Ihack, therefore ibrick: Cellular contract law, the Apple iPhone, and Apple's extraordinary remedy for breach

Wisconsin Law Review

Volumn 2008, Issue 4, 2008, Pages 747-794

  Maun, Timothy J ^a  

^a UNIVERSITY OF WISCONSIN LAW SCHOOL   (United States)

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EID: 57949088260     PISSN: 0043650X     EISSN: None     Source Type: Journal    
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References (443)

1. The name change was announced January 9, 2007, at the Macworld Conference and Expo in San Francisco. Mathew Honan, Apple Drops 'Computer' from Name, MACWORLD.COM, Jan. 9, 2007, http://www.macworld.com/article/ 54770/2007/01/applename.html
2. see also Apple Inc., Report of Unscheduled Material Events or Corporate Changes (Form 8-K) (Jan. 9, 2007).
3. The original iPod was released October 23, 2001. See Press Release, Apple Inc., Apple Presents iPod (Oct. 23, 2001), available at http://www.apple.com/pr/library/2001/oct/23ipod. html.
4. Press Release, Apple Inc., Apple Launches the iTunes Music Store (Apr. 28, 2003), available at http://www.apple.com/pr/library/2003/apr/ 28musicstore.html.
5. Steve Jobs is the CEO and cofounder of Apple Inc. Apple.com Bios -Steve Jobs, http://www.apple.com/pr/bios/jobs.html (last visited Sept. 21, 2008).
6. Press Release, Apple Inc., iPhone Premieres this Friday Night at Apple Retail Stores (June 28, 2007), available at http://www.apple.com/pr/ library/2007/06/28iphone.html.
7. "Reality distortion field" is a humorous reference to Steve Jobs's unusual combination of charisma and salesmanship, often used to great effect at Macworld keynote speeches to induce excitement and anticipation in Apple's latest products. See, e.g., Jessica Guynn, Questions Swirl Around Jobs as Macworld Opens, S.F. CHRON., Jan. 9, 2007, at El (explaining how Apple employees borrowed the term from the "Star Trek" television series to describe Jobs);
8. see also Jack Shafer, The Apple Polishers: Explaining the Press Corps' Crush on Steve Jobs and Company, SLATE.COM, Oct. 13, 2005, http://www.slate.com/id/2127924 ("Another thing that sets Apple product launches apart from those of its competition is cofounder Jobs's psychological savvy. From the beginning, Jobs flexed his powerful reality-distortion field to bend employees to his will, so pushing the most susceptible customers and the press around with the same psi power only comes naturally.").
9. See Press Release, Apple Inc., Apple Reinvents the Phone with iPhone (Jan. 9, 2007), available at http://www.apple.com/pr/library/2007/ 01/09iphone.html.
10. See David Pogue, The iPhone Matches Most of Its Hype, N. Y. TIMES, June 27, 2007, at C1.
11. Press Release, Apple Inc., Apple Chooses Cingular as Exclusive US Carrier for Its Revolutionary iPhone (Jan. 9, 2007), available at http://www.apple.com/pr/library/2007/01/09cingular.html.
12. Cingular is now known as AT&T Wireless. Stuart Elliot, AT&T Aims to Put Its Mark on Mobility, NYTIMES.COM, Sept. 11, 2007, http://www.nytimes.com/2007/09/11/business/media/11att-web.html?pagewanted= print ("AT&T previously owned 60 percent of Cingular and acquired the rest when it took over the BellSouth Corporation. The Cingular brand has vanished; the cellular operations are now referred to as the AT&T wireless group.").
13. At the time of release, the iPhone had no memory card, no instant messaging program, lacked a user-replaceable battery, could not capture video with the built-in camera, and did not support voice-commands or picture-messaging (known as MMS). Pogue, supra note 8.
14. Id.
15. Press Release, Apple Inc., Apple Sells One Millionth iPhone (Sept. 10, 2007), available at http://www.apple.com/pr/library/2007/09/10iphone. html.
16. See Press Release, Apple Inc., supra note 7. Initially both a 4GB and 8GB models were offered, for $499 and $599, respectively. Id. The price has since been lowered to $399 for the 8GB model and the 4GB model is discontinued.
17. See Press Release, Apple Inc., Apple Sets iPhone Price at $399 for this Holiday Season (Sept. 5, 2007), available at http://www.apple.com/pr/library/2007/09/05iphone.html.
18. Lev Grossman, Invention of the Year: The iPhone, TIME, NOV. 12, 2007, at 60.
19. See Press Release, Apple Inc., supra note 9;
20. see also Press Release, Apple Inc., AT&T and Apple Announce Simple, Affordable Service Plans for iPhone (June 26, 2007), available at http://www.apple.com/pr/library/2007/06/26plans.html (discussing service contract options).
21. "Reach out and touch someone" was an advertising slogan used by AT&T in the early 1980's. Eric Zeman, Reach Out And Touch Something, INFORMATIONWEEK.COM, Sept. 26, 2007, 12:03 EST, http://www. informationweek.com/blog/main/archives/2007/09/reach-out-and-t-1.html.
22. See Press Release, Apple Inc., AT&T and Apple Announce Simple, Affordable Service Plans for iPhone, supra note 15.
23. See Pogue, supra note 8 ("You can't install new programs [on the iPhone] from anyone but Apple; other companies can create only iPhone-tailored mini-programs on the Web.").
24. "Think Different" was the slogan for an Apple advertising campaign launched in September 1997. Charles Jade, 10 Years After "Think Different.," ARSTECHNICA.COM, Sept. 29, 2007, http.7/arstechnica.com/journals/apple.ars/2007/09/29/10-years-of-think- different.
25. See Li Yuan, Hackers Bypass iPhone Limits, ONLINE.WSJ.COMNE.WSJ.COM, July 6, 2007, http ://online.wsj.com/article-email/SB118368127325158660-. html.
26. BLACK'S LAW DICTIONARY 342 (8th ed. 2004) (defining "adhesion contract" as "[a] standard-form contract prepared by one party, to be signed by the party in a weaker position, usually a consumer, who adheres to the contract with little choice about the terms").
27. See Sumner Lemon, Hackers Race to Unlock iPhone, Infoworld.com, July 2, 2007, http://www.infoworld.com/article/07/07/02/Hackers- race-to-unlock-iphone1.html.
28. See Yuan, supra note 20. One of the hackers involved was none other than "DVD Jon," the Norwegian hacker who figured out how to break the encryption on DVDs so they could be copied to computer hard drives.
29. Id.
30. Unlike most cell phones, which are activated at the point of sale, the original iPhone activation process was completed at home by the customer using Apple's iTunes software. Id. ("New iPhone users are required to activate their handset using the latest version of iTunes, released on Friday, before they can use the phone.").
31. See also Press Release, Apple Inc., Apple and AT&T Announce iTunes Activation and Sync for iPhone (June 26, 2007), available at http://www.apple.com/pr/library/2007/06/26activate.html.
32. See Yuan, supra note 20.
33. See Apple iPhone: More Has Happened, Onlinereporter.com, July 21, 2007, http://www.onlinereporter.com/article.php?article-id=10053;
34. Hackers Close to Cracking iPhone, Eweek.com, July 16, 2007, http://www.baselinemag.com/c/a/Security/Hackers-Close-to- Cracking-iPhone.
35. See Arik Hesseldahl, The Hackers' First Hello on the iPhone, Businessweek.com, Aug. 3, 2007, http://www.businessweek.com/ technology/contentaug2007/tc2007081-895247.htm;
36. see also Mike Musgrove, Introducing the New and Improved iPhone - by Hackers, Wash. Post, Aug. 23, 2007, at F1.
37. See Hesseldahl, supra note 27.
38. See Brad Stone, With Software and Soldering, AT&T's Lock on iPhone Is Undone, N.Y. TIMES, Aug. 25, 2007, at C1.
39. Id.
40. See Ryan Block, iPhone Unlocked: AT&T Loses iPhone Exclusivity, ENGADGET.COM, Aug. 24, 2007, 12:00 EST, http://www.engadget.com/2007/08/24/iphone-unlocked-atandt-loses-iphone- exclusivity-august-24-2007. The software-only method was developed by iPhoneSIMFree.com and demonstrated for the editors of Engadget.com.
41. Id.
42. See Saul Hansell, The $831 iPhone, NYTIMES.COM, Oct. 25, 2007, 12:41 EST, http://bits.blogs.nytimes.com/ 2007/10/25/the-831-iphone.
43. See Leslie Cauley, iWeapon: AT&T Plans to Use Its Exclusive iPhone Rights to Gain the Upper Hand in the Battle for Wireless Supremacy, USA Today, May 22, 2007, at 1B.
44. Even with the deal, Apple loses money on each unlocked phone because, unless iPhone purchasers actually sign up for wireless service with AT&T, there is no monthly revenue to share with Apple. See John Markoff, Record Mac Sales Help Apple Earnings Climb 67% in Quarter, N.Y. Times, Oct. 23, 2007, at C3.
45. A company planning on commercially releasing a software iPhone unlock held off when threatened with a copyright infringement and illegal software dissemination by AT&T lawyers. See Jacqui Cheng, AT&T Legal Hits the Brakes on (Commercial) iPhone Unlocks, Arstechnica.com, Aug. 27, 2007, http://arstechnica.com/journals/apple.ars/2007/08/27/att-legal-hits-the- brakes-on-commercial-iphone-unlocks.
46. Mark Hachman, Update: Apple Issues Warning on iPhone Hacking, PCMAGAZINE.COM, Sept. 24, 2007, http://www.pcmag.com/article2/0,2817, 2188296,00.asp (emphasis added);
47. David Zeiler, Tinkering with iPhone Software Voids Apple Warranty, BALT. SUN, Sept. 27, 2007, at 5D.
48. The author remains curious how modifying software violates a hardware warranty.
49. Hachman, supra note 36.
50. See Katie Hafner, Altered iPhones Freeze Up, N.Y. TIMES, Sept. 29, 2007, at C1.
51. Id.
52. Id.
53. See Jacqui Cheng, Class Action Suit Filed over iPhone Locking, ARSTECHNICA.COM, Aug. 28, 2007, http://arstechnica.com/ journals/apple.ars/2007/08/28/class-action-suit-filed-over-iphone-locking.
54. iPhone Battery Design Leads to Lawsuit in U.S., INT'L HERALD TRIB., Aug 2, 2007, at 12.
55. See Katie Hafner & Brad Stone, iPhone Owners Crying Foul Over Price Cut, N.Y. TIMES, Sept. 7, 2007, at C1.
56. See Jacqui Cheng, iPhoneSIMFree Issues Commercial iPhone 1.1.1 Unlock, Arstechnica.com, Oct. 11, 2007, http://arstechnica.com/journals/ apple.ars/2007/10/11/iphonesimfree-issues-commercial-iphone-1-1-1-unlock ("Not only does the newest unlock allow you to unlock your iPhones running the new firmware, it also lets you 'un-brick' anySIM or iUnlock unlocked iPhones (the two solutions released by the iPhone Dev Team).").
57. See Jacqui Cheng, "iPhone Elite" Team Posts Free iPhone Unbricking Instructions, Arstechnica.com, Oct. 12, 2007, http://arstechnica.com/journals/apple.ars/2007/10/12/iphone-elite-team-posts- free-iphone-unbricking-instructions ("19- (or 20, if you count step zero) step procedure might be a little bit of a pain.").
58. See id.
59. Complaint for Treble Damages and Permanent Injunctive Relief, Smith v. Apple Inc., No. 1-07-CV-095781 (Super. Ct. Cal., Santa Clara County filed Oct. 5, 2007).
60. The case was removed to federal court on Apple's motion, Defendant Apple Inc.'s Notice of Removal, Smith v. Apple Inc., No. C 07-05662 (N.D. Cal. filed Nov. 7, 2007), and consolidated with the other iPhone case.
61. See Order Relating Cases; Consolidating Cases; and Setting Case Management Conference, In re Apple & AT&TM Anti-Trust Litigation, No. C 07-05152 JW, No. C 07-05662 RMW (N.D. Cal. Nov. 30, 2007).
62. Class Action Complaint for Damages, Injunctive Relief and Restitution, Holman v. Apple Inc., No. C 07-05152 (N.D. Cal. filed Oct. 5, 2007);
63. see Order Relating Cases; Consolidating Cases; and Setting Case Management Conference, supra note 48.
64. First Amended Complaint for Damages and Permanent Injunctive Relief, Smith v. Apple Inc., No. 1-07-CV-095781 (Super. Ct. Cal., Santa Clara County filed Nov. 7, 2007)
65. [hereinafter Smith Amended Complaint];
66. Class Action Complaint for Damages, Injunctive Relief and Restitution, Holman v. Apple Inc., No. C 07-05152 (N.D. Cal. filed Oct. 5, 2007)
67. [hereinafter Holman Complaint].
68. See Smith Amended Complaint, supra note 50, at 53;
69. Holman Complaint, supra note 50, at 23-24.
70. The iPhone Software License Agreement explicitly states that California law will govern "as applied to agreements entered into and to be performed entirely within California between California residents." Apple Inc., iPhone Software License Agreement, § 12, available at http://images.apple.com/legal/sla/docs/iphone.pdf.
71. Tim Wu, Wireless Carterfone, 1 INT. J. OF COMM. 389, 399 (2007), available at http://ijoc.org/ojs/index. php/ijoc/article/view/152/96.
72. GSM WORLD, 20 FACTS FOR 20 YEARS OF MOBILE COMMUNICATIONS (2008), available at http://www.gsmworld.com/documents/20-year-factsheet.pdf.
73. Wu, supra note 53, at 425 n.25.
74. Cauley, supra note 33 ("AT&T uses GSM, a global standard incompatible with CDMA.");
75. see also Walt Mossberg, Free My Phone, ALLTHINGSD.COM, Oct. 21, 2007, 21:31 EST, http://mossblog.allthingsd.com/20071021/free-my- phone.
76. See Mossberg, supra note 56 ("[W]e have two major, incompatible cell phone technologies in the U.S. . . . Except for a couple of oddball models, phones built for one of these technologies can't work on the other.").
77. See James Derk, New World Phone Is Not Without Its Shortcomings, Intelligencer (Wheeling, WV), July 10, 2007, at D2 (noting that the Blackberry 8830 is a "World Phone" because "its dual-mode CDMA/GSM capability . . . allows it to be used in more than 150 countries with your same phone number").
78. Cauley, supra note 33, at 1B tbl.1. AT&T is the leading wireless provider in the United States with 27.1% of the market, followed by Verizon (26.3%), Sprint Nextel (23.6%), and T-Mobile (11.1%).
79. Id. Other smaller carriers comprise the remaining 11.9% of the market.
80. Id.
81. Wu, supra note 53, at 425.
82. See GSM WORLD, supra note 54.
83. Wu, supra note 53, at 426;
84. see also Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr. 3d 344, 349 (Cal. Ct. App. 2007),
85. cert, denied, T-Mobile USA, Inc. v. Gatton, No. 07-1036, 128 S. Ct. 2501, 2502 (May 27, 2008) (describing the allegations in plaintiffs complaint regarding T-Mobile's sale of handsets containing removable SIM cards).
86. Wu, supra note 53, at 426.
87. Id.
88. See Cyrus Farivar, Locked vs. Unlocked: Opening Up Choice, N.Y. Times, Nov. 1, 2007, at C9 ("[T]he advantage of having an unlocked GSM phone is that the phone can easily be used in other countries at a fraction of the usual charge by buying a local prepaid SIM card, the microchip that contains the telephone number and other data. Otherwise, consumers are left paying exorbitant international roaming fees.").
89. See, e.g., Katie Hafner, Fun, Tours and a $3,000 Bill for Hardly Using an iPhone, N. Y. Times, Sept. 10, 2007, at C8.
90. See Farivar, supra note 65.
91. See Wu, supra note 53, at 426.
92. See John C. Dvorak, Apple Bricking the iPhone, Pcmagazine.com, Oct. 1, 2007, http://www.pcmag.com/article2/0,2817,2190855,00. asp.
93. Wu, supra note 53, at 425-26. The CDMA identifier is called an electronic serial number (ESN), or mobile equipment ID (MEID).
94. Id.
95. Id. at 426. However, Verizon, the largest U.S. CDMA carrier, recently announced plans to abandon its "whitelist" in 2008 and allow any device capable of connecting to operate on its network.
96. See Nate Anderson, Verizon Opens Up, Will Support Any Device, Any App on Its Network, Arstechnica.com, Nov. 27, 2007, http://arstechnica. com/news.ars/post/20071127-verizon-opens-up-will-support-any-device-any-app-on- its-network.html. AT&T soon followed suit, announcing that customers could use any device by any manufacturer on AT&T's network.
97. See Leslie Cauley, AT&T Flings Cellphone Network Wide Open, USATODAY.COM, Dec. 5, 2007, http://usatoday.com/tech/ wireless/phones/2007-12-05-att-N.htm. However, at least one commentator noticed that the announcement was somewhat disingenuous, because AT&T's GSM network has always allowed any GSM-compatible device.
98. See Tom Krazit, AT&T Reopens Its Open Network, CNET.COM, Dec. 6, 2007, http://news.cnet.com/8301-13579-3-9830094-37. html.
99. See Wu, supra note 53, at 426;
100. see also Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr. 3d 344, 349 (Cal. Ct. App. 2007),
101. cert, denied, T-Mobile USA, Inc. v. Gatton, No. 07-1036, 128 S. Ct. 2501, 2502 (May 27, 2008) ("T-Mobile employs a SIM lock to prevent its handsets from operating with a SIM card programmed for any other network.").
102. See Wu, supra note 53, at 425. For example, AT&T currently offers a Blackberry Curve 8310 for a list price of $349, but if purchased with a two-year service agreement the price is reduced to $199. Wireless.att.com, Blackberry Curve 8310 - Titanium, http://www.wireless.att.com/cell-phone-service/cell-phone-details/?q-sku=sku 1070078 (last visited Sept. 21, 2008).
103. Lisa Vaas, Hackers Close to Cracking iPhone, EWEEK. COM, July 16, 2007, http://www.eweek.eom/c/a/Security/Hackers-Close-to- Cracking-iPhone ("Wireless carriers impose early termination fees purportedly to recoup lost revenues from discounted or free phones they use to lure in new customers . . . ."). However, both AT&T and Verizon announced plans in 2007 to prorate those fees based on the length of the remaining contract.
104. See Jacqui Cheng, AT&T Tries to Preempt Congress with Prorated Termination Fees, ARSTECHNICA.COM, Oct. 16, 2007, http://arstechnica.com/news.ars/post/20071016-att-tries-to-preempt-congress- with-prorated-termination-fees.html.
105. Farivar, supra note 65.
106. According to Apple spokeswoman Jennifer Bowcock, "Neither [Apple nor AT&T] will provide an unlock code for the iPhone." Phuong Cat Le, Want Your iPhone Unlocked? Too Bad, SEATTLE POST- INTELLIGENCER, July 3, 2007, at C1.
107. Farivar, supra note 65;
108. see also Sprint Nextel to Unlock Phone Software, San Jose Mercury News, Oct. 27, 2007, at 3C.
109. Farivar, supra note 65.
110. See Anderson, supra note 71.
111. This follows from the fact that the cellular communication standards are not carrier specific. See supra text accompanying notes 56-60.
112. See Laurie Flynn, Apple's Profit Quadruples, Thanks to iPod, N.Y. Times, Jan. 13, 2005, at C1.
113. See Fred Vogelstein, Weapon of Mass Disruption, Wired, Jan. 9, 2008, at 124, available at http://www.wired.com/gadgets/wireless/ magazine/16-02/ff-iphone ("Apple was prepared to consider an exclusive arrangement to get [the iPhone] deal done. But Apple was also prepared to buy wireless minutes wholesale and become a de facto carrier itself.").
114. Le, supra note 76.
115. Press Release, Apple Inc., AT&T and Apple Announce Simple, Affordable Service Plans for iPhone (June 26, 2007), available at http: //www.apple.com/pr/library/2007/06/26plans.html.
116. See Michelle Kessler, Apple Tries to Crack Down on iPhone Abusers, USA TODAY, NOV. 5, 2007, at 2B ("[Apple] . . . is widely believed to have a revenuesharing deal with AT&T.");
117. see also Hansell, supra note 32 ("AT&T appears to be paying $18 a month, on average, to Apple for each iPhone activated on its network.").
118. See John Cox, Apple to Release Unlocked iPhone in France, Networkworld.com, Oct. 17, 2007, http://www.networkworld.com/news/2007/101707- apple-to-release-unlocked.html (quoting a wireless executive who said that having handset manufacturers demand a share of revenues is a significant change for the industry).
119. See Robert W. Hahn et al., The Economics of "Wireless Net Neutrality," 3 J. Competition L. & Econ. 399, 430-31 (2007).
120. Ryan Kim, Competitors Wrestling with iPhone, S.F. Chron., Nov. 5, 2007, at El ("Verizon Wireless famously passed on the iPhone after taking a look at the customer service, retail and revenue sharing arrangements required by Apple.").
121. Peter Svensson, Lockdown on the iPhone, Intelligencer (Wheeling, WV), Aug. 30, 2007, at C8 ("Most U.S. phones are locked to their carrier when sold, since the carrier subsidizes the cost of the phone. The iPhone, however, is apparently not subsidized by AT&T."). In contrast to the original iPhone, the new iPhone 3G, released July 11, 2008, is subsidized by AT&T, starting at $199 for the 8-GB model.
122. See Peter Svensson, "Unlockers" Face Apple's Obstacles with New iPhone, SEATTLE TIMES, June 11, 2008, at C4.
123. Not to mention, it also continued to charge a $175 early-termination fee. AT&T Knowledge Ventures, AT&T Postpaid Terms of Service, available at http://www.apple.com/legal/iphone/us/terms/service- att. html.
124. See Cauley, supra note 33 (noting that "78% of U.S. households have a mobile phone," and "[f]or the most part . . . anybody who wants a cell phone has one").
125. Id. (explaining that because Wall Street values the carriers based on how many new subscribers they add each month, carriers are increasingly trying to steal their competitors' customers instead of adding entirely new customers).
126. See Kim, supra note 88 ("The success of the iPhone, which sold 1.4 million units in its first 90 days, has come at the expense of Palm and T-Mobile, which both lost customers after the iPhone came out, according to the NPD Group research firm.").
127. See supra text accompanying notes 48-49.
128. Order Relating Cases; Consolidating Cases; and Setting Case Management Conference, In re Apple & AT&TM Anti-Trust Litigation, No. C 07-05152 JW, No. C 07-05662 RMW (N.D. Cal. Nov. 30, 2007).
129. No. 1-07-CV-095781 (Super. Ct. Cal., Santa Clara County filed Oct. 5, 2007).
130. Defendant Apple Inc.'s Notice Of Filing Of Removal To Federal Court, Smith v. Apple Inc., No. 1-07-CV-095781 (Super. Ct. Cal., Santa Clara County filed Nov. 7, 2007).
131. Smith Amended Complaint, supra note 50, at 1.
132. The complaint asserts violations of the California Cartwright Act for unlawful trusts and unlawful tying agreements, Cal. Bus. & Prof. Code §§16720, 16727 (West 2008), as well as violations of the Sherman Antitrust Act for unlawful tying and monopolization, 15 U.S.C. §§ 1, 2. Smith Amended Complaint, supra note 50, at 3-4.
133. The unfair-competition claims are based on a violation of section 17200 of the California Business & Professions Code. Smith Amended Complaint, supra note 50, at 4.
134. Id.
135. Id.
136. The remaining causes of action were for breach of the Song-Beverly Consumer Warranty Act, Cal. Civ. Code §§ 1790-1795.7 (West 2007), violation of the Consumer Legal Remedies Act, ID. § 1750, violation of the Computer Fraud Abuse Act, 18 U.S.C. § 1030, violation of the California Penal Code, Cal. Penal Code § 502 (West 1999), and violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968.
137. Smith Amended Complaint, supra note 50, at 4.
138. Under federal law, a jury trial is generally available in antitrust treble damages suits, provided a timely demand is made and "the issues are not so complex as to unduly confuse a jury. " 54 Am. Jur. 2d MONOPOLIES AND RESTRAINTS OF TRADE § 635 (2008). Because both complaints allege violations of the Sherman Antitrust Act, the demand for a jury trial contained in the complaints will likely be granted if the case goes to trial.
139. Smith Amended Complaint, supra note 50, at 52-54.
140. Holman Complaint, supra note 50, at 1.
141. Id.
142. Id. at 18-22.
143. Id. at 22-23.
144. Id. at 23.
145. Id. at 1.
146. Id. at 23-24.
147. Id. at 9-12;
148. Smith Amended Complaint, supra note 50, at 5-6.
149. Holman Complaint, supra note 50, at 11-12;
150. Smith Amended Complaint, supra note 50, at 19-20.
151. This Comment does not contend that Apple is unjustified in refusing to service iPhones under warranty that were unlocked by means of a hardware modification. The limited hardware warranty explicitly does not apply "to damage caused by operating the product outside the permitted or intended uses described by Apple," or "to a product or part that has been modified to alter functionality or capability without the written permission of Apple." See Apple Inc., Apple One (1) Year Limited Warranty, available at http://images.apple.com/legal/warranty/iphone.pdf. Apple likely bases its decision not to service unlocked iPhones on the "altered functionality" clause, as it is unclear how a software only method of unlocking the phone could actually damage the device's hardware.
152. See iPhone Software License Agreement, supra note 52, § 12. This choice of law provision would likely be upheld by courts.
153. See infra note 202.
154. See generally Cal. Com. Code (West 2002). California has adopted "2001 Revision of Article 1, Article 2A (Leases), 1990 Revision of Article 3, 1990 Amendments to Article 4, Article 4A (Funds Transfers), 1995 Revision of Article 5, 1989 Revision of Article 6, 2003 Revision of Article 7, 1994 Revision of Article 8, and 2000 Revision of Article 9."
155. Id., annot. However, the adoption was not verbatim.
156. Charles J. Williams, California Legislative Changes in Uniform Commercial Code Subsequent to Adoption, in CAL. COM. CODE 26 ("California made over 120 changes from the Official Text, more than any other state. ").
157. Cal. Civ. Code §§ 1667-1670.6 (West 2007).
158. Id. §§ 1790-1795.7.
159. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996).
160. See infra Part III.C (discussing software-license agreements).
161. ProCD, Inc., 86 F.3d at 1452. The ProCD decision has been widely followed.
162. See, e.g., Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 428 (2d Cir. 2004);
163. Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997);
164. Static Control Components, Inc. v. Lexmark Int'l, Inc., 487 F. Supp. 2d 830, 844-47 (E.D. Ky. 2007);
165. Meridian Project Sys., Inc. v. Hardin Const. Co., 426 F. Supp. 2d 1101, 1106-07 (E.D. Cal. 2006);
166. Schultz v. AT&T Wireless Servs., Inc., 376 F. Supp. 2d 685, 692 (N.D. W.Va. 2005);
167. I.Lan Sys., Inc. v. NetScout Serv. Level Corp., 183 F. Supp. 2d 328, 338 (D. Mass. 2002);
168. Pollstar v. Gigmania Ltd., 170 F. Supp. 2d 974, 981 (E.D. Cal. 2000);
169. Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569, 572 (N.Y. App. Div. 1998).
170. But see Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91 (3d Cir. 1991);
171. Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir. 1988).
172. 86 F.3d at 1449.
173. See id. This follows from the fact that shrink-wrap contracts represent simply a different method of contract formation, and are not a qualitatively different legal obligation from traditionally formed contracts. Indeed, as the court in ProCD noted, using the software after reading the terms constituted acceptance by conduct under UCC section 2-204(1).
174. Id. at 1452. A common defense with regard to shrinkand click-wrap contracts is inadequate notice of the terms.
175. See, e.g., Softman Products Co. v. Adobe Sys., Inc., 171 F. Supp. 2d 1075, 1087-88 (C.D. Cal. 2001) (determining that the software reseller was not bound by end-user license agreement because the agreement was only displayed when installing the software, something the reseller did not itself do).
176. Stomp, Inc. v. NeatO, LLC, 61 F. Supp. 2d 1074, 1081 n.11 (C.D. Cal. 1999) ("A 'clickwrap agreement' allows the consumer to manifest its assent to the terms of a contract by 'clicking' on an acceptance button on the [computer] . . . . The term 'clickwrap agreement' is borrowed from the idea of 'shrinkwrap agreements,' which are generally license agreements placed inside the cellophane 'shrinkwrap' of computer software boxes.");
177. see also BLACK'S LAW DICTIONARY 1195 (8th ed. 2004) (defining point-and-click agreement).
178. See, e.g., Comb v. PayPal, Inc., 218 F. Supp. 2d 1165, 1169 (N.D. Cal. 2002) (explaining that PayPal's user agreement is a click-wrap contract formed when the user clicks on an "I Agree" button or submits payment through the service).
179. For this reason they are sometimes also referred to as click-through contracts. See Brazil v. Dell Inc., No. C-07-01700 RMW, 2007 WL 2255296, at *1-*2 (N.D. Cal. Aug. 3, 2007). However, that can lead to confusion because click-through is a term of art in Internet advertising used to describe when a Web user clicks "through" an online advertisement to reach the sponsoring site.
180. See, e.g., Coremetrics, Inc. v. AtomicPark.com, LLC, 370 F. Supp. 2d 1013, 1018 (N.D. Cal. 2005). For this reason this Comment will use the less ambiguous click-wrap to refer to these contracts.
181. See generally, Kevin W. Grierson, Annotation, Enforceability of "Clickwrap " or "Shrinkwrap " Agreements Common in Computer Software, Hardware, and Internet Transactions, 106 A.L.R. 5th 309, § 4[a]-[d] (2003).
182. See Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 981 (9th Cir. 2007)
183. (citing Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005)).
184. In Discover Bank, the California Supreme Court set forth the test for unconscionability in holding unenforceable a class arbitration waiver included in a consumer credit card agreement. 113 P.3d at 1108-10.
185. Shroyer, 498 F.3d at 982
186. (quoting Discover Bank, 113 P.3d at 1108).
187. Id.
188. Id. at 981-82
189. (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal. 2000)).
190. Id. at 983
191. (quoting Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir. 2006) (en banc)).
192. Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr. 3d 344, 352 (Cal. Ct. App. 2007)
193. (quoting Flores v. Transamerica HomeFirst, Inc., 113 Cal. Rptr. 2d 376, 381 (Cal. Ct. App. 2001)),
194. cert, denied, No. 07-1036, 128 S. Ct. 2501, 2502 (May 27, 2008).
195. Id.
196. (quoting Stirlen v. Supercuts, Inc., 60 Cal. Rptr. 2d 138, 145 (Cal. Ct. App. 1997)).
197. Id. at 353
198. (quoting Flores, 113 Cal. Rptr. 2d at 382).
199. See Shroyer, 498 F.3d at 976;
200. Gatton, 61 Cal. Rptr. 3d at 356-58.
201. Shroyer, 498 F.3d at 979;
202. Gatton, 61 Cal. Rptr. 3d at 348.
203. 61 Cal. Rptr. 3d at 344.
204. Id. at 346. Since T-Mobile is a GSM carrier, the lock employed was the SIM-lock discussed earlier in Part I.
205. Id. at 349.
206. Id. at 358.
207. 498 F.3d at 978.
208. Id. at 979.
209. The case was removed to the United States District Court for the Central District of California. Id. at 980.
210. Id. at 981.
211. Id. at 993.
212. Id. at 983;
213. Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr. 3d 344, 353 (Cal. Ct. App. 2007),
214. cert, denied, T-Mobile USA, Inc. v. Gatton, No. 07-1036, 128 S. Ct. 2501, 2502 (May 27, 2008).
215. Shroyer, 498 F.3d at 985 ("California has rejected the notion that the availability . . . of substitute . . . services alone can defeat a claim of procedural unconscionability." (alteration in original) (citations omitted));
216. Gatton, 61 Cal. Rptr. 3d at 353 ("[W]e reject the contention that the existence of market choice altogether negates the oppression aspect of procedural unconscionability.").
217. Shroyer, 498 F.3d at 983; Gatton, 61 Cal. Rptr. 3d at 358.
218. Discover Bank v. Superior Court, 113 P.3d 1100, 1109 (Cal. 2005)
219. (quoting Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867 (Cal. Ct. App. 2002)).
220. Id. at 1109.
221. Id. at 1108 ("All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law."
222. (quoting Cal. Civ. Code § 1668 (West 1985))). While Discover Bank articulated the general rule of unconscionability in California, on remand the Court of Appeals held that the class-action waivers in the case were nonetheless enforceable because a choice-of-law analysis dictated that the law of Delaware, Discover Bank's place of business, should apply.
223. See Discover Bank v. Superior Court, 36 Cal. Rptr. 3d 456, 459 (Cal. Ct. App. 2005).
224. Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, 71 Fed. Reg. 68,472, 68,476 (Nov. 27. 2006)
225. (codified at Patent, Trademarks, and Copyrights, 37 C.F.R. § 201.40 (2007)).
226. Specifically, the exemption covers "[c]omputer 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 communication network." Id.
227. 17 U.S.C. §§ 1201-1205 (West 2000).
228. Id. § 1201(a)(1)(A).
229. See, e.g., Marybeth Peters, Recommendation of the Register of Copyrights, U.S. Copyright Office, at 48 (Nov. 17, 2006), http://www.copyright. gov/1201/docs/1201-recommendation.pdf ("Generally, [cellular-phone] software locks prevent customers from using their handsets on a competitor's network by controlling access to the software that operates the mobile phones (e.g., the mobile firmware).").
230. See 17 U.S.C. § 1201(a)(1)(C) ("[D]uring each succeeding 3-year period, the Librarian of Congress, upon the recommendation of the Register of Copyrights. . . shall make the determination in a rule-making proceeding . . . whether persons who are users of a copyrighted work are, or are likely to be in the succeeding 3-year period, adversely affected by the [anticircumvention] prohibition . . . in their ability to make noninfringing uses under this title of a particular class of copyrighted works.").
231. Id. § 1201(a)(1)(B)-(C).
232. Id. § 1201(a)(1)(B). The exemptions last for three years, until the next rule-making proceeding.
233. Id. § 1201(a)(1)(D).
234. See Peters, supra note 157, at 5 ("The primary responsibility of the Register and the Librarian in this rule-making proceeding is to assess whether the implementation of access control measures is diminishing the ability of individuals to use copyrighted works in ways that are otherwise lawful."
235. (citing H.R. Rep. No. 105-551, pt. 2, at 37 (1998))).
236. 17 U.S.C. § 1201(a)(1)(A).
237. Peters, supra note 157, at 52.
238. Id. at 53.
239. Patents, Trademarks, and Copyrights, 37 C.F.R. § 201.40 (2007). Effective Nov. 27, 2006, the exemption will last for three years.
240. Id. § 201.40(b).
241. Id.
242. See Jennifer Granick, Cell Phones Freed! Poor Suffer?, Wired.com, Dec. 6, 2006, http://www.wired.com/politics/law/commentary/ circuitcourt/2006/12/72241.
243. See Wireless Innovation and Consumer Protection: Hearing Before H. Subcomm. on Telecommunications and the Internet of the H. Comm. on Energy and Commerce, 110th Cong. (2007)
244. [hereinafter Wireless Hearing];
245. see also Randall Stross, When Mobile Phones Aren't Truly Mobile, N.Y. Times, July 22, 2007, at Bus-3.
246. Wireless Hearing, supra note 168.
247. Cell Phone Consumer Empowerment Act of 2007, S. 2033, 110th Cong. (2007).
248. See Press Release, Sen. Klobuchar, Klobuchar and Rockefeller Announce Cell Phone Consumer Empowerment Act of 2007 (Sept. 7, 2007), available at http://klobuchar.senate.gov/newsreleases-detail.cfm?id= 281970.
249. Eric Bangeman, Cellular Freedom: Bill Would Cut Early Termination Fees, Hidden Charges, Arstechnica.com, Sept. 10, 2007, http://arstechnica. com/news.ars/post/20070910-cellular-freedom-bill-would-cut-early-termination- fees-hidden-charges.html.
250. See infra Part IV.B.
251. Apple Inc., iPhone Terms of Service, available at http://www.apple.com/legal/iphone/us/terms/service-all.html.
252. Apple One (1) Year Limited Warranty, supra note 115.
253. AT&T Postpaid Terms of Service, supra note 90.
254. The separate contracts are: (1) Apple iPhone Software License Agreement, (2) Apple iTunes Store Terms of Service, (3) Google Maps Terms and Conditions, (4) YouTube Terms of Use, and (5) Notices From Apple. See iPhone Terms of Service, supra note 174.
255. The iTunes Store, Google and YouTube conditions are included because features of those sites are available via the iPhone's internet capabilities. The "Notices From Apple" is a simple statement that e-mail from Apple will satisfy legal communication requirements. Id.
256. See iPhone Software License Agreement, supra note 52.
257. Stephen J. Sand, Annotation, Validity, Construction, and Application of Computer Software Licensing Agreements, 38 A.L.R. 5TH 1, § 2 (1996).
258. Id.
259. See Michael J. Madison, Reconstructing the Software License, 35 LOY. U. CHI. L.J. 275, 307 (2003) (explaining that the economic value of the media on which copies of software are distributed is negligible, and that customers pay for the content, not the copy).
260. See 17 U.S.C. § 202 (West 2000) ("Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied.");
261. see also Raymond T. Nimmer, The Law of Computer Technology § 7:66 (3d ed. 2008) ("A transfer of ownership of tangible property does not transfer ownership of intellectual property or other informationrelated interests.").
262. See NIMMER, supra note 182, § 7:101.
263. See id. ("Many contracts contain a specified duration or number of permitted uses. In such cases, termination occurs automatically when the stated criteria is passed.").
264. Id. §§ 7:177, 7:184.
265. Breach of a software-license agreement may also constitute copyright infringement, based on either direct or contributory theories. Sand, supra note 179, § 10;
266. see also id. § 7:99 ("Once a license terminates, subsequent use of the intellectual property infringes the intellectual property right.").
267. See iPhone Software License Agreement, supra note 52.
268. Id. § 1 ("General").
269. Id. § 2(c) ("Permitted License Uses and Restrictions").
270. Id. § 6 ("Termination").
271. Id.
272. However, the consumer could still use the iPhone as a stylish paperweight.
273. Express, implied and statutory warranties are disclaimed, including but not limited to implied warranties and/or conditions of merchantability and of fitness for a particular purpose. iPhone Software License Agreement, supra note 52, § 7 ("Disclaimer of Warranties").
274. Liability for personal injury, incidental, special, indirect or consequential damages is disclaimed. Id. § 8 ("Limitation of Liability").
275. Id. § 4 ("Consent to Use of Non-Personal Data").
276. Id. § 12 ("Controlling Law and Severability"). A discussion of choice of law principles is beyond the scope of this Comment, but it suffices to note that the application of California law is reasonable given that Apple is headquartered in the state and members of the plaintiff class in the pending suit are domiciled there.
277. See also infra note 202.
278. AT&T Postpaid Terms of Service, supra note 90.
279. Id. The early-termination fee is $175.
280. Id. ("Service Commitment; Early Termination Fee").
281. Id. ("Arbitration Agreement").
282. Id. ("Dispute Resolution by Binding by Arbitration").
283. Id. ("Miscellaneous").
284. Apple's corporate headquarters are located in Cupertino, California. Apple.com http://Apple.com, Contacting Apple, http://www.apple.com/contact (last visited Aug. 20, 2008).
285. The resolution of the issue will require application of choice-of-law principles. Generally, federal courts exercising diversity jurisdiction "apply the substantive law of the forum in which the court is located, including the forum's choice of law rules." Downing v. Abercrombie & Fitch, 265 F.3d 994, 1005 (9th Cir. 2001)
286. (quoting Ins. Co. of North Am. v. Fed. Express Corp., 189 F.3d 914, 919 (9th Cir. 1999)).
287. Therefore the United States District Court for the Northern District of California, where the iPhone lawsuits were filed, would apply California's "governmental interest" choice-of-law method. See 12 Cal. Jur. 3d Conflict of Laws § 29 (2008);
288. see also Downing, 265 F.3d at 1005
289. ("California applies a three-step 'governmental interest' analysis to choice-of-law questions: (1) 'the court examines the substantive laws of each jurisdiction to determine whether the laws differ as applied to the relevant transaction,' (2) 'if the laws do differ, the court must determine whether a true conflict exists in that each of the relevant jurisdictions has an interest in having its law applied,' and (3) 'if more than one jurisdiction has a legitimate interest ... the court [must] identify and apply the law of the state whose interest would be more impaired if its law were not applied.'" (quoting Abogados v. AT&T, Inc., 223 F.3d 932, 934 (9th Cir. 2000);
290. Liew v. Official Receiver & Liquidator, 685 F.2d 1192, 1196 (9th Cir. 1982))).
291. See AT&T Postpaid Terms of Service, supra note 90 ("Equipment").
292. Id.
293. See id.
294. See supra text accompanying notes 188-90.
295. See supra text accompanying notes 162-66.
296. Apple's iPhone software-license agreement prohibits reverse engineering or modification of the iPhone software, both of which are necessary in order to unlock the phone. See iPhone Software License Agreement, supra note 52, § 2(c) ("Permitted License Uses and Restrictions").
297. Assuming that the software developers are not also consumer iPhone owners, there is no privity of contract between them and Apple-AT&T. Therefore, the contractual restrictions cannot be enforced against them.
298. The violation would be of the Digital Millennium Copyright Act's provisions prohibiting the trafficking in anticircumvention technology, which is distinct from the prohibition against actual circumvention itself. See 17 U.S.C. § 1201(a)(2)(A) (West 2000) ("No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work . . . .").
299. See, e. g., supra note 35.
300. In addition, Apple's self-help remedy for consumer breach of the iPhone agreements is arguably a violation of its obligation of good faith performance and enforcement of the contract. See Cal. Com. Code § 1304 (West Supp. 2008) ("Every contract or duty within this code imposes an obligation of good faith in its performance and enforcement.").
301. 86 F.3d 1447 (7th Cir. 1996).
302. The iPhone software-license agreement, along with the other Apple terms of service and the AT&T service agreement were presented within iTunes during the iPhone activation process. The user was required to check a checkbox indicating he or she read and understood the agreements before the software would continue the activation process. See Apple Inc., Activating and Setting Up iPhone, IPHONE USER'S GUIDE at 4-5 (on file with author);
303. see also Video: Apple - iPhone - How to Activate iPhone (on file with author).
304. The agreement begins with the following language: "Please read this software license agreement ("License") carefully before using your iPhone . ... By using your iPhone . . . you are agreeing to be bound by the terms of this License .... If you do not agree to the terms of this License, do not use the iPhone .... if you do not agree to the terms of the License, you may return the iPhone within the return period to the Apple store or authorized distributor where you obtained it for a refund . . . ." iPhone Software License Agreement, supra note 52 (emphasis added).
305. See generally ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).
306. At least one court has held that the amount of the agreement that appears on screen at any given time - for example in a very small scroll-box - does not render the notice of the terms inadequate. See Forrest v. Verizon Commc'ns., Inc., 805 A.2d 1007, 1010-11 (D.C. 2002).
307. See supra note 212 and accompanying text.
308. See supra note 214 and accompanying text.
309. See 86 F.3d at 1449.
310. See supra note 212 and accompanying text.
311. 86 F.3d at 1452.
312. Apple abandoned this novel do-it-yourself activation process with the release of the updated iPhone 3G in July 2008. See Svensson, "Unlockers" Face Apple's Obstacles with New iPhone Revised Strategy, supra note 89.
313. Customers must now sign up for AT&T wireless services and activate their iPhones before leaving the Apple or AT&T retail stores. Id.
314. Furthermore, iPhone 3Gs can no longer be purchased online. See Apple.com http://Apple.com, iPhone - Where to Buy, http://www.apple.com/iphone/ buy(last visited Sept. 22, 2008).
315. Olga Kharif & Peter Burrows, On the Trail of the Missing iPhones, Bus. Wk., Feb. 11, 2008, at 25 ("Most phones from Nokia, Motorola, and others are sold through the wireless carriers themselves or authorized dealers, and you sign up for a service contract at the same time you buy the phone.");
316. see also Fred Vogelstein, The Untold Story: How the iPhone Blew Up the Wireless Industry, Wired.com http://Wired.com, Jan. 9, 2008, http://www.wired.com/gadgets/wireless/magazine/16-02/ff-iphone (noting that Apple convinced AT&T to "reinvent the time-consuming in-store sign-up process").
317. See Unlocked iPhones May Total 250,000, Seattle Post-Intelligencer, Oct. 24, 2007, at F2 ("Apple had sold 270,000 iPhones in the first two days after the product's June 29 debut.").
318. An added wrinkle to this argument would be that even if the Apple software-license agreement may still apply with a nonactivated iPhone, the AT&T service agreement, and its equipment clause that prevents modifying the device for use on another network, never would. This is because the unlockers never sign up for AT&T wireless service, and so the AT&T service agreement is simply irrelevant.
319. Apple Inc., Requirements for iPhone on 2007 iPhone packaging (on file with author). Under the "Requirements" section, the exact language is: "Minimum new two-year wireless service plan with AT&T required to activate all iPhone features, including iPod features." Id. The original iPhone could also be purchased at the online Apple Store, but the product page clearly indicated that an AT&T service agreement was required.
320. Apple Inc., iPhone Important Product Information Guide, at 16, http://manuals.info.apple.com/en/iPhone-Product-Info-Guide.pdf. The entire agreement is not printed in the manual. Instead, the notice is a rather easy to miss three lines: "Software License: Use of iPhone is subject to the iPhone Software License Agreement found at: www.apple.com/legal/sla" Id.
321. Interestingly, the one-year limited warranty is reproduced in full, taking up five pages of the small guide. Id. at 16-20.
322. Cal. Civ. Code § 19 (West 2007).
323. See iPhone Terms of Service, supra note 174.
324. Cal. Com. Code § 2105(1) (West 2002).
325. Id. § 2101.
326. See Bonebrake v. Cox, 499 F.2d 951, 960 (8th Cir. 1974) (explaining that in mixed contracts involving both goods and services, the predominant factor or purpose of the contract will characterize the whole).
327. In addition, the class-arbitration and class-action waivers in the AT&T service agreement are unenforceable under California law because üiey are indistinguishable from the waivers found unconscionable in Gatton and Shroyer. See generally Shroyer v. New Cingular Wireless Servs. Inc., 498 F.3d 976 (9th Cir. 2007);
328. Gatton v. T-Mobile USA, Inc., 61 Cal. Rptr. 3d 344 (Cal. Ct. App. 2007),
329. cert, denied, T-Mobile USA, Inc. v. Gatton, No. 07-1036, 128 S. Ct. 2501, 2502 (May 27, 2008).
330. Therefore, the antitrust class-action lawsuit should be allowed to proceed. See supra note 96.
331. Federal copyright law preempts state law to the extent that it creates rights "equivalent to any of the exclusive rights within the general scope of copyright . . . . " 17 U.S.C. § 301(a) (West 2000). However, numerous courts have held that contractual agreements provide an "extra element" that makes the contractual right asserted "qualitatively different from those protected by the copyright act." See, e.g., Meridian Project Sys., Inc., v. Hardin Constr. Co., 426 F. Supp. 2d 1101, 1108 (E.D. Cal. 2006).
332. An argument can be made that customers willingly waive any "right" to unlock their phone for use on another carrier's network as part of their service agreement, but most carriers will issue unlock codes to customers eventually. See supra Part IV.A.1. AT&T however, has stated that it will never allow customers to unlock the iPhone, even after customers' two-year contracts have ended. See supra note 76 and accompanying text.
333. 61 Cal. Rptr. 3d at 353.
334. See, e.g., Anna Marie Kukec, Yep, Looks Like Apple's iPhone Phenomenon Is For Real, Daily Herald (Arlington Heights, IL), June 30, 2007, at 1 (noting the availability of alternatives, but explaining how the design, large touchscreen, functionality, and user-friendliness all distinguished the iPhone from Blackberries and Treos).
335. Steve Jobs himself even described the iPhone as a "world phone with quad-band GSM technology that works great in the U.S., Europe and most of Asia." Walt Mossberg, Steve Jobs Answers My iPhone Questions, ALLTHINGSD.COM, June 26, 2007, 15:01 PST, http://mossblog.allthingsd. com/20070626/jobs-qa.
336. SEECal. Civ. Code § 1668 (West 1985).
337. See Gatton, 61 Cal. Rptr. 3d at 358.
338. See Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 984 (9th Cir. 2007).
339. While the author is not prepared to definitively refute the claim with respect to the iPhone, it is a highly dubious contention that software can be irreparably damaged.
340. See supra text accompanying notes 36-38.
341. iPhone Software License Agreement, supra note 52, § 4.
342. Id. § 2(c).
343. Shroyer, 498 F.3d at 983-84;
344. Gatton, 61 Cal. Rptr. 3d at 356-58.
345. Supra note 241.
346. Cal. Civ. Code § 1668 (West 1985).
347. Patents, Trademarks, and Copyrights, 37 C.F.R. § 201.40 (2007).
348. Id. § 201.40(b)(5).
349. Gatton, 61 Cal. Rptr. 3d at 358.
350. Shroyer, 498 F.3d at 983.
351. Discover Bank v. Superior Court, 113 P.3d 1100, 1106 (Cal. 2005).
352. Id. at 1103.
353. Concededly, the traditional restrictions on all cell phones are arguably one-sided, not just iPhones. However, the capabilities and popularity of the iPhone mean that the contractual restrictions are that much more likely to come before the courts.
354. See Press Release, Apple Inc., Apple Announces iPhone 2.0 Software Beta (Mar. 6, 2008), available at http://www.apple.com/pr/library/2008/ 03/06iphone.html ("The iPhone SDK provides developers with a rich set of Application Programming Interfaces (APIs) and tools to create innovative applications for iPhone and iPod® touch.").
355. The delay in releasing development tools was ostensibly because Apple wanted to ensure third-party development would not subject the iPhone or AT&T's network to viruses or malicious software. See Michelle Quinn, Apple to Open Up the iPhone, L.A. Times, Oct. 18, 2007, at 3.
356. See Press Release, Apple Inc., supra note 257. Indeed, the new iPhone applications marketplace that Apple launched with the release of the iPhone 3G has so far been a resounding success.
357. See Press Release, Apple Inc., iPhone App Store Downloads Top 10 Million in First Weekend (July 14, 2008), available at http://www. apple.com/pr/library/2008/07/14appstore. html.
358. Unlocked iPhones May Total 250,000, supra note 225.
359. Many of these unlocked iPhones were destined for grey markets overseas before Apple had officially released the iPhone outside of the U.S. Id.
360. See Kharif & Burrows, supra note 224, at 26.
361. See Cheng, supra note 46.
362. There were also anecdotal reports of sympathetic Apple retail store employees resurrecting "bricked" iPhones, demonstrating both the futility of Apple's policy and belying its claims that unlocked iPhones were irreparably damaged. See Rob Beschizza, How To Unbrick an iPhone: Let Apple Do It For You, WLRED.COM http://WLRED.COM, Sep. 28, 2007, 7:29 EST, http://blog. wired.com/gadgets/2007/09/how-to-unbrick-. html.
363. Brad Reed, Apple's Options for Stopping Open Source iPhone Use, Networkworld.com http://Networkworld.com, Sept. 20, 2007, http://www. networkworld.com/news/2007/092007-apple-stop-open-source-iphone.html.
364. See Cheng, supra note 46.
365. See Svensson,"Unlockers" Face Apple's Obstacles with New iPhone Revised Strategy, supra note 89.
366. Apple.com http://Apple.com, iPhone - Where to Buy, http://www.apple.com/ iphone/buy/(last visited Sept. 22, 2008).
367. See S\ensson,"Unlockers" Face Apple's Obstacles with New iPhone Revised Strategy, supra note 89 ("Analysts estimate AT&T will subsidize [iPhone 3Gs] by more than $200 each. ").
368. See Press Release, Apple Inc., Apple Introduces the New iPhone 3G (June 9, 2008), available at http://www.apple.com/pr/library/2008/06/ 09iphone.html.
369. Svensson,"Unlockers" Face Apple's Obstacles with New iPhone Revised Strategy, supra note 89 ("AT&T charges customers who break a two-year contract within the first month a $175 early-termination fee plus the $36 activation fee. That would bring the cost of the new iPhone to $411 for an unlocker, slightly more than the old model's $399 price.").
370. An individual unlocker could likely get away with this tactic. However, because customers must submit personally identifying information to AT&T when creating an account, any large-scale unlocking efforts would likely fail; AT&T could simply refuse to provide service to a known "unlocker." See id.
371. See Scott Mervis, Artists Seek New Ways To Sell Their Music, Pittsburgh Post-Gazette, Feb. 5, 2008, at Al ("[T]he Recording Industry Association of America, or RIAA, which represents the major labels, has tried to stem the tide [of illegal music downloads], filing 20,000 lawsuits against consumers over the past four years....").
372. It's interesting to note that the prohibition on reverse engineering contained in the Software License Agreement for Apple's OS X operating software is almost identical to that in the iPhone agreement. See Apple Inc., Software License Agreement for Mac OS X, at 2F, http://images.apple.com/legal/ sla/docs/macosxl05.pdf (last visited Sept. 22, 2008). However, this Comment does not contend that the OS X agreement is also potentially unconscionable, precisely because there is no requirement that consumers use only one Apple-approved internet-service-provider.
373. See Press Release, Apple Inc., Apple Reports First Quarter Results (Jan. 22, 2008), available at http://www.apple.com/pr/library/2008/01/ 22results.html(noting that 2,315,000 iPhones were sold in Apple's fiscal 2008 first quarter).
374. Even more impressive was the consumer response to the iPhone 3G. Consumers worldwide purchased 1 million of the devices in the first weekend it was released. See Press Release, Apple Inc., Apple Sells One Million iPhone 3Gs in First Weekend (July 14, 2008), available at http://www.apple.com/pr/library/2008/07/14iphone.html.
375. See Melvin A. Eisenberg, Actual and Virtual Specific Performance, the Theory of Efficient Breach, and the Indifference Principle in Contract Law, 93 Cal L. Rev. 975, 997 (2005);
376. Frank Menetrez, Consequentialism, Promissory Obligation, and the Theory of Efficient Breach, 47 UCLA L. Rev 859, 861 (2000) ("[B]ecause efficient breaches . . . yield net benefits to society (by moving goods and services to their most highly valued use), they should be encouraged.").
377. In contract law, expectation damages aim to put the aggrieved party in the economic condition they would have been had the contract been performed. See BLACK'S LAW DICTIONARY 417 (8th ed. 2004) (defining damages).
378. See Menetrez, supra note 273, at 861 ("[T]he way to encourage such breaches is to award the promisee only expectation damages, because the promisor thus gets to pocket the added profits from the breach. ").
379. Id. at 860 ("An efficient breach of contract is a breach that will, in some economically defined sense, make society better off - it will lead to a more efficient use or allocation of resources.").
380. Indeed for many the whole point of unlocking the phone is specifically to avoid having to sign up for AT&T wireless service. However, it is worth noting that Apple's exclusive iPhone partner in Germany offered to sell the phone with no service agreement for €999 (about $1,477), instead of the regular €399 price (about $590) with a two-year contract. Kenneth Wong, T-Mobile Changes iPhone Sale Terms After Court Ruling, Bloomberg.com http://Bloomberg.com, Nov. 21, 2007, http : //www. bloomberg. com/apps/news?pid=20601087 &sid=a7wsGa9Xbyr4.
381. Interestingly, the standalone option came in response to a legal challenge by a competitor in the German wireless market. Id.
382. Wu, supra note 53, at 421-24.
383. Id. at 423.
384. Id.
385. (citing In re Of Use Of The Carterfone Device In Message Toll Telephone Service, 13 F.CC2d 420 (1968)).
386. Id.
387. See supra Part II.B.
388. See, e.g., Dan L. Burk, Anticircumvention Misuse, 50 UCLA L. Rev. 1095 (2003) (arguing that the doctrine of misuse in copyright and patent law should be adapted and applied to the DMCA's anticircumvention provisions to avoid anticompetitive overreaching).
389. See, e.g., Chamberlain Group, Inc. v. Skylink Tech. Inc., 381 F.3d 1178 (Fed. Cir. 2004) (relating to a garage door opener manufacturer who brought suit under the DMCA to prevent competitor from manufacturing compatible garage door opener remote controls);
390. Lexmark Int'l, Inc. v. Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2004) (rejecting Ink Jet printer manufacturer's suit under the DMCA targeting a competitor that developed microchips that could be used to produce recycled ink cartridges compatible with Lexmark printers).
391. Chamberlain, 381 F.3d at 1183-84;
392. Lexmark, 387 F.3d at 529.
393. See supra note 35.
394. 381F.3dat 1178.
395. Id. at 1183
396. (citing 17 U.S.C. § 1201(a)(2)).
397. Id. at 1184-85.
398. Id. at 1204.
399. Id. at 1197.
400. Id. at 1200.
401. 1d. at 1200
402. (quoting Eldred v. Ashcroft, 537 U.S. 186, 205 n. 10 (2003)).
403. Id. at 1204.
404. 17 U.S.C. § 1201(a)(3)(A) (West 2000).
405. Id. § 1201(a)(1).
406. Chamberlain, 381 F.3d at 1193.
407. Id. at 1187.
408. Id. at 1202.
409. Id.
410. The court left open the question of "whether a consumer who circumvents a technological measure controlling access to a copyrighted work in a manner that enables uses permitted under the Copyright Act but prohibited by contract can be subject to liability under the DMCA." Id. at 1202 n.17. This is exactly the issue addressed by this Comment, which concludes there is no such liability.
411. Id. at 1193, 1201.
412. See supra note 35.
413. Id.
414. 17 U.S.C. § 1201(a)(1)(A) (West 2000).
415. Id. § 1201(a)(2), (b)(1).
416. Vicarious and contributory copyright infringement are secondary theories of liability, meaning the defendant is being held liable for alleged acts of infringement committed by another. MELVILLE B. NIMMER & DAVID NIMMER, 3 Nimmer on Copyright § 12.04[A] (2008).
417. Vicarious liability requires that the defendant (1) possess the right and ability to supervise the infringing conduct, and (2) have an obvious and direct financial interest in the exploitation of copyrighted materials. Id. § 12.04[A][2].
418. Contributory liability requires either knowingly and materially contributing to the infringing conduct of another, or knowingly providing the means to infringe. Id. § 12.04[A][3].
419. 17 U.S.C. § 1201(a)(2)(C).
420. Id. § 1201(b)(1)(C).
421. See generally supra Part II.
422. Chamberlain Group, Inc. v. Skylink Tech. Inc., 381 F.3d 1178, 1204 (Fed. Cir. 2004).
423. See supra text accompanying notes 162-66.
424. Chamberlain, 381 F.3d at 1196 n.13.
425. 17 U.S.C. § 1201(a)(2).
426. Rather, trafficking liability cannot exist before Oct. 27, 2009, when the exemption expires. See Patents, Trademarks, and Copyrights, 37 C.F.R. § 201.40(b) (2007).
427. 17 U.S.C. § 1201(a)(1)(A).
428. See supra text accompanying note 154.
429. 37 C.F.R. § 201.40(b)(5).
430. At least one court has parsed the meaning of the word "lawfully" to hold a commercial reseller of unlocked phones did not benefit from the exemption, and so was liable under the DMCA. See Tracfone Wireless, Inc. v. Dixon, 475 F. Supp. 2d 1236 (M.D. Fla. 2007).
431. The court in that case found that the defendants' conduct was not within the scope of the exemption because the defendants' "misconduct and involvement in unlocking TracFone handsets was for the purpose of reselling those handsets for a profit, and not 'for the sole purpose of lawfully connecting to a wireless telephone communication network.'" Id. at 1238 (quoting 37 C.F.R. § 201.40(b)).
432. The holding can reasonably be limited to its facts, and so distinguished from iPhone unlocking. TracFone's business involved selling heavily subsidized cell phones with no contract, and then selling minutes directly to customers to recoup the price of the phone. Granick, supra note 167.
433. The defendants purchased TracFone phones in bulk, unlocked them for use on any wireless network, and then resold them for a substantial profit. Tracfone, 475 F. Supp. 2d at 1237.
434. However, unlike the iPhone situation, the defendants did not unlock the phones for their own use as consumers, but rather strictly to resell them. Id. Furthermore, since the iPhone itself is not subsidized, a similar pecuniary loss is not incurred, at least on the initial purchase.
435. 17 U.S.C. § 1201(a)(1)(A).
436. Id. § 1201(a)(2).
437. Order Denying Defendant AT&TM's Motion to Compel Arbitration and to Dismiss; Denying Defendant AT&TM's Motion to Stay Discovery; Granting in Part and Denying in Part Defendant Apple's Motion to Dismiss, In re Apple & AT&TM Anti-Trust Litigation, No. C 07-05152 JW (N.D. Cal. Oct. 1, 2008).
438. See Arnold Kim, Apple COO Discusses iPhone Exclusivity, SDK, and Unlocking, MACRUMORS.COM, Feb. 28, 2008, 7:07 EST, http://www.macrumors.com/2008/02/28/apple-coo-discusses-iphone-exclusivity-sdk- and-unlocking (noting that Apple's chief operating officer Timothy Cook stated at a Goldman Sachs investment symposium that the reason the iPhone was exclusive to AT&T was that Apple felt it was impractical to make both a CDMA and GSM version of the phone that would support multiple carriers for the initial release).
439. See generally FCC.gov http://FCC.gov, Wireless Local Number Portability Frequently Asked Questions, http://www.fcc.gov/cgb/NumberPortability (last visited Sept. 23, 2008).
440. See supra Part III.B.
441. See supra text accompanying note 74.
442. See supra text accompanying note 71.
443. See supra text accompanying note 19.