Apple, AT&T Monopoly Abuse Suit Is Granted Class-Action Status

A monopoly-abuse lawsuit against Apple and AT&T has been granted class-action status. The lawsuit contends that the exclusive availability of Apple's iPhone on the AT&T wireless service has hurt competitors and driven prices higher than an open market would have allowed.

"The court has allowed \[multiple\] plaintiffs to represent millions of consumers who have been forced to use AT&T for iPhone voice and data service, despite an agreement that allows them to terminate at any time and presumably switch carriers," said Mark Rifkin, the lead counsel representing the plaintiffs in the suit.

According to the suit, Apple and AT&T entered into a "secret" five-year exclusive agreement in 2007, during which time AT&T would be the exclusive provider of the iPhone to US consumers. Apple then locked the iPhone to prevent it from working on competing wireless networks, even though those networks have proven almost universally more resilient and available than AT&T's notoriously poor network. Apple also endeavored to prevent iPhone users from installing and removing applications on the device, funneling them instead through its Apps Store, where Apple gets a cut of every app sale.

One interesting aspect of the lawsuit is the allegation that the five-year exclusive arrangement between the two companies in effect locks iPhone users into their own unwanted five-year relationship with AT&T. That's because consumers believe they're signing up for a two-year commitment with AT&T, but are in fact forced to keep extending that commitment because the iPhone won't work anywhere else. Furthermore, iPhone customers are unable to terminate their AT&T contract for a fee and use the iPhone elsewhere. AT&T is thus violating the terms of its own contract.

With the lawsuit continuing as a class action, anyone in the United States who purchased any iPhone with a two-year agreement with AT&T qualifies as part of the class and thus could claim part of any future damage awards. Apple has sold more than 50 million iPhones since the first device went on sale, but more than half of those are to repeat customers, many of whom bought one each of the four iPhone models that have been made available over the years. And many iPhones have, of course, been sold outside the United States. Still, the potential class for this lawsuit numbers in the millions.

Ruling in the case late last week, Judge James Ware of the US District Court for the Northern District of California did throw out some claims against Apple. He dismissed claims that Apple software updates caused the iPhone to stop working and that Apple secretly deleted apps that users had purchased.

Apple says it refuses to discuss "pending litigation." But the company in 2008 provided the following statement about this case. "There was widespread disclosure of five-year exclusivity \[with AT&T\] and no suggestion by Apple or anyone else that iPhones would become unlocked after two years.  Moreover, it is sheer speculation—and illogical—that failing to disclose the five-year exclusivity term would produce monopoly power."