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Mod Your iPhone – For Fun or Profit?
Mark Rasch, 2007-09-04

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.”

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Mark D. Rasch is an attorney and technology expert in the areas of intellectual property protection, computer security, privacy and regulatory compliance. He formerly worked at the Department of Justice, where he was responsible for the prosecution of Robert Morris, the Cornell University graduate student responsible for the so-called Morris Worm and the investigations of the Hannover hackers featured in Clifford Stoll’s book, "The Cuckoo’s Egg."
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Comments Mode:
Mod Your iPhone – is a Federal Felony 2007-09-05
bernieS (1 replies)
Re: Mod Your iPhone ? is a Federal Felony 2007-10-03
Mark D. Rsch (1 replies)


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