iPhone 3G Illustrates What A Real Contract Looks Like

from the legally-binding dept

I spent most of my day last Friday acquiring an iPhone 3G. It was a long and tedious process involving several hours of waiting, a visit to the Apple Store, and two visits to AT&T. Part of the reason it took so long is that Apple wasn't willing to let me have the phone until I'd signed up for a 2-year contract with AT&T. Mike has previously discussed the pros and cons of cell phone subsidies, and the associated carrier lock-in. Whatever you think of that debate, the iPhone story is a good example of what a real contract looks like. I was required to sign up for an AT&T service plan and sign an AT&T service agreement before I was allowed to leave the Apple Store with my iPhone. I knew exactly what I was getting into, and had the option to decline before completing the transaction. I think there's little doubt that the courts would enforce the contract's terms if I tried to renege on my commitment.

Now compare that to the shrink-wrap "contracts" that retail software developers keep trying to foist on people who buy their products. When you buy a software product at Best Buy, the cashier almost never informs you about the license agreement, much less require you to read and sign it. In many cases, it's not even possible to open the box and read the agreement until after you've completed the transaction. One of the key differences here is that Apple spent valuable employee time informing me of the contract, giving me time to read it, and requiring me to sign it. This is annoying for Apple, but enforcing some minimum requirements for contract formation also serves an important function: ensuring that firms only resort to using formal contracts when they have a pretty good reason. Forming, complying with, and enforcing contracts consumes resources, so we don't want people forming contracts too lightly. It also ensures that the contracts actually get read, something Apple has had trouble with in the past. The software industry, in contrast, tries to get all the benefits of legally-enforceable contracts without shouldering any of the costs. That approach isn't fair to consumers or to taxpayers.



Reader Comments (rss)

(Flattened / Threaded)

  •  
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    Eric Goldman (profile), Jul 24th, 2008 @ 9:54pm

    Another industrial strength contract process...

    It reminds me of the contracting process I had to go through to skydive. The contract required me to sign in 17 different places, and the front clerk made sure that each and every spot was properly completed before I could proceed. I had zero ambiguity about the contract terms I had agreed to. Then again, this is a high transaction cost way of making marketplace decisions, and I doubt we want to go through such rigorous processes for every purchase we make. Eric.

     

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    TimC, Jul 24th, 2008 @ 10:24pm

    Even worse...

    Another unfortunate part of these license agreements is that publishers/service providers can and do change the terms via product updates or during the course of the service. The user might have actually reviewed the initial agreement but that same agreement could be completely different in 6 months with zero notification that it was changed.

     

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      BTR1701, Jul 25th, 2008 @ 10:56am

      Re: Even worse...

      > The user might have actually reviewed the
      > initial agreement but that same agreement
      > could be completely different in 6 months
      > with zero notification that it was changed.

      Yep, these companies now routinely put a clause in their initial written contract that says they can change the terms at any time via a posting on their web site. They put the burden on the customer to routinely check their web site in order to keep up to date on what legal obligations they've been drafted into.

      My Cable TV company does business this way. They apparently expect me to check in with them regularly to find out how they're currently screwing me over.

       

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    Alex, Jul 24th, 2008 @ 10:32pm

    It sort of draws a disparity between the "shrink wrap contract" people and the "actual big boy contract" people. I mean, is opening a box the same thing as signing a well-understood and explained contract? That's absolutely ridiculous. I mean, really, it's kind of silly to expect a similar legal protection from two radically different processes like that with entirely different aims.

     

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    Anonymous Coward, Jul 24th, 2008 @ 10:55pm

    get a life fuc@#$$%$ bitc#$%

     

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    Anonymous Coward, Jul 25th, 2008 @ 3:02am

    More bars in more places

    No, you bought an iPhone BECAUSE you spent hours on end in line waiting for a a pos, overhyped phone with very little features over other carriers phones except for the fact that it plays iTunes bought music. (try Verizon's LG Dare - faster touch response and same features except for iTunes ability)

    No one is going to pass on buying an iPhone, even if they dont like the contract, if they had waited in line for hours on end. Concept called Cognitive Dissonance.

    You wait in line, read the contract, but dont like the contract or the the now increased price plans. Well, you cant change your behavior (waiting in line) since you're already in the store. So you can only change your thoughts about the iPhone/ATT - you now believe that even if the contract is crap, it must be worth it since you waited in line all that time.

    More bars in more places is only good if you are an alcoholic.

     

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      Bill G, Jul 25th, 2008 @ 8:06am

      Re: More bars in more places

      sounds like someone could not get the iphone

       

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      •  
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        smith ashley, Mar 4th, 2010 @ 7:16pm

        Re: Re: More bars in more places

        Carrier: AT&T (GSM based), T-Mobile, and Other GSM carriers*
        Please check compatibility with your service provider
        Technology: 3G AT&T Standard , Quad Band 850/900/1800/1900
        Feature: 3+ Megapixel Camera, Bluetooth, Calendar, Camera, Candy Bar Form, Edge, Email Client, GPS / Location, High-Speed Data GPRS, Megapixel Camera, MP3, Smartphone, Speaker Phone, Touch Screen, Video Capture, Video Clip, Voice Dialing, Wi-Fi

        Weight: 4.76 oz
        Talk Time: Up to 5 hours on 3G
        Stand By Time: Up to 300 hours

        Product Includes
        Apple iPhone 3G S 32GB Unlocked
        Apple Earphones with Remote and Mic
        Dock Connector to USB Cable
        USB Power Adapter
        Documentation
        SIM eject tool

         

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      Rose M. Welch, Jul 27th, 2008 @ 2:37pm

      Re: More bars in more places

      Umm... I'm pretty sure you can turn around and leave without purchasing an iPhone. You might not choose to, but you have the option of doing so. The point is that you have a choice and you read it and agree to it before they will sell it to you.

      You know, as opposed to paying money for a product that you think you're purchasing and then later you find out that you are being held legally liable for an agreement that you didn't see and didn't sign and hence, didn't agree to for a product that you didn't actually purchase.

      I think you posted just to get that more-bars-alchoholic line in.

       

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    TX CHL Instructor (profile), Jul 25th, 2008 @ 4:46am

    Waiting in line?

    When I learned that the Apple fanatics where camping out on Thursday night, I scrapped my plans to go to the AT&T store for a new iPhone on my birthday (the 11th). That decision turned out better than I expected, given the hassles folks experienced that day getting their iBricks.

    I might still get a 3G iPhone 2.0. Or maybe wait until 2.1, or until the price goes down again, or maybe just check out the competition. After all, I'm still amazed that somebody could call something a 'smart' phone when it doesn't have a search feature for its calender, or even a simple cut & paste between applications.

    Sorry, SJ, I'm not one of your mindless minions.
    --
    www.chl-tx.com
    Without the 2nd Amendment, the rest of the document is just wishful thinking

     

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    michelle sickinger, Jul 25th, 2008 @ 5:36am

    I felt the same way and had a same experience waiting in line to buy the iphone just because I had already purchased the gift cirtificate for my son's graduation gift ($500). Since the iphone price went down to $300, we both bought the iphone. I wasn't sure if I should buy it because I have already have blackberry which I was happy with. I didn't realized that I had to wait so long (4 hours) but I once invested my time, I couldn't back out for waiting in line. I expected to wait about 30 Min... ATT contract scares me too. But I signed the contract and we both have to pay $130 per month. Wow! Apple wouldn't allow me to get ring tone from my music library unless I purchase through itune. It seems very mean marketing strategy. Michelle

     

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      Rose M. Welch, Jul 27th, 2008 @ 2:41pm

      Re:

      "I couldn't back out for waiting in line...

      Yes, you could have.

      Oh, wait, did someone physically hold you in place and force you to sign the contract and pay for it?

      If so, you should know that contracts signed under physical duress are not binding.

      Otherwise, it was a choice. Deal with it, and quit blaming other people for your actions.

       

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    Anonymous Coward, Jul 25th, 2008 @ 7:05am

    "I felt the same way and had a same experience waiting in line to buy the iphone just because I had already purchased the gift cirtificate for my son's graduation gift ($500). Since the iphone price went down to $300, we both bought the iphone. I wasn't sure if I should buy it because I have already have blackberry which I was happy with. I didn't realized that I had to wait so long (4 hours) but I once invested my time, I couldn't back out for waiting in line. I expected to wait about 30 Min... ATT contract scares me too. But I signed the contract and we both have to pay $130 per month. Wow! Apple wouldn't allow me to get ring tone from my music library unless I purchase through itune. It seems very mean marketing strategy. Michelle"

    And yet, you still bought it... Stupid consumer bitch.

     

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    Sam, Jul 25th, 2008 @ 7:51am

    Come on, be fair - that doesn't make her a bitch... but I do have to agree with the stupid consumer part. That's dumber than Bush's parallel between the state of the economy and drunkenness.

    Wow.

     

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    Cygnus, Jul 25th, 2008 @ 7:53am

    Apple/ATT contract versus EULA: can we think of a significant difference between the two that justifies the different treatment?

    You sure can: price. Apple/ATT can justify the added expense incurred in the contracting process because they are protected over $2400 in service fees. Considering that the infrastructure supporting the phone already exists, any individual buyer of the phone can be see as $2400 of pure money.

    Now, let's think about software. For $39.99, you're getting 100% of the value of the application and, at sale, the developer has received 100% of the benefit.

    $2400 of future income versus $0 of future income.

    I think you can see the value in the added expense Apple/ATT incur to make sure you're captured in an agreement.

     

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      Cygnus, Jul 25th, 2008 @ 7:56am

      Re:

      The second sentence in my post should read: "Apple/ATT can justify the added expense incurred in the contracting process because they are PROTECTING over $2400 in service fees."

       

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      hegemon13, Jul 25th, 2008 @ 8:02am

      Re:

      Except when the software you are buying is a $1500.00 Adobe product, or some such thing. They get all their money up front without the need to collect over 2 years. Yet, they still provide no more than a shrink-wrapped EULA that says the $1500 cardboard box and plastic disc aren't yours to resell.

       

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      Nasch, Jul 25th, 2008 @ 9:00am

      Re:

      If it's not worth a companies' time to engage in a real contract with me, then they should just sell the damn product and not try to engage in a fake one.

       

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    Cory, Jul 25th, 2008 @ 7:58am

    Getting back on subject

    Before this all degrades into a hate-on-the-iPhone free-for-all (I by the way, am happy with mine, and with the minimal wait I went through), I'd like to comment on what the article was actually about. One step toward improving the "shrinkwrap contract" process on software, at least boxed software, would be, more shrinkwrapping.

    Put a copy of the contract into box, with the software key under a scratch-off panel. Scratching that off would constitute agreement with the contract. Also, shrinkwrap the media that the software comes on. So long as the shrinkwrap and scratch-off are still in place, the consumer would be allowed to return the product if they disagree with the contract.

    Granted, it doesn't guarantee that the contract will be read, but then again, most people don't read "real" contracts that they sign anyway.

     

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    J, Jul 25th, 2008 @ 7:59am

    contract/waivers

    With a good lawyer you have a good chance of getting out of any contract/waiver you sign.
    I ran a business that required contract/waiver be signed every visit plus we had orientation. The contract/waiver would only start to hold up into court after the person had done the full process at least 3 times.
    It is very hard, if not next to impossible, to sign away your constitutional rights (something about protecting the very stupid people). The other reason was it was not what they expected.
    Lucky we had insurance the the insurance company policy was to fight every case. This typically scared away most of the cash seeks. One guy got nearly 100K after he got injured on his second session and claimed, even though he signed the contact/waivers that he might injury or even die and told many times that if he could die if not careful, he do expect to be injured. His injury was minor and we did not even know about the injury until the court case.

    In My opinion most contacts/waivers are just a first line defense against the money hungry people and that is about all they are worth.

     

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  •  
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    Michael, Jul 25th, 2008 @ 9:07am

    Most of the complaints about EULAs are not really about the manner in which they were signed, but rather about the obnoxious content of those EULAs.

    This is the price we pay for living in a country that believes in freedom of contract -- The only real solution to this problem is to have the government impose mandatory contract terms on all of our transactions, and I can just imagine how well that would go over with everybody. Until then, don't be surprised if people who want to do business with you also want to get the best advantages they can in that deal, and to take advantage of the cheapest way to get there. That's called capitalism baby.

     

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    •  
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      Rose M. Welch, Jul 27th, 2008 @ 2:45pm

      Re:

      "freedom of contract"

      If I send you a letter, and put a EULA inside that says you have to pay me $29.99 for the envelope, and the agreement is binding upon the opening of the envelope, would you send me $29.99?

      If so, what is your address?

      The real solution to this is for judges to strike mighty blows upon the people who put EULAs in thier boxes. Say, "Sorry, that wasn't good enough." when the EULA writing companies sue for copyright infringement. The software selling world would change overnight.

       

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    Lawrence D'Oliveiro, Jul 26th, 2008 @ 5:40am

    Free As In Freedom

    "The software industry ... tries to get all the benefits ..." should be "The proprietary software industry ... tries to get all the benefits ...". Developers and distributors of Free Software, by contrast, do not try to con you into one-sided agreements--they tend to use licences like the GPL, that give you all the same rights that they have. Can't get more equitable than that, can you?

     

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    matt, Jul 28th, 2008 @ 8:30am

    Time Warner's Definition of a "CONTRACT"

    I got their Price Lock Guarantee terms & conditions in the mail.

    Great -- they cannot change your price for any reason.

    BUT the contract allows them to charge me for broadband overages (I don't live in Golden Triangle/Beaumont testing grounds for metered service), allows them to change ANY programming package or basically change *anything* as long as it is not the price. So they could take all my HD channels away and put them in a new (extra cost) package. Or they could decide my internet is now capped at 10Gb and charge me $1 per Gb after. All retroactively, after I "signed" (no real signature just a verbal "yes" to a computer program on the phone).


    Since when do corporations get to make us sign agreements that say, in so many words, "Your commitment is non-negotiable and cannot be altered. Per the terms of this contract, COMPANY can change or do anything they want without changing your commitment to us."

    There needs to be a precedent case where a contract is a contract. If they change the terms, they must renegotiate, get a second agreement, and have a signed copy on file. This whole deal where per the contract they can do anything and you have no rights is absolute bullsh!t.

    It's not a contract when one party can change the rules during the contract term. It would be like buying a fire insurance policy and then, midterm, having the insurance company send you a letter saying per the terms of your contract we have the right to change your wording to exclude fire as a covered cause of loss.

     

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    Yani, Jul 1st, 2009 @ 3:50pm

    3g

    Is it true that the new phones are quickly discoloring? I read about it on pandalous. It's here: http://www.pandalous.com/nodes/iphone_3gs_discoloring

     

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    دردشه, Jul 5th, 2009 @ 3:17pm

    tankyo

     

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  •  
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