California resident Timothy Smith has sued Apple and AT&T over the iPhone, accusing them of illegal monopolistic behavior. The iPhone is locked to the AT&T cell network and Apple is accused of writing software rendering hacked iPhones inoperable. If we want innovators to create the next revolutionary device, frivolous lawsuits like this must be stopped in their tracks.
Usually, companies accused of monopolistic behavior have a high market share, like Microsoft or Google. But AT&T has less than a third of the U.S. mobile market, and the iPhone marks Apple’s first attempt at manufacturing a phone.
The suit claims that locking phones to networks is a monopolistic business practice. But how is designing a phone to work with a network monopolistic? Apple chose AT&T as its carrier partner, so iPhone software is coded to operate with the AT&T network. Some phone manufacturers sell an unlocked version of their cell phones, but Apple elected to keep the iPhone connected to AT&T. Just as it would be unreasonable to demand that Windows software run on a Mac, it is equally unreasonable to demand a universal iPhone.
If providers are not allowed to customize phones to networks, consumers lose. Visual voice-mail, one of the iPhone’s most innovative features is exclusive to the AT&T network—an example of "unique collaboration" between AT&T and Apple.
Mandating unlocked phones and hoping they will benefit consumers is a pipe dream. In theory, consumers benefit; but in practice, the hindrance of creativity and the suppression of pioneers far outweigh the positive aspects of open standards. For companies to take big risks, there must be equally big rewards. Developing the iPhone took a huge team of programmers and engineers and hundreds of millions of dollars in research and development costs.
Many iPhone users have used unofficial hacks to unlock their phone to work with compatible networks. A recent software update from Apple resulted in many hacked iPhones being "bricked," making them unusable unless the device is reset. The lawsuit claims Apple intentionally released the software upgrade to disable modified phones in retaliation for unlocking.
Regardless of Apple’s intent, people who modified their phones deserve no legal recourse. People entered into a voluntary contract by purchasing the iPhone and accepted the user agreement prohibiting modification of the "software in any manner or form." Consumers who violate an agreement and void the warranty do so at their own risk. Apple’s only obligation to iPhone owners is fulfilling the terms of its license agreement—and its software updates work fine with unaltered iPhones.
Owners of the iPhone can do whatever they want to the iPhone, with the caveat that certain actions may void the warranty. The 1998 Digital Millennium Copyright Act carves out an exemption for phone unlocking, even when reverse engineering is involved. So while the iPhone can be unlocked legally, Apple doesn’t have to support phones running modified software. This is one area where copyright laws have succeeded in striking a balance between the rights of consumers and businesses.
If Apple intentionally disabled iPhones to punish unlockers, shame on them. But if so, the market, not government, should punish Apple. Heavy-handed tactics cause an exodus of customers, which sends a stronger message than any civil fine.
In a free market economy, companies can decide the terms of the products they sell, just as consumers can decide which products they buy. Companies should not be subject to civil penalties if they place limitations on warranty support. Businesses cannot anticipate what sort of other uses or alterations consumers will make—so they do not provide support for these modifications. Should Apple be required to employ hundreds of developers to test every third-party modification to make sure every software update is compatible?
If these lawsuits succeed—or worse yet, a law is passed by Congress to the same effect—an unreasonable burden will be placed on companies, chilling innovation and increasing costs for consumers. When companies are forced to foresee the unforeseeable, they are likely to stand still.