Class-Action Lawsuit to Proceed Against Apple, AT&T

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A federal district court judge in California ruled Friday that a  lawsuit against Apple Inc. (NASDAQ:AAPL) and AT&T (NYSE:T) may proceed as a class action. The suit combines individual lawsuits that argue that Apple and AT&T secretly teamed up on an exclusive deal that forced buyers who signed up for a two-year contract when they bought the iPhones effectively to commit to a five-year contract.

Neither Apple nor AT&T has commented on the terms of the deal between the two companies, which is widely believed to continue through 2012.

The original complaint was filed in late 2007, claiming anti-competitive practices the suit sought to stop Apple from selling phones that can only be used on AT&T’s network and to prohibit the iPhone maker from issuing software updates that blocked ‘unlocked’ iPhones from functioning at all. The suit was amended in June 2008 to include the charge that the five-year Apple-AT&T contract locked iPhone buyers into using AT&T’s voice and data services beyond their two-year contracts.

The judge’s ruling allows those parts of the suit that address violations of anti-trust law may go ahead as a class action. The judge dismissed claims arising from updated software that stopped some iPhones from working.

On its face, the suit appears to have merit. After all, buying a two-year contract only to find out later that you have, in reality, bought a five-year contract is likely to be a nasty surprise. On top of that, AT&T has now changed its unlimited data contract to require customers to pay by the amount of data they actually transfer.

Still, it seems unlikely that neither Apple’s nor AT&T’s lawyers didn’t think of this. The iPhone purchase agreement and software license undoubtedly contain language that ‘reveals’ the nature of the link between Apple and AT&T. Similarly, the contract a customer signed for network services surely contains language that AT&T’s lawyers believe allows the phone company to charge whatever it wants.

This issue is far from played out. As with most other anti-competitive lawsuits, this one virtually cries out for a settlement that will net the plaintiffs’ attorneys a tidy sum and the plaintiffs themselves with a free app and a free month’s service.

Paul Ausick

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