Enter Rafael Rivera, one of the programmer behind the Windows Phone jailbreaking tool ChevronWP. After initially being skeptical about the lawsuit, Rivera decided to test the Windows Phone camera app to see what information, if any, it sent to Microsoft when the phone was reset to the 'out-of-box' experience.
Note: The OS version tested by Rivera was Windows Phone OS 7.0.7004.0.
What Rivera discovered was that the app sent several packets to Microsoft, one to agps.location.live.net and several to Microsoft's Location Inference (codenamed Orion) service hosted at inference.location.live.net. The information transmitted included:
Wireless access points in the vicinity of the handset, including MAC addresses and power levels
Various GUID-based identifiers
But it gets worse:
In response to these packets was pin-point accurate positioning information - all before I granted the Camera application access to location data.
In other words, all this happens before the user has a chance to respond to this screen:
Rivera hypothesizes that what's happening here is that the camera app is calling up location services in preparation for location information and that location services then goes ahead to figure out where the phone is and caches that result.
Note: By default, location services is switched on in Windows Phone. If this service is disabled, no information is sent by the camera app.
[1. User Choice and Control.] Microsoft does not collect information to determine the approximate location of a device unless a user has expressly allowed an application to collect location information. Users that have allowed an application to access location data always have the option to access to location at an application level or they can disable location collection altogether for all applications by disabling the location service feature on their phone.
[2. Observing Location Only When the User Needs It.] Microsoft only collects information to help determine a phone's approximate location if (a) the user has allowed an application to access and use location data, and (b) that application actually requests the location data. If an application does not request location, Microsoft will not collect location data.
What still remains to be seen is whether Microsoft is storing this information.