Associated Press delves into legalities of iPhone unlocking

Posted:
in iPhone edited January 2014
With several iPhone unlocking methods gaining traction over the past week, the Associated Press has done some investigating into the legalities of the matter and is reporting that unlocking the phone for one's personal use appears to be legal.



On the other hand, hackers who contrive such unlocking solutions with the intent to profit from them are likely to face legal problems. At least one of the companies hoping to make money by unlocking iPhones told the AP that it is hesitating after calls from lawyers representing AT&T, the exclusive U.S. wireless provider for iPhone.



"Whether people can make profits from software that hacks the iPhone is going to depend very much on exactly what was done to develop that software and what does that software do," said Bart Showalter, head of the Intellectual Property practice group at law firm Baker Botts in Dallas.



Uniquephones.com, an outfit based in Northern Ireland, says nearly half a million people have expressed interest in its $25 iPhone unlocking solution. The firm had planned to release the software earlier this month but is now seeking legal advice after having received some 'friendly advice' from AT&T's attorneys.



Another firm, iphonesimfree.com, has said it plans to release its own iPhone unlocking software in a few days. Meanwhile, 17-year-old George Hotz managed to unlock his iPhone all by himself last week, using both software and hardware modifications. He then attempted to sell the unlocked phone on eBay but ended the auction after fake bids apparently sent the price to $100 million.



Instead, Hotz traded the unlocked phone for "a sweet Nissan 350Z" and three iPhones, according to his blog.



According to the AP, The Copyright Office of the Library of Congress last year issued a statement that unlocking cell phones for one's own use, for instance to place calls with a different carrier, was not a violation of copyright under the Digital Millennium Copyright Act.



However, the AP added in its report that a Florida-based company selling phones that use prepaid plans, won an injunction in February against a couple who bought its phones in large numbers and resold them unlocked.



Further details are available in the AP's thorough report on the matter.
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Comments

  • Reply 1 of 42
    Go ahead, unlock them, then we'll get to hear reports from people whining because all the features don't work right. You know that's what'll happen. I'm certain they'll be unlocked eventually, it just makes more sense at this point to leave it with one carrier until they are certain everything will work correctly.
  • Reply 2 of 42
    pubguypubguy Posts: 108member
    Don't get confused here. Prepaid phones are "subsidized" because you are locked-in to the provider at their rates when you purchase the phone and they make up the price difference as you use up and refill your minutes.



    The iPhone is unsubsidized so you are paying full retail price. If you cancel you agreement with AT&T within 14 days, the phone is still yours to do with as you please. If you want to unlock it and use it on T-Mobile or overseas, that is your legal right and it does not conflict with AT&T's terms of service or anything else.
  • Reply 3 of 42
    solipsismsolipsism Posts: 25,726member
    As I've stated before, Apple knew this would happen. Apple will have (a) "killer app(s)" that will keep 99% of iPhone users on their preferred networks as they will only work through the modified carrier networks. This is the only way to maintain the contracts with the carriers. Apple and the carriers desperately want the additional funds from the monthly dues. They certainly have a contingency plan i place that doesn't require expensive legal fees, that is for certain.





    Quote:
    Originally Posted by pubguy View Post


    If you cancel you agreement with AT&T within 14 days, the phone is still yours to do with as you please. If you want to unlock it and use it on T-Mobile or overseas, that is your legal right and it does not conflict with AT&T's terms of service or anything else.



    You are mistaken. You don't need to signup with ANY carrier to purchase an iPhone. Unles of ofcure, you were refering to people who recently purchased an iPhone and now want to get an unlocked phone. In that case, ignore my post.
  • Reply 4 of 42
    Mr. Sulu, set phasers to 'unlock'... I hope the unlocking frenzy continues unabated. All this will do is keep the other cell providers wondering what the next move will be by Apple, and keep up the pressure to innovate and improve existing offerings.
  • Reply 5 of 42
    Quote:
    Originally Posted by solipsism View Post


    As I've stated before, Apple knew this would happen. Apple will have (a) "killer app(s)" that will keep 99% of iPhone users on their preferred networks as they will only work through the modified carrier networks. This is the only way to maintain the contracts with the carriers. Apple and the carriers desperately want the additional funds from the monthly dues. They certainly have a contingency plan i place that doesn't require expensive legal fees, that is for certain.





    So you're telling us that if Apple could sell 1 million more units because it's unlocked that they would rather not becuase they wouldn't get a monthy fee from ATT? Are you kidding?



    you're right about one thing the carrier desperately wants the monthly fee.
  • Reply 6 of 42
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by steviet02 View Post


    So you're telling us that if Apple could sell 1 million more units because it's unlocked that they would rather not becuase they wouldn't get a monthy fee from ATT? Are you kidding?



    you're right about one thing the carrier desperately wants the monthly fee.



    An so does Apple. Sales numbers and marketshare mean nothing if you don't have the profits to back it up.



    By all reports posted here on AI by analysts, net profits from AT&T's monthly payments to Apple (especially from new subscribers) greatly outweigh the net profits of hardware sale of each iPhone.
  • Reply 7 of 42
    pmjoepmjoe Posts: 565member
    Quote:
    Originally Posted by pubguy View Post


    Don't get confused here. Prepaid phones are "subsidized" because you are locked-in to the provider at their rates when you purchase the phone and they make up the price difference as you use up and refill your minutes.



    Well, technically, they make up the difference because you are locked into the carrier for a time period, and they have an early termination fee that usually nearly covers the difference in the subsidy. Being locked into time is more important than rates here because rates usually do down in this market.

    Quote:

    The iPhone is unsubsidized so you are paying full retail price.



    Yawn. This has been gone over numerous times. The iPhone is subsidized. Apple gets money from AT&T via your service plan. That is how all phone subsidies work. If some people on this site want to pretend otherwise or Apple wants to do some kind of clever labeling of their iPhone finances, more power to you and them. I played with the numbers in another thread on this site, and Apple gets roughly the same money as other phone producers do (though they get a decent premium for getting people to switch from other carriers to AT&T).
  • Reply 8 of 42
    pmjoepmjoe Posts: 565member
    And no the DCMA has nothing to do with phones. DMCA was designed to protect digital media copyrights, i.e. audio, video, books, etc. If you hacked the iPhone to illegally play DRM'd music/video or read DRM'd e-books, then you'd be volating DMCA. You bought the phone, you can do pretty much whatever else you darn well please with it.



    I presume AT&T has a early termination fee in place to protect themselves from people unlocking the phone?
  • Reply 9 of 42
    rot'napplerot'napple Posts: 1,839member
    Quote:
    Originally Posted by AppleInsider View Post


    With several iPhone unlocking methods gaining traction over the past week, the Associated Press has done some investigating into the legalities of the matter and is reporting that unlocking the phone for one's personal use appears to be legal.



    On the other hand, hackers who contrive such unlocking solutions with the intent to profit from them are likely to face legal problems. At least one of the companies hoping to make money by unlocking iPhones told the AP that it is hesitating after calls from lawyers representing AT&T, the exclusive U.S. wireless provider for iPhone.



    "Whether people can make profits from software that hacks the iPhone is going to depend very much on exactly what was done to develop that software and what does that software do," said Bart Showalter, head of the Intellectual Property practice group at law firm Baker Botts in Dallas.



    Uniquephones.com, an outfit based in Northern Ireland, says nearly half a million people have expressed interest in its $25 iPhone unlocking solution. The firm had planned to release the software earlier this month but is now seeking legal advice after having received some 'friendly advice' from AT&T's attorneys.



    According to the AP, The Copyright Office of the Library of Congress last year issued a statement that unlocking cell phones for one's own use, for instance to place calls with a different carrier, was not a violation of copyright under the Digital Millennium Copyright Act.



    500,000 showing interests, WOW. I can see this getting somewhat messy with regards to having phones out there that develop problems, who ya gonna call, not 'GhostBusters'. What are other peoples views on the following bullet points:



    ? If hackers recoded Apple's iPhone software code to unlock, does that infringe on Apple's rights regarding their original software code that they can sick Apple Legal on whoever or at the very least not give the one year customer support the customer has starting at the date of purchase?



    ? Does such hacker software void any warranty with Apple if they don't have to open the casing of the actual hardware (iPhone) itself?



    ? What if they purchased Apple Care with iPhone and used hacker software to unlock, if Warranty IS voided, can "customer" get Apple Support with Apple Care or not, and if not, can the customer get a refund of the money paid to Apple for said Apple Care Protection since they are not going to be provided support service or is tough luck to the buyer?



    Quote:
    Originally Posted by AppleInsider View Post


    However, the AP added in its report that a Florida-based company selling phones that use prepaid plans, won an injunction in February against a couple who bought its phones in large numbers and resold them unlocked.



    "a couple who bought its phones in large numbers and resold them unlocked", but I thought, according to a lot of posters here, that if you bought it, it was yours to do with anyway you pleased?



    Don't give me "locked" and "unlocked" status, I buy t-shirts on a wholesale "locked" price to send in and have them screen printed for resale by me. I can, at times, also buy same t-shirt on sale "unlocked" from the wholesalers normal price (I just make a little extra profit) but I still get to do with it (resale shirts) anyway I please. What's the dif with what the couple from FL buying subsidized phones if you are able to do anything you want?
  • Reply 10 of 42
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by pmjoe View Post


    Yawn. This has been gone over numerous times. The iPhone is subsidized. Apple gets money from AT&T via your service plan. That is how all phone subsidies work. If some people on this site want to pretend otherwise or Apple wants to do some kind of clever labeling of their iPhone finances, more power to you and them. I played with the numbers in another thread on this site, and Apple gets roughly the same money as other phone producers do (though they get a decent premium for getting people to switch from other carriers to AT&T).



    Apple may still be getting it's cut from AT&T, but That is NOT how all phone subsidies work. The carrier pays the manufacturer a pre-determined fee based on the sale on the device. This happens at the intital sale and has absolutely nothing to do with obtaining monthly service dues. This is a new paradigm in the way manufacturers interact with carriers, it's the main reason Verozon turned Apple down, and it's the biggest issue Apple and AT&T are facing with these unlocking reports.
  • Reply 11 of 42
    If nothing else, this should plainly illustrate to Apple that they are not currently offering a phone solution (including the cell service provider) that their customers (and more importantly, potential customers) are happy with.



    The next iPhone will have even broader appeal and will be unlocked.
  • Reply 12 of 42
    Quote:
    Originally Posted by solipsism View Post


    An so does Apple. Sales numbers and marketshare mean nothing if you don't have the profits to back it up.



    By all reports posted here on AI by analysts, net profits from AT&T's monthly payments to Apple (especially from new subscribers) greatly outweigh the net profits of hardware sale of each iPhone.



    I think if you look at it from the standpoint of people buying the phone and unlocking it or not buying it at all, Apple would rather the phone was purchased. While they might not make as much in the way of profits, it's still profits that they wouldn't have received.

    I dont buy for a second that the markup on the phone is minimal.



    I don't agree with your reasoning, but we will find out where Apple stands when updates come out. If the unlocked phones have issues then you'll be proven right.
  • Reply 13 of 42
    louzerlouzer Posts: 1,054member
    Quote:
    Originally Posted by solipsism View Post


    Apple may still be getting it's cut from AT&T, but That is NOT how all phone subsidies work. The carrier pays the manufacturer a pre-determined fee based on the sale on the device. This happens at the intital sale and has absolutely nothing to do with obtaining monthly service dues. This is a new paradigm in the way manufacturers interact with carriers, it's the main reason Verozon turned Apple down, and it's the biggest issue Apple and AT&T are facing with these unlocking reports.



    First, people need to understand the term 'subsidized', apparently. Subsidized phones are phones which the carrier sells to the customer for a specified cost, which is lower then the actual cost of the phone (one would hope, at least). So there's less out of pocket expense to the customer. But, because of this, the customer must sign an extended contract, because the carrier is paying part of the phone's cost for the customer.



    With Apple/AT&T, it does NOT matter how much AT&T is giving apple (per each phone sold or for each month used). If AT&T is paying Apple off on installment (from the monthly fees), that's their business. However, AT&T is NOT paying any amount to cover the customer's cost that we know of (and its doubtful, since AT&T and Apple sell it for the same price). If, for example, the phone cost AT&T $700, and they sold it to you for $600, that's a subsidy. But Apple would HAVE to record it as a $700 purchase (or a 24 month fraction of it).



    Now, some could argue that the phone does cost more, and AT&T is funding that money to Apple via the contract fees, but that's stretching it somewhat, since the accounting for that would need to specify that the fee is going towards the hardware purchase, not just as money going back.



    As for Verizon, they turned Apple down because Apple wanted full control of the device (something else the carriers want to have for themselves, and part of the deal when purchasing the phones). Verizon wanted to control the device, and what features would/wouldn't be enabled. Basically it was a fight between two control freaks, so it was never going to happen. Apple probably also balked at the concept of subsidizing the iPhone (Apple doesn't want anyone thinking their products are cheap), so another barrier to a deal. Finally, I'm sure Verizon didn't want to pay Apple a percentage of a contract per month (why should they, they're providing the service, not apple).



    All this is why I think AT&T got a crappy deal from Apple (they must've really wanted the phone). Apple gets to control everything, AT&T has to change their service model, and they also have to pay off Apple every month. And what does Apple give up? Sole licensing. Man, Apple really baked them on this...
  • Reply 14 of 42
    physguyphysguy Posts: 912member
    Quote:
    Originally Posted by Louzer View Post


    With Apple/AT&T, it does NOT matter how much AT&T is giving apple (per each phone sold or for each month used). If AT&T is paying Apple off on installment (from the monthly fees), that's their business. However, AT&T is NOT paying any amount to cover the customer's cost that we know of (and its doubtful, since AT&T and Apple sell it for the same price). If, for example, the phone cost AT&T $700, and they sold it to you for $600, that's a subsidy. But Apple would HAVE to record it as a $700 purchase (or a 24 month fraction of it).





    The point is that WE DON"T KNOW. There is NO 'unlocked' price. There is NO DIFFERENCE between a sale at AT&T stores and Apple stores - same price same contract requirement, same registration process, etc. etc. So WE DON"T KNOW. It is that simple. You can't infer from the 'same sales price' argument as there are not other differences (that we know of).
  • Reply 15 of 42
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Louzer View Post


    Now, some could argue that the phone does cost more, and AT&T is funding that money to Apple via the contract fees, but that's stretching it somewhat, since the accounting for that would need to specify that the fee is going towards the hardware purchase, not just as money going back.



    Which fits in perfectly with the iPhone's new 24-month accounting method.
  • Reply 16 of 42
    louzerlouzer Posts: 1,054member
    Quote:
    Originally Posted by physguy View Post


    The point is that WE DON"T KNOW. There is NO 'unlocked' price. There is NO DIFFERENCE between a sale at AT&T stores and Apple stores - same price same contract requirement, same registration process, etc. etc. So WE DON"T KNOW. It is that simple. You can't infer from the 'same sales price' argument as there are not other differences (that we know of).



    So, what you're saying is that AT&T is not only subsidizing the phones its buying from Apple and selling, but also the phones Apple is selling?



    Quote:
    Originally Posted by solipsism View Post


    Which fits in perfectly with the iPhone's new 24-month accounting method.



    No, it doesn't. The hardware cost that's being accounted is the sale price. And its all supposed to be this way because of 'adding extra hardware features after the fact' or some such nonsense (the same reason they charged $5 for the 802.11n driver for macbook pros. (And I wouldn't be surprised if they also made the change so they can better level out their balance sheet, rather than have spikes and valleys from various product cycles).



    However, the truth won't be found out until October. That's the next earnings report time, and then we'll see how they're recording the AT&T earnings (of course how they do it will depend on how much it is, for we know they record AppleTV sales under 'ipod accessories').



    And then comes the other question. Does AT&T still pay apple for cancelled service, or pay Apple a proportional share of the cancellation fee? If not, then that would presume that the monthly stipend isn't for 'subsidization', but just for 'apple likes money'.
  • Reply 17 of 42
    Quote:
    Originally Posted by Rot'nApple View Post


    ? Does such hacker software void any warranty with Apple if they don't have to open the casing of the actual hardware (iPhone) itself?



    ? What if they purchased Apple Care with iPhone and used hacker software to unlock, if Warranty IS voided, can "customer" get Apple Support with Apple Care or not, and if not, can the customer get a refund of the money paid to Apple for said Apple Care Protection since they are not going to be provided support service or is tough luck to the buyer?







    "a couple who bought its phones in large numbers and resold them unlocked", but I thought, according to a lot of posters here, that if you bought it, it was yours to do with anyway you pleased?



    Yes, modifying the installed software will void the warranty. No, a voided warranty does not entitle you to a refund on AppleCare. If you decided to smash your phone with a hammer, you're not going to get any warranty coverage, and you won't get a refund either.



    Buying phones, unlocking them, and then reselling the unlocked phones is illegal. However, unlocking your own phone is perfectly O.K. It's minor semantics, but an important detail. Selling the tools to make unlocking should be perfectly legal as long as the tools were created in a legal way.
  • Reply 18 of 42
    First, you have no idea what Apple gets. Nobody has actually provided the contract to the public. People like Gene Munster are guessing that Apple is receiving a monthly payment from AT&T.



    Second, you are also wrong even if Apple is receiving a cut of the monthly fees. This is because an iPhone buyer completely pays for the hardware upon purchase. Component breakdowns show this to be the case. Otherwise, Apple would lose money for people canceling AT&T contracts.



    Any money going to Apple is to pay for feature enhancements, possibly a bounty for bringing AT&T new customers, and possibly hardware support for the life of the AT&T contract. Typically, the wireless carrier provides the service for the phone. Here Apple does, so it seems likely it would takes that percentage of the money that AT&T would get for providing support for the hardware.



    Quote:
    Originally Posted by pmjoe View Post


    Yawn. This has been gone over numerous times. The iPhone is subsidized. Apple gets money from AT&T via your service plan. That is how all phone subsidies work. If some people on this site want to pretend otherwise or Apple wants to do some kind of clever labeling of their iPhone finances, more power to you and them. I played with the numbers in another thread on this site, and Apple gets roughly the same money as other phone producers do (though they get a decent premium for getting people to switch from other carriers to AT&T).



  • Reply 19 of 42
    As a lawyer, I can tell you it is unclear whether unlocking other people's iPhones for them is illegal. If the courts decide that it is, people should be outraged. When you buy hardware, you are not signing a contract, so you own it outright. As such, you have the right to do what you will with it. Moreover, when you sign a contract with somebody (e.g. AT&T), breaking the contract is not illegal. Sure you might owe the other party damages, but your action is not illegal (e.g. you cannot go to jail for doing so).



    On the other hand, violating a copyright is illegal (e.g. you can go to jail for doing so). However, fair-use has long been held to be a valid defense to copyright infringement in cases where you are enhancing a device in a way that doesn't cost the vendor sales. Here, unlocking the device will not cost Apple sales, and it is enhancing the device by allowing it to connect to more networks. This is very similar to the situation Sony's Beta MaX player found itself in when it was unsuccessful sued by the networks for facilitating copyright infringement. AT&T might be mad about people copying Apple's software in order to modify it, but it doesn't own any copyrights to the iPhone. Accordingly, the only way it can sue over Apple's copyrights is if Apple gave it a license to do so. We certainly do not know if Apple did.



    The only kink in the works for consumers is the DMCA, which really is an anti-copyright act. People suing under the DMCA are not complaining that their copyright has been violated. No, they are complaining that the anti-copying mechanism protecting their copyrighted work has been circumvented. Companies love the DMCA because they never have to sue over copyright infringement, where often they will lose. The DMCA is heavily aimed at the makers and distributors of unlocking tools. It punishes them even when the unlocking by the consumer would be legal.



    Other then the talked about unlocking exception, the DMCA also has a reverse engineering for interoperability exception. I have not read the DMCA in a while, but I suspect you can make a good argument that reverse engineering the iPhone is protected under the DMCA.



    Ultimately, the consumer generally loses unless a big business has the same interests as the consumer. This is because the Copyright Board is filled with two types of people. Those who eventually want higher paying jobs at the companies lobbying it, and those who have already worked for those companies.



    Quote:
    Originally Posted by bjojade View Post


    Buying phones, unlocking them, and then reselling the unlocked phones is illegal. However, unlocking your own phone is perfectly O.K. It's minor semantics, but an important detail. Selling the tools to make unlocking should be perfectly legal as long as the tools were created in a legal way.



  • Reply 20 of 42
    physguyphysguy Posts: 912member
    Quote:
    Originally Posted by Louzer View Post


    So, what you're saying is that AT&T is not only subsidizing the phones its buying from Apple and selling, but also the phones Apple is selling?



    What part of WE DON'T KNOW is unclear. I could easily write a contract that did that. The motivation would be to create a uniform user experience which you might have noticed is high on Apple's list. AT&T still reaps the contract benefit. Apple would just be an AT&T reseller in that case, wrt to iPhones. Again, please don't put words in my mouth. We don't know.
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