It's quite interesting to see the way companies misuse intellectual property law in order to try to prop up what is otherwise a weak business model. We've covered the case of Tracfone, a prepaid mobile phone company, who sells cheap phones hoping to make it up on the service fees. However, when an exception was added to the DMCA allowing phone unlocking, Tracfone flipped out. The company even went so far as to claim that unlocking mobile phones could represent a national security issue. Tracfone, though, is a rather small player in the space. It turns out that AT&T is joining in on the fun and suing to stop prepaid phone unlocking. The company is not going after individual unlockers, but the bulk unlockers. What's interesting, though, is that the lawsuit appears to be over the issue of trademark violation. Why this isn't just a contractual issue isn't clear -- but it seems strange to make it a trademark issue. However, again, all this really shows is that the business model around prepaid phones, relying on subsidized phones, isn't a particularly good one. That's no reason to sue or pass laws that protect it, though.

With reports of huge numbers of iPhones being purchased to be unlocked and resold, it looks like Apple trying to clamp down a bit on the process by changing the rules for purchasers: requiring credit cards for purchases and limiting order to only 2 iPhones at a time. This is similar to what the original "launch day" limitations were. The credit cards let Apple track purchases more carefully (though, you have to wonder what good that really does) and the two person limit makes life harder for unlocker/resellers -- but also makes it more likely that parents will be able to pick up iPhones for their kids this holiday season. As for whether or not it's legal to turn down someone handing over the requisite amount of cash, we'll just let the US Treasury Department explain that it's perfectly fine. The whole "legal tender" bit doesn't mean anyone has to accept your cash.

A bigger question, though, is why Apple would bother? The resellers are likely to figure out ways around these limitations anyway, and it just seems more likely to cause problems for legitimate purchasers (especially younger ones who might not have a credit card yet). And, while it is true that Apple makes money from every iPhone with AT&T service, it's silly to completely shut off unlockers, who still are giving Apple plenty of money that they might not hand over if they were forced to go with AT&T service (especially those from foreign countries where iPhone service is not offered). This really seems like an unnecessary restriction that isn't likely to help Apple very much.

Just a few days after a class action lawsuit was filed in California against Apple for locking down the iPhone, the California Supreme Court ruled on a different case that may have an impact on the Apple case. It's given the go ahead on a separate lawsuit against T-Mobile for locking its phones and requiring an early termination fee. T-Mobile had argued that the terms of service required that any dispute go to binding arbitration, so that it didn't make sense to take it to the courts. Of course they want binding arbitration because companies almost always win in binding arbitration. The court found that it's perfectly reasonable to take this issue to court. How the courts will actually rule on the issue could make a big difference in the Apple/iPhone case -- as there is the possibility that the courts may find that (in California at least) locking a phone to a single network is not allowed. It may depend on the specific wording of state laws, as the specifics of such a case can get rather technical. To be honest, if a mobile phone operator wants to lock a phone to only their network, and people agree to it in the contract (or agree to an ETF), then that should be a contractual issue. It's a dumb business practice -- as many operators are starting to realize. However, that doesn't necessarily mean it should be illegal.

While the last class action lawsuit over the iPhone was pretty ridiculous -- claiming that the rapid price drop was illegal -- this latest one may have a bit more substance behind it. One of the victims of the infamous iPhone iBricking update has now filed a class action lawsuit against Apple, claiming that the iBricking action was a violation of California law. The specific arguments are a bit complex, but basically, the guy is claiming that in locking the handset to one carrier, Apple violated sections of the Cartwright Act, which is designed to prevent companies from creating artificial market barriers on products they sell in order to boost the price. On top of that, the lawsuit notes that unlocking a phone for use on other networks is perfectly legal under last year's DMCA exemptions. Therefore, to then brick the iPhones that were unlocked violates the California law, saying that it's illegal to take actions that "substantially lessen competition or tend to create a monopoly." It may be a bit of a stretch to say that applies in this case, and Apple can simply plead (reasonably) that the iBricking was not on purpose, and that the company has no requirement to support unlocked handsets -- but if this case actually does get some traction, Apple may need to be a bit more careful in future firmware updates.

There were several reports last week that the operator lock on the iPhone had been broken, meaning that people might be able to use the device with service from a company other than AT&T. The first to emerge was from a New Jersey teenager, who came up with a complex method involving soldering and software; then two separate companies later said they had software-only unlocking methods. To be sure, these unlocking methods and services will only ever appeal to a small number of users, as most general consumers won't really care, or won't want to go to the trouble. With that in mind, it really doesn't seem like AT&T has much at stake financially, but that apparently hasn't stopped its lawyers from threatening one of the software providers. The company claims it got a call from a law firm representing the company, tossing around things like copyright infringement and "illegal software dissemination" in what appears to be an attempt at intimidating the company to keep them from releasing the software (particularly since the DMCA doesn't cover phone unlocking). It's worth reiterating that these are supposedly AT&T's lawyers, not Apple's -- but it's not clear what standing AT&T would have to sue, making this look like little more than a SLAPP situation. Apple's remained quiet on the matter, but it wouldn't be surprising to see the company close the loophole or re-lock the phones with one of its software updates, since it has a financial stake in iPhone buyers activating and using their phones on AT&T thanks to its revenue-sharing deal with the operator. Of course, it could take the more enlightened view that it doesn't want to frustrate and annoy the customers who would go to the trouble of unlocking their iPhones -- but if it were going to do that, it wouldn't have locked the device to AT&T in the first place.