What’s really happening with unlocked devices

Perhaps you’ve seen the stories reporting on the Library of Congress’ October 2012 decisionPDF to provide copyright protection to the computer programs used to “lock” subsidized wireless phones to a carrier’s network. The law that governs this decision is Section 1201 of the Digital Millennium Copyright ActPDF (DMCA), which Congress passed in 1998. Section 1201 of the DMCA makes it illegal to bypass a device’s Digital Rights Management (DRM) software:

“No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”

However, the DMCA also includes a provision that allows the Librarian of Congress to grant certain exemptions.

While this section of the DMCA, and the Library of Congress’ process for reviewing requests for exemptions, may be difficult to follow, the business practice behind the decision to protect the software used to “lock” a wireless phone to a carrier’s network is really no different than in selling a car.

If the car is fully paid for, the owner simply transfers the car’s title to the purchaser as soon as payment is received; however, if there is an outstanding loan on the car, the finance company has to be paid before the owner can transfer the title to the purchaser. In other words, until the loan is paid, the finance company has a “lock” on the transfer of the car to a new owner.

That’s all that is happening here: consumers who pay the full price for a phone can take that phone to the carrier (or carriers) of their choice. However, if a carrier subsidized the price of the phone in exchange for the consumer’s agreement to use the phone on that carrier’s network, the consumer can only transfer the phone to a new carrier once the terms of the contract (or the carrier’s unlocking policy) have been satisfied. 

Ignored in numerous media stories is the fact that this LoC decision makes our streets just a little bit safer by making it harder for large scale phone trafficking operations to operate in the open and buy large quantities of phones, unlock them and resell them in foreign markets where carriers do not offer subsidized handsets. Making it illegal to unlock devices without carrier consent adds another barrier to these fencing operations and may help dry up the demand for stolen phones.

While The New York Times and others got the story right, we have seen some reports that confuse “unlocking” with “jailbreaking,” which are two very different things. Jailbreaking is when a user removes the software controls that restrict access to “apps” and “app stores” other than those supported by the device’s operating system. Although the Library of Congress exempted “jailbreaking” from copyright protection, that doesn’t mean it is a good idea. By manipulating the hardware and/or software coded onto the device, jailbreaking voids the phone’s warranty as well as any insurance and liability protections. It also increases the device’s vulnerability to cyberthreats such as malware, spyware and viruses. Most consumers recognize the benefits of having these kinds of protections since wireless carriers and handset makers have been proactive in protecting their customers’ privacy by blocking spam, filtering for viruses and testing software sold through their portals.

According to the Librarian of Congress, who agreed with CTIA, the exemption for unlocking was 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.’’

Consumers who do not want a contract plan with a carrier, but want an unlocked phone, may buy unlocked devices directly from the manufacturer, retail stores and wireless carriers—and they can take their device to whatever network they want. However, many consumers prefer paying a discounted price for their device in exchange for agreeing to a service plan with the carrier that has subsidized their phone.  Consumers who sign a contract with a carrier and receive a subsidized wireless phone may “unlock” their devices once they have satisfied the terms of the contract or as long as their carrier agrees.

As I explained in The NYT story, “If a customer bought an iPhone on contract for a carrier-discounted price of $200, for example, he could use third-party software to unlock the device and sell it at a higher price.” With the latest smartphones, the difference can be substantial.  The same iPhone that costs $199 with a carrier subsidy sells for $649 in the unlocked version.

The penalties for unlocking a subsidized wireless phone without carrier consent can be severe. Civil penaltiesPDF are based on the carrier’s actual damages and any additional profits of the violator, or a court can award statutory damages of not less than $200 or more than $2,500 per individual act. Criminal penaltiesPDF are even more severe: any person convicted of violating section 1201 willfully and for purposes of commercial advantage or private financial gain (1) shall be fined not more than $500,000 or imprisoned for not more than 5 years, or both, for the first offense; and (2) shall be fined not more than $1,000,000 or imprisoned for not more than 10 years, or both, for any subsequent offense.

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