Engadget Primed: making sense of the US' new phone unlocking policy

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On October 25, 2012, the US Librarian of Congress ruled that the act of unlocking your phone was no longer allowed under copyright law. The ruling, which has been severely criticized by consumer advocacy groups and tech enthusiasts across the country, declares that it's a copyright violation if you unlock your phone without the permission of the carrier it's locked to.

Why would such an unthreatening action result in heavy fees and possible jail time? After the break, we'll discuss what the ruling means for the future of the mobile industry, how it will impact consumers and if we should worry that our dentist's uncle's third cousin (once removed) is in trouble because he has an unlocked phone.

What is unlocking?

In short, some mobile operators in the US (primarily GSM networks) choose to include restrictions on each phone they sell that prevents you from being able to put in a SIM card from a different network. For instance, if you put a T-Mobile SIM in a locked AT&T phone, you'll be greeted by a message telling you that your card isn't supported and you won't get any service. (You can dial 911, but that's all.) Unfortunately, this restriction also includes operators around the world, so international travelers would be subject to outrageous roaming fees for calls, texts and data.

Fortunately, you're not completely stuck; most operators have policies that allow you to receive a code to unlock your device under specific conditions. Typically you need to be a loyal customer in good standing for a certain period of time, and you need to have a valid reason for unlocking it, such as going out of the country or being in the military. Regardless of the flexible policy many of them have, carriers are still the gatekeepers, and it's up to them to decide whether or not you deserve the code to unlock your device.

The ruling

The Digital Millennium Copyright Act (DMCA), which was passed in 1998, states: "no person shall circumvent a technological measure that effectively controls access to a work protected under this title." However, because Congress recognized that things can quickly change over the passage of time, the governing body added a provision that allows the Library of Congress (of which the Copyright Office is a branch) to provide exemptions to the law once every three years. Once proposals are submitted, hearings are held in DC and a select West Coast city the summer before the ruling. These hearings are the chance for each side of the debate to present evidence that supports their respective arguments. In this case, the question was whether or not the ability to unlock phones falls under fair use.

After the hearings, the Register of Copyrights (the head of the Copyright Office, a position currently held by Maria Pallante) determines if these proposals should in fact become official, and submits those findings to the Librarian of Congress, who gets the final say. But the final decision isn't permanent; once the three years are over, each exemption expires and needs to go through the same exact process. The Register makes a decision as if the evidence is being presented for the very first time.

This is where the phone-locking issue comes in. In 2006 and 2010, the Register allowed an exemption which gave customers the ability to legally bypass the carrier to get their phones unlocked. In 2012, however, that same exemption was denied. If you purchased a locked handset after January 26th, 2013, the only way to legally remove that lock is if you get permission (and thus, a code) directly from your carrier. If the device was already unlocked when you bought it, you're safe.

In what way are phone locks tied in with copyright law? According to Tyler Ochoa, a professor of law at Santa Clara University and an expert in copyright law, "The work that's protected by copyright in this case is the software that operates the phone. It's protected by a technological measure, namely more software, that prevents you from getting access to the phone's software without the permission of the copyright owner, which is typically the entity selling you the phone."

Essentially, these restrictions are considered part of the firmware or software of the device, and thus are a copyrighted work that cannot be circumvented. Section 1201 of the DMCA states: "No person shall circumvent a technological measure that effectively controls access to a work protected under this title." It's a pretty broad section of law, which is likely why exemptions were granted to this particular issue, but phone locking can technically be applied to fit this rule. In terms of control, operators see subsidy locks as a way to control the investment they've made in individual customers, since they provide immediate discounts to the phone in exchange for a two-year commitment. An early termination fee (ETF) is assessed whenever customers breach their contracts, but the CTIA argues the subsidy is often larger than those fees. There's also the possibility that customers choose not to pay the ETF and take a hit on their credit reports.

But don't we own the phones that we purchased with our own money? Can't we do whatever we want with them? Ochoa argues that while we own our phones, we may not own the software that comes loaded on them -- which, of course, includes digital locks.

"That's a technological protection measure, and you're not allowed to hack around it without the authorization of the copyright owner," he said. "The copyright owner says you don't own your phone software, you license it. They say you're actually leasing software instead of purchasing."

While we own our phones, we may not own the software that comes loaded on them.

This argument is primarily based on the ruling for Vernor v. Autodesk, which holds that ''a software user is a licensee rather than an owner of a copy where the copyright owner (1) Specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.'' In this case, phone users fall under the category of licensee, thereby leaving us at the mercy of the copyright owners. (How jailbreaking falls under the DMCA exemption and phone locks do not is another discussion altogether, but apparently there's enough legal evidence to allow it.)

Interestingly, Ochoa argues that carriers are not the actual copyright owners of the software that comes on locked devices -- the manufacturers are. But what do they get out of the deal?

"The manufacturers probably don't care much one way or the other, except that carriers are their biggest customers," he said. "If the carriers don't want you to unlock it, then manufacturers will go along with that and say, 'We don't want you to unlock it either.' If you buy your phone direct from the manufacturer, they'll probably be willing to let you unlock it."

Arguments

Why would the Register make such a decision? If the exemption was granted twice in a row, what's lawfully different this time around? To answer that, we'll first discuss the arguments made at the hearings (found here and here) -- both for and against the exemption -- and then explore the logic behind the decision.

Pros: Four major companies fought for the exemption to be extended: Consumers Union, Youghiogheny Communications, MetroPCS and the Competitive Carriers Association. You may have heard of MetroPCS, a large prepaid carrier, but what about the other guys? Consumers Union is a nonprofit that publishes Consumer Reports magazine; the Competitive Carriers Association used to be known as the Rural Carriers Association and consists of more than 100 carrier members across the country; and Youghiogheny is a communications company based in Texas.

Below are the proponents' official arguments, as stated by the Federal Register:

• "Owners of mobile phones are also the owners of the copies of the computer programs on those phones and that, as owners, they are entitled to exercise their rights under Section 117, which gives the owner of a copy of a computer program the privilege to make or authorize the making of another copy or adaptation of that computer program under certain circumstances, such as to permit the program to be used on a particular machine."
• "Ending the exemption will lead to higher device prices for consumers, increased electronic waste, higher costs associated with switching service providers and widespread mobile customer 'lock-in.'''
• "Some devices sold by carriers are permanently locked and because unlocking policies contain restrictions and may not apply to all of a carrier's devices. Software locks are impediments to a competitive marketplace. Absent the exemption, consumers would be forced to continue to do business with the carrier that sold the device to the consumer in the first instance, or to discard the device."
• "If enough customers have the ability and propensity to switch service providers in response to a change in price or non-price factors, then mobile wireless service providers will have an incentive to compete vigorously to gain customers and retain their current customers."

The proponents also reviewed some of the findings of the 2006 and 2010 cases. In those exemptions, they argued, the Register declared the practice of software locking a handset was limited to support a business model, rather than to protect access to a copyrighted work, and was "a business decision that had little to do with the interests protected under copyright law."

Cons: And in this corner was the CTIA, a trade association that represents all four national carriers, several regional networks and most major handset manufacturers. Because it's such an important issue to a few of its member companies -- Tracfone, AT&T and T-Mobile appear to be the most interested in the group -- it makes perfect sense why the CTIA would get involved.

Here are some of the points they made for declining an exemption (again, as mentioned in the official docs):

• "An exemption for unlocking is not necessary because 'the largest nationwide carriers have liberal, publicly available unlocking policies,' and because unlocked phones are 'freely available from third party providers -- many at low prices.'"
• "The industry has been plagued by 'large-scale phone trafficking operations' that buy large quantities of pre-paid phones, unlock them and resell them in foreign markets where carriers do not subsidize handsets."
• "Owners of wireless devices do not necessarily own the software on those devices."
• "The practice of locking cellphones is an essential part of the wireless industry's predominant business model."

Final verdict: After weighing the evidence that was presented before the Register, she came to the following conclusions:

• "There are ample alternatives to circumvention. That is, the marketplace has evolved such that there is now a wide array of unlocked phone options available to consumers. While it is true that not every wireless device is available unlocked, and wireless carriers' unlocking policies are not free from all restrictions, the record clearly demonstrates that there is a wide range of alternatives from which consumers may choose in order to obtain an unlocked wireless phone."
• Concerning legacy devices: "The record demonstrated that there is significant consumer interest in and demand for using legacy phones on carriers other than the one that originally sold the phone to the consumer. It also supported a finding that owners of legacy phones -- especially phones that have not been used on any wireless network for some period of time -- may have difficulty obtaining unlocking codes from wireless carriers, in part because an older or expired contract might not require the carrier to cooperate."
• "The Register concluded after a review of the statutory factors that an exemption to the prohibition on circumvention of mobile phone computer programs to permit users to unlock 'legacy' phones is both warranted and unlikely to harm the market for such programs. At the same time, in light of carriers' current unlocking policies and the ready availability of new unlocked phones in the marketplace, the record did not support an exemption for newly purchased phones. Looking to precedents in copyright law, the Register recommended that the class designated by the Librarian include a 90-day transitional period to allow unlocking by those who may acquire phones shortly after the new exemption goes into effect."

In other words, the ability to circumvent carrier-locked handsets was removed because consumers have a choice to pursue alternative options, and carriers have an unlock policy that's somewhat flexible. An exemption on legacy handsets, on the other hand, was supported because of "significant consumer interest and large demand" and because people "may have difficulty obtaining unlocking codes from wireless carriers, in part because an older or expired contract might not require the carrier to cooperate."

The exemption was removed because consumers have too many alternative options available.

The last statement is a little confusing; the ruling seems to indicate that "legacy phones" are only devices that were purchased prior to January 26th, yet the wording supports the argument that any device that's served its two-year commitment should be exempt from the DMCA. Two years from today, will customers have the same right to unlock their phone that current legacy customers do?

How will this affect consumers?

Regardless of how anyone feels about the Librarian's decision, it's still set in stone for at least another three years. During this time, how will we -- the loyal consumers -- be impacted by this decision? When it comes to regular day-to-day life, it probably won't make a huge difference to most people. Carrier unlocking policies appear to be exactly the same, so international travelers who are in good standing should still be able to receive unlock codes without too much pain involved. You also have the option, as the Register concluded, to head to retailers that sell phones that are already unlocked. (Unfortunately, in AT&T's case, you may have to do more hunting around if you're looking for devices that are compatible with its LTE network.)

Nothing is stopping mobile operators from declining your unlock request. The ball is in their court.

With the additional restrictions in place, however, it's hard to say without a doubt that carriers will continue to be flexible with their unlock policies, since there's nothing stopping them from becoming more strict. If this occurs, consumers who are denied an unlock code from their carrier of choice will only have two options: either buy an unlocked phone or swallow an expensive ETF and change carriers, though the latter option will still involve purchasing a new device anyway. (Both AT&T and T-Mobile representatives insist that the policy hasn't changed, but it's difficult to know if this will be the case in the long-term future.)

Additionally, consumers are impacted once they decide to sell their locked device after the contract terms expire. Many proponents argue that it's much harder to sell locked devices because of the severe limitations placed upon them, and if they are sold, the cost will be much lower. Of course, if you're at the point where you're ready to sell your device, it's most likely because you're out of contract with your preferred network; the good news is, once your contract is over (or if you paid full retail price and opted out of a contract), your carrier should be much more amenable to providing an unlock code with no questions asked. The reality of the matter, however, is that the ball is still in its court. You'll have to approach your carrier, and there's nothing stopping it from declining your request.

Despite the hit that this restriction takes to our perception of freedom and phone ownership, there's one piece of silver lining for the consumer: it's an opportunity for consumers to be educated on the benefits of buying an unlocked device, and to realize there really are more choices available in the US than phones that are sitting on the shelves of carrier retail stores.

How will this affect businesses?

It all depends on which side of business you fall on. Companies that rely solely on providing unlock codes to customers are likely going to have a difficult time surviving -- without the carriers noticing, at least. On the flipside, however, businesses that focus primarily on selling phones that have never been locked or touched by the carriers are not as likely to be adversely affected.

In fact, the opposite may very well happen. Ryan Negri, founder and CEO of Negri Electronics, explained to us that sales have actually gone up since the ruling took effect.

"We're doing very well on the OEM devices that are never carrier-locked ... Even though [unlocked phones] cost more at retail, we're able to sell it to them as is, with US charger, without bloatware; and even though it's more expensive, people are still saving money on it because they're taking it to prepaid," Negri said.

According to Negri, there's more to the big picture than increased sales. He's hopeful that this ruling will weed out many of the unethical practices that have been taking place in recent years.

"A lot of companies have runners, or people that buy devices from different stores or from people on Craigslist, verify the merchandise and then sell it to [that company]," Negri said. "Some of them aren't ethical. They'll go into AT&T, say they have a business account, buy 10 lines and then sell those $199 phones for $450. They don't tell people they got the phones this way. By disallowing these runners to just walk into a store and buy phones [this way], it cleans up the industry. You'll only have ethical people involved. It's a huge issue in our industry -- ethics, period. It's so hard to find honest and trustworthy people to buy and sell to. I believe that having this law will minimize the amount of people getting involved, and will clean it up. It's going to be a good change for the industry, but it'll hurt manufacturers and carriers."

"It's going to be a good change for the industry, but it'll hurt manufacturers and carriers."

That doesn't mean the ruling makes everything perfect for third-party phone retailers. Negri commented that this decision may cause more people to question companies that sell unlocked phones; while many existing businesses have established a relationship of trust with a large clientele, some industry newcomers will be viewed as shady without being given the opportunity to establish themselves.

How will this affect mobile operators?

While Negri believes a cleaner industry will hurt manufacturers and carriers, most of those companies likely have a much brighter outlook on what will happen in the next three years. In fact, as we mentioned earlier, phone trafficking was one of the central arguments in the CTIA's case against an exemption.

According to Michael Altschul, SVP and legal counsel for the CTIA, prepaid companies like Tracfone were the hardest hit by traffickers.

"There were organized groups purchasing Tracfone devices and then unlocking them and reselling them in Mexico and other countries that use the same frequencies," Altschul said. "It was an arbitrage scheme. You'd buy it in the US and there wasn't a contract, but there was a software lock to keep the device locked to the Tracfone prepaid service. The phones would get unlocked and sold outside the US, closer to the retail price than they were being sold at in the US. Tracfone was very concerned that this kind of widespread practice was a real threat to their ability to provide discounted handsets and grow their business."

Tracfone has fought a seven-year battle against phone traffickers, and copyright protection is one more tool it can add to the toolbox.

This is all part of a battle that Tracfone has fought since 2006, filing lawsuits against hundreds of accused phone traffickers in the last seven years. Up until this year, however, the company's only weapon was in the area of trademark law. Now that phone unlocking is no longer exempt from copyright law, Tracfone has another tool to fight with.

Does this really hurt business models? Were carriers losing money under this exemption? While it's quite likely that Tracfone was indeed experiencing some sort of setback due to trafficking, it's hard not to wonder exactly what kind of effect the exemption had on postpaid networks like AT&T and T-Mobile, if any. AT&T's business model has changed only slightly over the last few years, and the concept of contracts and phone subsidies has remained unaffected. A quick look at the company's quarterly results indicates that if any money has been lost because of the exemption, it likely isn't much, and shareholders don't seem to be very upset about it.

T-Mobile, on the other hand, has recently focused its efforts on rebranding to an "uncarrier" that warmly welcomes unlocked handsets -- even iPhones -- onto its network, and offers lower monthly prices for consumers that choose to go this route. If anything, an exemption would appear to encourage this business model, not hinder it.

Of course, not every mobile operator has the same attitude toward the ruling. Nearly all of the proponents supporting an exemption were carriers, which means there's a large difference in opinion between smaller regional networks and big guns like AT&T and Tracfone.

Are we going to be sued?

(Image credit: Amazon)

Under the DMCA, penalties for unlocking devices can be ridiculous -- the Electronic Frontier Foundation (EFF), an advocacy group focused on defending digital rights for the consumer, says that it's "up to $2,500 per unlocked phone in a civil suit and $500,000 or five years in prison in a criminal case where the unlocking is done for 'commercial advantage.'" Does this mean you need to hide in the basement and wrap your illegally unlocked phone in tinfoil? For Joe Plumber, probably not.

"I'm not aware that carriers have any appetite for going after individuals," Altschul told us.

Businesses, on the other hand, may feel a little more pressure from carriers to stop their copyright-infringing practices, but only if their activities appear carriers' radars. According to Ochoa, "What's likely to happen is that if the phone carriers find evidence that someone is offering software that unlocks the phone on the internet, they'll send a notice to try to get that software removed. If it looks like a software provider is a repeat player or is making a lot of money, the phone carriers will likely try to sue him."

What can we do about it?

If you're strictly opposed to the ruling, then you're in for a bout of depression. As we mentioned earlier, the next decision on exemptions will come in the fall of 2015; proposals and comments will be accepted by the Copyright Office in the fall of 2014. If you want to see a change, the best course of action is to make sure there's enough interest in the issue and motivate enough groups and individuals with influence to get involved in the process.

As of this writing, there is one possible way to get someone's attention in Washington: a petition to the White House. Immediately after the ruling went into effect, Sina Khanifar, co-founder at OpenSignal.com, drafted a petition stating "we ask that the White House ask the Librarian of Congress to rescind this decision, and failing that, champion a bill that makes unlocking permanently legal." If it reaches the 100,000-signature threshold, it will require a response from the White House, but there is absolutely no guarantee that anything can or will be done to reverse the decision. (Don't forget, the petition for the US government to build a Death Star got enough signatures, but the White House wasn't favorable to the idea.)

Ochoa explained that even with a petition in place, the three-year statute is a legislatively mandated process.

"If you want to try getting Congress to pass a law, great, but Congress can't even agree on much of anything these days," he said. "Frankly, cellphone carriers have more lobbying power than you do. Unless you have a lot of congressional staffers that want to unlock their phones, that's not likely to happen."

Even if Congress decides to take action, a potential bill could either be quickly shot down or delayed for an indeterminate amount of time. At least the petition, which has until February 23rd to collect signatures, could serve as a voice of the people when the next exemptions come around in 2015.

In another unlikely scenario, the EFF claims that "if lawsuits happen, the courts should recognize that the DMCA is being misused, and refuse to apply it to anti-competitive software locks." But it's not quite such a cut-and-dry notion. For a more specific answer, we turn once again to Professor Ochoa to explain:

If someone was sued for unlocking a phone, they would not have an exemption from the DMCA. But that doesn't mean they've necessarily violated the DMCA; it just means they're not exempt from the DMCA. A court would have to decide whether the DMCA was in fact violated. Jurisdiction over copyright matters is exclusively federal, so any federal court would have jurisdiction to interpret the DMCA and decide whether the DMCA was, in fact, violated. The copyright owner who claims the DMCA was violated would choose which of the federal district courts in which to file suit... the decision of that federal district court would then be subject to appeal in the US Court of Appeals for the circuit in which the district court is located.

Courts can interpret the DMCA on a case-by-case basis, but this doesn't actually overrule decisions made by the Librarian of Congress. The only entity that has that power is the US Court of Appeals in Washington. And even then, the decision to adopt (or not adopt) exemptions comes only if that decision was "arbitrary and capricious" -- in other words, if the court had reason to believe such a decision was made without evidence to support it.

The lack of legal options may be a disappointment, but you still have other choices to consider. For instance, if you're a Verizon customer, several phones are capable of global roaming and come SIM-unlocked, which means you can stick any GSM SIM into the handset. And as we mentioned earlier, T-Mobile offers a lenient policy, often encouraging customers to bring their own unlocked phones (including the iPhone) onto its network and pay a lower monthly bill.

The best way to combat the ruling is to speak with your wallet and show your carrier that you're not willing to purchase a restricted phone.

Finally, you can speak with your wallet; show the operator that you're not willing to purchase a restricted phone, and instead simply purchase an unlocked handset through an independent retailer. There are also plenty of prepaid and MVNO options (such as Straight Talk) that are readily available and oftentimes for a lower price than what you'd find on direct carriers.

Wrap-up: Is this really a big deal?

Doom, gloom and gnashing of teeth aside, most people probably won't even realize there's been any change at all. You can still purchase unlocked phones through an independent retailer and there's always the option of going through your carrier to get an unlock code (hence the Register's decision), but let's face it: the ruling is more of a primer on the sad state of the mobile industry in the United States. While our neighbors to the north are working on legislation that would prevent mobile operators from locking their devices, we're seemingly heading the opposite direction. Instead of asking our nation's largest carriers to become more open and transparent to consumers, we're encouraging them to be more closed and restrictive.

It's slightly ironic that shackles have been added to our carrier-locked phones because of the progress our industry has made in offering unlocked devices en masse. Sure, the ruling comes with a few benefits, but at what cost? It's difficult to understand how a lift on this exemption will enable healthy competition among carriers, let alone what kind of impact it has on their business models, but we'll just have to wait it out to see. After all, our mobile landscape may look drastically different in three years -- and we can only hope it's for the better.

Filed under: Cellphones, Wireless, Mobile

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Source: http://www.engadget.com/2013/02/20/engadget-primed-phone-unlock/

x factor john kerry eastbay Samantha Steele Dec 21 2012 doomsday Is The World Going To End