[Infowarrior] - Why Apple Can't Stop iPhone Hackers

[Richard Forno]

News Analysis August 28, 2007, 12:01AM EST text size: TT
Why Apple Can't Stop iPhone Hackers
AT&T and Apple may face an uphill battle prosecuting hackers who untether
the iPhone from the AT&T wireless network
http://www.businessweek.com/print/technology/content/aug2007/tc20070827_2306
98.htm

by Olga Kharif

It sure sounds like a steal. On Aug. 31, George Hotz plans to trade in his
iPhone for a metallic blue Nissan (NSANY) 350Z sports car and three
brand-new iPhones. But the 17-year-old's device is no ordinary Apple phone.
Hotz hacked his iPhone and unlocked it so that it can be used on a variety
of cell-phone networks, becoming the first person known to have done so. The
person buying Hotz's phone, Terry Daidone, believes he's the one getting the
deal because Hotz has agreed to work for him at his cell-phone refurbishing
company, CertiCell.

Daidone says he doesn't plan to sell unlocked iPhones just yet. Rather, he
says that he wants Hotz to teach CertiCell's technicians the secrets to
unlocking other kinds of cell phones. But that could change‹if he can clear
up legal questions surrounding the practice of unlocking mobile phones. "As
the need arises to unlock phones, we should be at the forefront of that,"
Daidone says.

Apple (AAPL) and AT&T (T), the sole authorized supplier of the iPhone in the
U.S., are doing what they can to make sure that legal clearance never comes.
The two companies have put their lawyers on the case, applying pressure on
hackers involved in unlocking iPhones to try to get them to stop. Much is at
stake. AT&T has been hoping that as the exclusive provider of the iPhone, it
will see a surge in new customers and monthly service charges of at least
$60 from each one. Apple is supposed to get a cut of the revenues. If
iPhones are unlocked, they can be used on the wireless networks of rivals
like T-Mobile USA‹and AT&T gets zippo. AT&T wouldn't comment for this story,
while Apple didn't return a request for comment.
Fuzzy Laws

So will Apple and AT&T's legal action deter hackers? Hardly. Individual
users are already allowed to unlock their own phones under an exemption to
the Digital Millennium Copyright Act (DMCA) that the U.S. Copyright Office
issued last November. The exemption, in force for three years, applies to
"computer programsŠthat enable wireless telephone handsets to connect to a
wireless telephone communication network, when circumvention is accomplished
for the sole purpose of lawfully connecting to a wireless telephone
communication network."

What's less clear is whether companies and hackers can legally unlock the
phones and then sell them to others, or sell unlocking software. "The law
here is unclear," says Jonathan Kramer, founder of Kramer Telecom Law Firm
in Los Angeles. "There just isn't any case law in this area for us to figure
out how it plays out."

Experts believe that AT&T and Apple will point to the DMCA's section 1201,
stating that "no person shall circumvent a technological measure that
effectively controls access to a work protected under this title." They will
claim that a phone lock is just such a technological measure that protects
copyrighted work: namely, cell-phone software.
Hackers Undeterred

Problem is, it could be argued that, in reality, the lock only protects
access to a carrier's communications network‹and communications services
aren't copyrightable under the Act, explains Jane Ginsburg, professor of
literary and artistic property law at Columbia Law School. "This law was
written for DVDs and video games," she explains. "What's going on here is
using the Copyright Act to achieve another objective."

Indeed, this time, hackers may have the law on their side. Remember, decades
ago, automakers built their instrument panels so that only authorized radios
of their own manufacture would fit in. Eventually, U.S. courts ended that
practice. "If Apple and AT&T push too hard, they might see a revision of
[the Copyright Act, and it won't be in their favor]," says Richard Doherty,
director of consultancy the Envisioneering Group.

That's why, for now, some hackers contacted by AT&T lawyers still plan to
release their wares. "Over the next few daysŠyou will get what you are
looking for," promises an Aug. 27 message posted on the Web site of
UniquePhones, which helps people unlock mobile phones.
Opening Up the Networks

Demand for unlocked iPhones, which sell for $499 and $599, is rising.
Already, the phone has become a cultural phenomenon, with enthusiastic fans
going to great lengths to get their hands on one. Consumers in rural areas
where AT&T doesn't have a network or in markets with spotty AT&T coverage
may want to use the popular device through T-Mobile's network. Overseas,
consumers want to try it in conjunction with Orange (FTE) and Vodafone (VOD)
wireless service. "If Apple offered unlocked iPhones for $1,200, they'd
probably sell some," Doherty says.

Frustration over locked iPhones is showing up in the courts as well. A
class-action lawsuit filed on Aug. 27 in the Supreme Court of the State of
New York tells of an iPhone buyer who racked up $2,000 in charges because he
couldn't use a different carrier's network while he was on a trip to Mexico.
Filed against Apple, the suit claims the plaintiff didn't know that iPhone
was tethered to the AT&T network.

Many hope that the legal wrangling will, eventually, result in major shifts
in how the U.S. wireless industry operates. For one, a case could pave the
way to making all wireless networks more open to unlocked phones. In the
next five years, 10% to 15% of U.S. wireless users could move to unlocked
phones, figures Andrei Jezierski, founder of venture consultancy i2 Partners
in New York (see BusinessWeek.com, 12/4/06, "Motorola, Nokia Set Cell Phones
Free").

Plus, to answer pent-up demand for untethered phones, a cell-phone carrier
could differentiate its offerings by selling all of its handsets unlocked,
says David Chamberlain, an analyst with consultancy In-Stat. "It's an
anomaly that the phones are tied to individual carriers," he says. "Can we
change that business as usual? Maybe. But people who want that will fight
for a very long time."

Kharif is a reporter for BusinessWeek.com in Portland, Ore.