible carrier, such as T-Mobile.</i>

      This is not an Apple/AT&T-only problem. It's a horrible practice throughout the industry of locking phones to a particular carrier even after the original contract is up. Hopefully, the judgement on that point will be in the best interest of the consumer, not the handset makers or carriers.

      <i>The same could be said of the iPad</i>
      The iPad is not locked down at all. It is "exclusively" on AT&T only because other carriers can't support the Micro SIM in the iPad. T-Mobile is reportedly working on bringing Micro SIM to the US, so they would conceivably be offering an iPad data plan at that time.
      RationalGuy
      • You might be right

        @RationalGuy
        [i]No going to happen ...[/i]

        Still, I can hope that Apple will still be ordered to pay billions of dollars for this. :)
        NonZealot
      • The iPad is "locked down'" ...

        @RationalGuy ... in other ways.

        If you have to be physically connected to a PC/Mac with iTunes installed to transfer data, you are "locked down".

        If you can only buy applications sold (read APPROVED) by Apple, you are "locked down".

        If you cannot write code for the iPad (even for your own use) you are "locked down".

        The iPad/iPhone/iPod ecosystem is a closed system in ways that make IBM and Microsoft (and yes, even the 'cellcos') envious. I hope the DoJ comes down hard on them.
        M Wagner
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

        @MWagner
        First of all, RationalGuy was commenting on contractual lock in to a wireless provider, you know, the type of lock down this article and the class action are actually about.

        Second, there's nothing inherently wrong or illegal about the type of software lockdown that you are talking about. It's a walled garden and if you don't want a walled garden you buy something else. otherwise, where are the lawsuits about the XBox, PlayStation, or Wii? All are quite powerful computing devices, but you can't just write your own code for them.
        use_what_works_4_U
      • Car anyone?

        @macadam<br><br>I think the legal theories that would bar Apple from saying who/what/where can develop and from whom or what you can run on your system (iPhone, iPad) are akin to those that would prevent a company like Toyota form saying you can buy a Toyota Corolla, but if you use Toyota unapproved parts we'll disable your ignition, spark plugs, and remove the wheels (read: rendering the iPad useless or significantly debilitated). On top of that, assume that Toyota had 40% or more of the sedan market (read smartphone). I'm pretty sure that would fail the anti-competitive practices test. But you tell me.

        Re: PlayStation and Wii: You can't write your own code? News to me. No idea about XBox, but I'd be surprised there as well.
        GabeFree
      • Not so much...

        @RationalGuy
        Most cell phones out there can be unlocked and can be taken elsewhere. Sure. Some services will NOT work if you're with another carrier, such as Verizon's VCast, or the AT&T equivaent, but you can still do the most basic things - like make a call, send/receive texts, etc... In fact, I believe that most phones can be 'unlocked' after 90 days - so if you happen to be going abroad, you CAN take advantage of cheaper SIM cards and you're not stuck paying through the nose (and every other orifice) for the carrier's insanely highly priced international roaming plans.
        Wolfie2K3
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

        @RationalGuy ... Guys, just remember that the iPhone is being sold in Europe UNLOCKED for almost two years now. The same lawsuit was filed in Europe the same time as it was filed here in the USA....and APPLE lost the case in two days, handsdown. The only reason, we are dragging this here in the USA, is that the justice system in this country moves so much slower than they do in Europe.
        denz259
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

        @RationalGuy The iPhone is special (or was when it came out) in that you couldn't unlock it and move to another network. I'm not an expert, but with most other phones you could call the provider and get the phone unlocked at some point. No so with the iPhone.
        tjleeland
      • Ma Bell, not Apple

        @RationalGuy

        I agree about the app store being nonsense. It's not as if Apple even has a majority of the smart phone market.

        The unlock issue is the only one that has merit, the rest will get tossed.

        I hope this suit leads to a decision against the Telco industry and in favor of consumer choice. Once you own your phone free of subsidy or contract you should be able to use it on any network that is supported. Apple has nothing to do with it. It's a century-and-a-half-old problem known as Ma Bell that is to blame. (Verizon is formerly Bell Atlantic.)
        zd-crap
      • Apple wants exclusivity to end

        @tjleeland

        There is nothing hardware specific that prevents the iPhone from being unlocked--it's no different from any other modem. Subsidies are an industry-wide problem.

        I hope this suit changes that, but anyone that thinks this would have negative repercussions for Apple is delusional. Apple makes their money once on the front end and many times over from the sale of content (and now, ads). An exclusive deal results in higher subsidy, but drastically lower sales, and as a content provider it's in their interests to get the phone in as many hands as possible. Apple is locked into a contract with AT&T they surely wish they hadn't signed, but companies like Verizon were too greedy.
        zd-crap
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

        @ macadam

        On the contrary... you CAN write your own code for XBox, or have you never heard of Microsoft's XNA? Don't know about the PS or Wii, but I would assume they have something similar. Likewise, there are a plethora of tools (free and otherwise) for pretty much any other computing device in existance. Not so much for Apple products.

        The fact is that Microsoft, IBM, Intel, and others have all at one point or other been slapped down for similar monopolistic and proprietary behavior. Apple has decided not to learn from the experiences of others and is now getting *IT'S* chance to be slapped down.
        CKestral
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

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      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

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    • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

      @NonZealot Why do you want to punish Apple? They are a huge success in the so called free market. Isn't that all American? Isn't that what we're all about? The free market means you don't buy unless you like what you're buying. And if you contributed to Apple's billions, you have no argument.
      JoeFoerster
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

        @JoeFoerster Because he hates Apple...
        athynz
      • @athynz: I don't hate Apple

        Just you. :)
        NonZealot
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

        @JoeFoerster .... It is not about punishing APPLE..it is about protecting the innocent and vunerable consumer and preventing them from being scammed by these giants who dazzle you with brilliance and baffles you with bulls**t
        denz259
      • RE: Apple and AT&T: Time to Wake Up and Smell the Class Action

        @JoeFoerster

        He has an irrational fear and hatred of Apple's success. It makes him feel small.
        zd-crap
    • Why pay billions of dollars?

      @NonZealot <br>Remember, nary a company pays taxes nor fines. It is their customer and, shareholders that pay. So, when you say "I hope Apple is ordered to pay billions of dollars for this.", you are including yourself as well. Corporate fines do not hurt the company always hurt shareholders, lower dividends or share price and, the consumer with higher prices.<br><br>Folks that do not own Apple products but, have 401K or mutual funds that hold Apple stock will also take a hit. None of the above is good for the consumer which you seem so sure will hurt Apple.<br><br>Now, if the outcome is a change in a the manner all telcos and phone vendors behave in the way they treat customers I am okay with that. <br><br>Oh one other thing, whatever the outcome it should apply to all telcos and phone vendors as well. Maybe there should be one format for phone service such as CDMA or CSM. Friends in Europe say they remove a SIM move to another carrier, not so here. If it were so here then maybe we would not have the issues we now have perhaps.
      BubbaJones_