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I admit it: I own an iPhone. Indeed, I bought one the day they came out. No, I didn’t wait in line for hours; I just walked into the local Apple store, plunked down my life’s savings, and voila, another AT&T customer!
I admit it: I own an iPhone. Indeed, I bought one the day they came out. No, I didn’t wait in line for hours; I just walked into the local Apple store, plunked down my life’s savings, and voila, another AT&T customer!Recently, it was revealed that several modders have “hacked” the iPhone to unlock it from the shackles of AT&T (though,
unlike hackers, modders don’t obtain unauthorized access to anything). It has also been revealed that AT&T has, through counsel, reportedly sent some form of “cease and desist” letter to entities offering to sell the software hack necessary to unlock the phone. The question is, is it legal to unlock your iPhone, to develop software to help others do so, to distribute such software, or to sell such software? While I believe that all of these actions are perfectly
legal, like everything else in the law, Magic 8 ball says – situation hazy, ask again later. Moreover, my best legal advice is never to take legal advice over the Internet.
Lock Me Up – The Contract(s)
A little bit about locked phones. When you buy a cell phone (mobile) in the United States and several other countries, you are purchasing a piece of hardware (the phone) and software, and a relationship with a telecommunications provider. Typically, but not universally, the telecommunications provider will heavily subsidize the initial cost of the telephone in order to induce you to remain with or switch to them. After all, your 300 page phone bill can be for hundreds of dollars a month, so it’s natural for them to want you to stay. In fact, to cement this relationship, phone companies do two things. First, they make you sign a long-term (usually two-year) contract with substantial “early termination” of “liquidated damages” fees. For AT&T, this “fee” is at least $175. Note that these fees are not the norm in contract law. Typically, if you enter into a contract with someone (say, agreeing to use their phone service) and you breach that contract, they would have to show some kind of actual injury (damages) resulting from the breach. Typically, it is only when such damages are going to be difficult or impossible to ascertain that a party is entitled to what is called “liquidated damages” and when contracts set out how much money a breach will cost irrespective of the actual damages. Indeed, apart from the hardware subsidy, it is difficult to see what actual “damages” a phone company suffers when you switch services in breach of your contract. You get liquidated damages when the actual damages may be difficult to determine, and the amount of the “liquidated damages” is not "plainly disproportionate" to the possible loss– not when there is no real damage.
Moreover, most phone contracts require the parties to arbitrate any disputes about the service or the contract. AT&T’s arbitration provisions are actually pretty reasonable and generous, as they don’t foist all of the cost of arbitration on the consumer (you pay first, they reimburse you). However, if you stopped paying your AT&T bill, would the phone giant go to an arbitrator before they either cut off your service or notified a collection agency? Come to think of it, if you “hacked” your iPhone, wouldn’t that dispute arise out of the contract, and thus force them to arbitrate?
It seems that the mandatory arbitration provision of their own contract apparently work only one way – YOU must arbitrate YOUR disputes, but they are entitled to either resort to self-help (shutting you off or ruining your credit) or litigation (suing you for copyright infringement or other damages.) So the first thing phone companies must do if they want to enforce any rights under the contract is to arbitrate, not sue. In fact, AT&T’s arbitration agreement binds not only AT&T, but any of their “agents”, which presumably in the case of the iPhone includes Apple. Thus, Apple may have waived their right to sue for breach of contract or for copyright violations.
The AT&T arbitration agreement states:
AT&T and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to: claims arising out of or relating to any aspect of the relationship between us, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory; claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising); claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and claims that may arise after the termination of this Agreement. References to “AT&T,” “you,” and “us” include our respective subsidiaries, affiliates, agents, employees, predecessors in interest, successors and assigns, as well as all authorized or unauthorized users or beneficiaries of services or equipment under this or prior Agreements between us.
At least one court has held that mandatory arbitration provisions that prevent you from suing for the right to unlock a locked phone (in that particular case, T-Mobile) was found to be unconscionable and unreasonable in California. Another has found that the “click wrap” arbitration provisions that apply to the use of the role playing game “Second Life” are also unconscionable and unenforceable. The contract has all kinds of fun provisions. First, the phone company claims that they can change any or all of the terms of the contract simply by posting the changes to an obscure website. This is true despite the fact that at least one court held (with respect to a provider of telephone service) that:
“Parties to a contract have no obligation to check the terms on a periodic bases to learn whether they have been changed by the other side. Indeed, a party can’t unilaterally change the terms of a contract. It must obtain the other party’s consent before doing so.”
According to AT&T, if you keep using the phone, you agree to the changes. This reminds me of the story of “Big Julius” in Guys and Dolls who plays craps with a pair of blank dice. When Nathan Detroit complains that there are no spots on the dice, Big Julius replied, “Don’t worry, I remember where they formerly were.” So, in a very real sense, this is a one-sided contract, not just in terms of negotiating ability, but in the sense that none of the terms are binding on AT&T unless they want them to be. If you DON’T agree to the changes, you might be able to pay the $175 early termination fee to get out of the NEW contract you never agreed to.
A second fun provision of the AT&T contract is that it limits what you can do with the service. You know the iPhone’s cool “three way calling” feature? Well it’s a breach of contract. (“Unlimited voice services may not be used for conference calling, call forwarding… or other connections that do not consist of uninterrupted live dialog between two individuals.”) Hmm. That means also that checking your voicemail, the balance of your bank account, etc., which is not an “uninterrupted live dialogue between two individuals” is a breach of contract. This would include calling AT&T to check how many minutes you have left, because this connects you with an IVR system, and is not an “uninterrupted live dialogue between two individuals.”
“I’m sorry, Dave, I’m afraid I can’t do that.”
Another provision of the “unlimited” data plan is that “Service may be discontinued after . . . sessions of excessive usage.” Now it’s not clear whether this means that a particular session may be terminated, or if your overall AT&T service may be terminated because AT&T thinks you are using your unlimited service too much. Better check the dictionary for the definition of the word “unlimited.” I suppose this is like the purveyors of buffets who kick out people for taking the words “all you can eat” literally.
AT&T by contract (actually, contracts, since they have a separate contract for their data service) also limits what you can use your unlimited data service for. They provide a non exclusive list of things you are not allowed to do using your newly acquired cell phone and the two-year commitment you have with them. For example, “except for content formatted in accordance with AT&T’S WIRELESS CONTENT standards,” (which are not part of the contract and are not provided to you), you are not allowed to use your phone for uploading, downloading or streaming of video content (e.g. movies, TV), music or games.” You can’t use your iPhone with or as a webcam, P2P network, for VOIP, or in any way that “adversely affects others’ use of the service” (even unintentionally). Again, you are prohibited from “excessive consumption of network or system resources” even accidentally. You also can’t tether your phone to your computer. So you have “unlimited” data use provided you limit your use. Any of these things constitutes a breach of
contract.
Curiously however, there is nothing in the AT&T contract that I could find that prohibits you from “unlocking” your phone. It’s also not clear whether AT&T can do anything to you for violating these terms until after they arbitrate the claim. I bet they think they don’t have to arbitrate this – they would just shut you off and let YOU complain. Ain't self-help wonderful? And, of course, if you do agree to abide by AT&T’s “acceptable use policy,” the contract states this information can be found at http://www.at&t.com/acceptable_use_policy, a URL which, oddly enough, does not resolve.
What is worse, AT&T, as a provider of telecommunications services is permitted under the law to read your e-mail and your chats, monitor the Web sites you visit, monitor your network usage, listen in on the CONTENTS of your phone calls, and:
“…to intercept, disclose, or use that communication in the normal course of [their] employment while engaged in any activity which is a necessary incident to the rendition of his service or to the protection of the rights or property of the provider of that service…”
Enforcing the contract terms would likely be considered “protecting the rights” of AT&T; so, they could track you using GPS, learn when you were meeting with your lawyer to contemplate a lawsuit or arbitration of AT&T, and listen in on the calls to your lawyer if this was for the “protection of the rights or property” of AT&T. Well, maybe that goes a bit too far; then again, maybe not. “Dave, although you took thorough precautions in the pod against my hearing you, I could see your lips move.”
Lock Me Up – Hardware and Software
AT&T, and therefore the iPhone, is on the GSM network. This network is the de-facto international standard for mobile service, and allows a user to go from one country to another. GSM phones have a “Subscriber Identity Module” or SIM chip which identifies both the phone and phone number and the telecommunications provider. One of the beauties of SIM chips is that you can pop one out and replace it – giving your phone a new telephone number or a new provider. Want a new phone? Buy it, pop in your old chip, and voila!
While this ability may not be particularly useful in the United States, since you have a commitment of two years with AT&T, and because your only other GSM provider is T-Mobile (six of one, half a dozen of the other), it has some utility nevertheless. A person who either has or wants T-Mobile service would theoretically be able to buy an iPhone and use it on their old plan without entering into a long term contract with AT&T.
The real beauty of popping a SIM chip in and out lies with international calling or international travel. Let’s take this example: Say you take your AT&T phone with you to the UK and you keep your US phone number. You can make and receive phone calls if you pay a roaming fee and/or get a calling plan that allows international roaming. Or you can file a lawsuit asserting that you didn’t know about the roaming charges for data service, as one New Yorker recently did after receiving a $2,000 phone bill for a week of data roaming in Mexico. (One remedy sought? Force AT&T to give up the unlock codes.) Now, while voice roaming charges might be understandable if you are calling from the UK to the US, what if you are calling from Piccadilly to Trafalgar? That’s an international call from a US-based phone. The easiest solution? Pop in a SIM chip from UK provider Orange, and you get a UK telephone number to make local calls.
Most phones sold outside the United States have the capability of exchanging SIM chips, just like that. But, of course, this would deprive AT&T a source of revenue for international calls, and would allow both T-Mobile customers and other customers of GSM providers to bypass AT&T entirely. In fact, AT&T has an exclusive contract with Apple to be the sole provider of services for the iPhone.
What providers in the US do is to provide a software “lock” to the phone. Pop in a new SIM chip, and it won’t work – ever. Even after the iPhone two year contract is up, AT&T says it won’t unlock the phone. So you either stay with AT&T for the rest of your life, or you have just purchased a $600 iPod.
So, as soon as the iPhone was released, modders around the world began pursuing the “holy grail” of iPhone hacks – to unlock the phone by bypassing the software protections designed to prevent the phone from recognizing and processing the new SIM chip. If successful, this would “open up” the iPhone to the world, but would bypass AT&T. When modders reportedly were successful in unlocking the iPhone, AT&T reportedly sent lawyer letters demanding that they stop.
Legal to Unlock?
While the “cease and desist” letters have not, at this juncture, been posted online, there are several legal theories AT&T might pursue to attempt to prevent the use, distribution or sale of unlock codes, software or instructions.
Breach of Contract
In addition to the service contracts with AT&T, when you use the iPhone you also enter into a bunch of other contracts. For example, there’s a warranty agreement (PDF) with Apple (or more accurately, a limitation on warranty agreement with Apple). Now, there’s a common perception that making changes to your hardware or software “voids” the warranty, but reading the warranty carefully indicates that this is NOT the case. The warranty provides that it doesn’t apply to damage caused by service (upgrades and expansion) performed by a non-Apple authorized person. So if your unauthorized change causes damage, you are out of luck. Also, if there is damage to a “product or part” that has been modified to alter functionality without Apple’s consent, the warranty no longer applies to that “product or part.” But it’s not clear whether, if you make an unauthorized change to your iPhone, and some OTHER thing goes wrong with it, your warranty still applies. (e.g., you alter your car radio, and the brakes fail.)
In addition to the hardware warranty, there’s also an End User License Agreement for the iPhone software. Here are a few fun things about this contract: First, unless you know where to look on the Apple website, you don’t get to see this contract until AFTER you buy the iPhone, and open it. In fact, once you do that, you can’t return the product without paying a substantial “restocking fee.” (Another form of liquidated damages?) Second, of course you can’t change, modify, or in any way negotiate the agreement. You are stuck with it. This software agreement provides that:
“Except as and only to the extent permitted by applicable law, or by licensing terms governing the use of open-sourced components included wit the iPhone Software, you may not copy, decompile, reverse engineer, disassemble, attempt to derive the source code of, modify, or create derivative works of the iPhone software, iPhone Software Updates, or any part thereof. Any attempt to do so is a violation of the rights of Apple and its licensors of the iPhone Software and iPhone Software Updates. If you breach this restriction, you may be subject to prosecution and damages.”
Prosecution? Really? Modding your OWN iPhone is a crime?
In general, it is perfectly legal to reverse engineer software for particular purposes. Or more accurately, it is not an infringement of copyright to do so. Does this mean that reverse engineering or modifying your own copy of software is, in the language of the Apple license “permitted by applicable law?” Well, its not prohibited, and a number of cases such as Atari Games Corp. v. Nintendo of America, Inc., and Sega Enterprises v. Accolade, Inc., state that it’s perfectly OK. However, just because you are not prohibited from doing something doesn’t mean that you can’t give up your right to do it. A contractual provision where you agree NOT to reverse engineer software (which you have a right to do otherwise) can be binding on you according to Bowers v. Baystate Technologies, Inc. So the question is whether, when you agree in a contract NOT to reverse engineer or modify your own copy of software, you are now “permitted” to do so by applicable law?
What is worse, even though reverse engineering or modifying the software for permitted purposes is expressly NOT a violation of copyright law according to the case law, once you agree NOT to do it and do it anyway you are violating the software license agreement, and therefore guess what – violating copyright law by doing something you are allowed to do under copyright law.
A better reading of the term “allowed by applicable law” would be that if you are allowed to reverse engineer or copy, you are allowed to do so, and the contract can’t change that. Indeed, the problem with the Bowers v. Baystate case is that this was a fully negotiated contract between two parties about what could and could not be done with the software, not a line injected in a microprint website. Imagine if the NY Times website had a provision that said, “by using this website you agree NEVER to quote or criticize anything in The New York Times” even if, under copyright law you would have a right to do so. The copyright law is intended to represent a congressionally dictated balance between the rights of the copyright holder and the licensee, and attempts to change this balance to the detriment of the ordinary consumer through microtype in EULAs should be read incredibly narrowly.
This is true because a copyright is essentially a government sanctioned monopoly in the manner of expression of a unique thought or idea. In granting the creator of the copyrighted works certain exclusive rights (and not others), Congress intended to balance the anti-competitive nature of the monopoly against the right of the holder to exploit the product of their labor. So copyrights are for a limited time (ok, yes, we keep extending them, and the Supreme Court has said that there’s a difference between “limited” and “certain”). They confer some rights and not others (e.g., irrespective of the copyright, a person can make certain “fair uses” of the work.
What these EULA’s and Terms of Service say is, “if you want to use the copyrighted work, you must agree to give additional rights over and above the balance struck by Congress to me, the copyright holder.” So a 75-year copyright could be extended to 1,000 years BY CONTRACT. The copyright holder effectively is using the monopoly NOT to enforce copyright rights (a shield), but as a bludgeon to give them more rights than what the copyright law provides.
In other areas of intellectual property law, such as patent law, there is a concept of “abuse of a patent”, where you use the patent monopoly to do something the law doesn’t permit (e.g., in restraint of trade). The same concept should apply to copyright – especially when the “contract” extending the copyright holder’s rights is not, in any meaningful way, freely negotiable.
For example, in one famous case, a company tried to use the terms of a software license agreement to keep a company from publishing valid and accurate benchmarking tests. While the company would have had the right to perform the benchmarking and to publish the results, under the EULA, they had to agree NOT to exercise a right to ever publish the results. The New York State Attorney General found that this “muzzle clause” effectively misused the copyright law and was an unfair trade practice, particularly where “many customers did not even have an opportunity to soldier through a lengthy license agreement — which threatened their rights — until buying the product.” Sounds a lot like the contract here, no?
What is worse about the iPhone EULA is that it applies to not only the iPhone software, but any updates. However, when you update the iPhone (two updates so far), there’s a NEW EULA that you have to agree to! If you don’t agree to the terms, you don’t get the update. But you can’t return the iPhone or discontinue the service. You are stuck with the agreement.
But there are MORE agreements. The only way to “legitimately” activate your iPhone is to hook it up to iTunes – Apple’s proprietary and copyrighted software which connects you to the iTunes store. And guess what? It has its OWN End User License Agreement and terms of use. Every time you update your iTunes, you also “re-agree” to a set of terms of conditions and use. So your choices are to agree to the new terms, keep the old software, or never update or sync your iPhone. And if you don’t agree to Apple’s terms, you breach your contract with AT&T.
Which brings me to another point. Why is AT&T sending out letters if the problem is a breach of an Apple software license agreement? Did Apple assign the right to enforce the contract to AT&T? Is AT&T claiming that they are a third-party beneficiary of the no modding provision of the Apple copyright agreement? Without looking at the cease and desist letter, it is impossible to tell.
DMCA and Anti Circumvention
Another statute that AT&T might try to use is the Digital Millennium Copyright Act, or DMCA. The statute was intended to prevent people from pirating CD’s, DVD’s and electronic books which had copy protection on them and to implement the provisions of the World Intellectual Property Organization on protection of digital copyrighted works. But the language was much broader than that. The statute 17 USC 2701 makes it a crime to “circumvent a technological measure that effectively controls access to a [copyrighted work].” Okay, so you can’t break a copy protection to get “access” to a copyrighted book, song, video, etc., right?
Not exactly. The statute has been used to go after a host of people who really could care less about “accessing a copyrighted work” or, for that matter, infringing a copyright. Thus, if you wanted to refill your ink cartridges to your printer, you would have to alter the software code on the little gold strip on the cartridge to allow the printer to accept the newly inked cartridge. Similarly, if you wanted to use an “after market” garage door opener, in order for it to send the right signal to the garage door to open it, you would have to access to software “lock” on the proprietary garage door.
As more and more of our lives are controlled by software, companies are using software (subject to both copyright law, EULA’s and the DMCA) as a “lock” to keep us from doing things with their products or services unless we pay the beaucoup bucks – even if we otherwise have a right to, say, open our garage door. The results of these cases have been mixed, but mostly, if you circumvent a technological measure to control access to a copyrighted work (the software) (ed. in favor of, against?)
What is worse, the WIPO Treaty was aimed at circumvention of protection measures designed to prevent access to copyrighted works “and that restrict acts, in respect of their works, which are not authorized by the authors concerned or permitted by law.” The U.S. statutory implementation of that treaty does not include the language about doing things that are “permitted by law.” Moreover, the modders, if they infringe the rights of anyone, infringe the rights of Apple, not AT&T.
One basic question is whether the modders are circumventing a technological measure that effectively controls access to a protected copyrighted work. Perhaps. Clearly Apple, in developing its iPhone software, has gone to some length to keep modders from seeing the source code and from doing exactly what they have been trying to do. While you can debate whether the measures “effectively” control access to the iPhone software, remember that the prevention need not be perfect – this would undermine the entire statutory regime.
When Congress passed the DMCA, they included a provision that authorized – nay required – the Library of Congress, upon the recommendation of the Register of Copyrights, in consultation with the Assistant Secretary for Communications and Information of the Department of Commerce, to consider reasonable exemptions to the provisions of the DMCA. This was because Congress realized that the statue might be overreaching and that technology would change over time. Thus, every three years the Library of Congress considers exemptions to the DMCA. On November 17, 2006 the Library of Congress published these recommendations. , one of which recommended exemption from the DMCA’s coverage of:
“Computer programs in the form of firmware that enable wireless telephone handsets to connect to a wireless telephone communication network, when circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communications network.”
Basically, in plain English, “unlocking your phone.” These were formalized in a rulemaking published in the Federal Register
The Library of Congress noted that software locks prevent users from using the phones they paid for with another provider, and that phone companies were using the DMCA to attempt to keep people from switching services. In granting the exemption, the Librarian of Congress noted that unlocking the phone is not an infringing act. (“There is no evidence in the record of this rulemaking that demonstrates or even suggests that obtaining access to the mobile firmware in a mobile handset that is owned by a consumer is an infringing act.”) Similarly, switching from one provider to another is not an infringement. In fact, all the consumer is trying to do is to do what the phone is designed to do – make phone calls. The report noted:
“This is a non-infringing activity by the user. But for the software lock . . . it appears that there would be nothing to stand in the way of a consumer being able to engage in this non-infringing use of a lawfully purchased mobile handset and the software that operates it. Indeed, there does not appear to be any concern about protecting access to the copyrighted work [the software] itself. The purpose of the software lock appears to be limited to restricting the owner’s use of the mobile handset to support a business model, rather than to protect access to a copyrighted work.”
Put simply, since unlocking the phone just allows you to do what you could otherwise do, doesn’t affect the value of the underlying copyrighted work (the software), and is merely an effort to protect a “business model”, the Library of Congress essentially concluded that you shouldn’t be able to use the copyright law to do something other than to protect a copyright. So as it currently stands, the DMCA doesn’t prevent the unlocking.
But there is a rub – sort of. The language of the exemption states that it applies “when circumvention is accomplished for the SOLE PURPOSE of lawfully connecting to a wireless telephone communications network.” If you are selling the unlocking software, or giving it away, then your purpose is to make money, not to connect to a network. Thus, your SOLE purpose is not to connect. This is just plain silly. First, if you look at the exemption, it’s clear that the phone companies told the Library of Congress that they were worried that hacking the phone software might also affect other DRM models, like access to ringtones, online music, video, etc., through the cell phone. They asked the Library of Congress to make it clear that the DMCA exemption for unlocking didn’t affect their ability to protect these OTHER services. To accommodate the phone companies, the Librarian responded essentially by saying that the exemption was focused ONLY on circumventions to unlock – hence the words “sole purpose.”
If you read the history of the “sole purpose” provision, it becomes plain that it’s not a “personal exemption” clause allowing YOU to unlock YOUR phone, but not allowing someone to provide you the software. The Federal Register notice notes:
“The copyright owners who did express concern about the . . . exemption are owners of copyrights in music, sound records and audiovisual works that are offered for downloading onto cellular phones. They expressed concern that the proposed exemption might permit circumvention of access controls that protect their works when they have been downloaded onto cellular phones. The record on this issue was fairly inconclusive, but in any event, the proponents of the exemption provided assurances that there was no intention that the exemption be used to permit unauthorized access to those works. Rather, the exemption is sought for the sole purpose of permitting owners of cellular phone handsets to switch their handsets to a different network.”
The reason they wrote “sole purpose” was to make it clear that the exemption was to permit unlocking for service transfer, and not for any OTHER purpose. The argument that this is a “personal unlocking” exemption fails to distinguish between the “purpose” of the software and the “motive” of the author. The sole PURPOSE is to unlock the phone to permit service transfer. The MOTIVE of the software developers may be to make money. How do you “permit owners of cellular phone handsets to switch their handsets to a different network” without allowing them to have the tools to do so?
If the Copyright Office and Library of Congress wanted to restrict it to personal use, they would have written that the exemption ONLY applies where the SOLE PURPOSE of the unlock is to allow an individual user to unlock his or her own phone, and not to assist anyone else in unlocking their cell phone, or providing software, tools, or advice in how to circumvent… yada, yada, yada.
This is the approach taken in Article 6 of the EU Cybercrime Treaty and the new German law that implements it, which punishes not only hacking, but intentionally providing TOOLS to assist others in hacking. Clearly not what the Library of Congress did or what had in mind. What if I write the code to get a brand new Nissan 350Z and someone else gives it away? Applying the “sole purpose” language broadly would result in a potential DMCA violation if, for example, I wrote and installed software code to unlock my own phone, so I could switch networks, save money, get better reception, use additional services, and make myself happy. My “purpose” would be, say to save money, but the method would be to unlock my phone. Is this no longer the “sole” purpose? The silliness abounds.
It’s also important to note that the Library of Congress NEVER thought that unlocking phones in any way violated the terms of the copyright law. The only case they cited was TracFone Wireless v. Sol Wireless Group, No. 05-23279-CIV S.D. Fla., February 28, 2006). TracFone, a prepaid wireless company, claimed that the defendants "avoided, bypassed, removed, disabled, deactivated, or impaired a technological measure for effectively controlling access to the proprietary software within the TracFone Prepaid Software without TracFone's authority." That is, that Sol Wireless unlocked the TracFone phones, and sold them. TracFone won an injunction, and it was precisely this case that the Library of Congress intended to reverse.
Don’t Interfere
Okay, so the DMCA exemption may apply and allow the unlock to go forward (commercially or not), and the “no reverse engineering unless allowed by law” provision may be read the way the Library of Congress apparently read it (that there is NO copyright violation, and thus its “allowed by law”). There are still a few other theories that AT&T can use to sue.
Let’s face it, the entire business model between the customer, AT&T, and Apple is based on the idea that you will buy your iPhone, use Apple software and AT&T service for at least two years (and then buy the next one.) Thus, the two-year contract between you and AT&T is intended to create a stream of revenue to AT&T for both domestic and international calls. (Sure, you could NOT activate the phone, or activate it and not use it.) The contract between AT&T and Apple gives AT&T an exclusive right to provide service for the iPhone, and provides both parties (probably) with a stream of revenue.
In the TracFone case, the company also sued the company selling the unlocked phones for “tortuous interference with a business relationship.” Effectively, AT&T, using this model, would sue the unlockers for interfering with their business model by allowing users to do something that they have a right to do. Moreover, this is complicated by the fact that you can buy an iPhone from Apple WITHOUT EVER ACTIVATING IT, or ever entering into any contract or relationship with AT&T. Thus, there is no contract for you to interfere with.
So, is it legal?
My conclusion remains the same: Probably. But then again, who wants to fight with the death star? May the force be with you, young Padawan…