Suit Contesting iPhone, AT&T Exclusivity Agreement Moves Forward

By Jon Hood
ConsumerAffairs.com

July 11, 2010
A lawsuit taking issue with AT&T's exclusive rights to the iPhone has been certified as a class action, meaning that iPhone users who want out of their AT&T contracts will at least have their day in court.

The suit, originally filed in 2007, says that Apple and AT&T are perpetuating an illegal monopoly by refusing to unlock consumers' iPhones for use with another wireless carrier. As a result, the complaint says, consumers have little choice but to stay with AT&T, even after their two-year contract expires.

Although AT&T provides that iPhone users can terminate their contract at any time and switch to another carrier, the suit says that the provision is essentially meaningless, since consumers are unable to get their phone onto another network.

The plaintiffs argue that, by offering a two-year contract, AT&T gave consumers the false impression that the exclusivity agreement would likewise last two years. In fact, according to the suit, the agreement is essentially indefinite -- no one knows exactly when it will end and, until it does, customers are stuck with AT&T.

For its part, Apple is arguing that the exclusivity agreement was always expected to last five years -- through 2012 -- and that claims of a monopoly are nonsense.

[T]here was widespread disclosure of [AT&T's] five-year exclusivity and no suggestion by Apple or anyone else that iPhones would become unlocked after two years, Apple asserts in court papers. Moreover, it is sheer speculation -- and illogical -- that failing to disclose the five-year exclusivity term would produce monopoly power.

No end in sight?

iPhone users who want out of their AT&T contracts have seen their share of false starts. Last April, USA Today reported that Apple and Verizon were discussing a potential partnership, although Apple quickly threw cold water on that idea when it swooned about its great relationship with AT&T. Then in August, the research firm Piper Jaffray reported that Apple seemed set to end the exclusivity agreement this summer, most likely when it introduced the iPhone 4. Of course, that milestone has come and gone, and the agreement remains in place.

One analyst has speculated that Apple agreed to further extend the agreement back in January, when AT&T provided bargain data plan prices for the newly-released iPad. Brian Marshall, an analyst with BroadPoint AmTech, figures that the cheap data prices were worth an extra six months.

AT&T had to do something dramatic to get the iPad, Marshall told Computerworld in May. For that pricing [on the iPad], AT&T was able to negotiate a six-month extension on the iPhone exclusive.

The suit, which is being heard in the U.S. District Court for the Northern District of California, is brought on behalf of [a]ll persons who purchased or acquired an iPhone in the United States and entered into a two-year agreement with [AT&T] for iPhone voice and data service any time from June 29, 2007, to the present.