Los Angeles Business Litigation Blog : Los Angeles Business Litigation Lawyer & Attorney : Daniel Reisman Law Firm : California Civil Litigation & Contracts

As I write this post, about 965,000,000 iPhone applications have been downloaded from Apple's App Store. Apple is celebrating by giving away a variety of free Apple products to the lucky billionth downloader. Nevertheless, Apple wants the right to sue iPhone owners who jailbreak their phones.

However, as law professor Mark Roark points out in a column published in the Daily Journal (subscription required) yesterday, [t]here is just one problem. The law does not necessarily afford Apple a remedy. See Mark L. Roark, Will iPhone Network Hacking Shake Apple to Its Core?, L.A. Daily J., Apr. 15, 2009, at 5.

Presently, according to Roark, Apple cannot sue under the Digital Millennium Copyright Act ("DMCA") (that may change in October). However, Roark suggests that Article 2 of the Uniform Commercial Code ("UCC"), may allow Apple to maintain control of endusers' behavior through the terms of the iPhone's warranty. In short, Apple's warranty for the iPhone could include enforceable terms stating that if a user alters the hardware or software, the user loses the warranty. See Id.

Finally, Roark discusses some empirical research he conducted with 150 individuals. The results essentially suggest that the threat of losing the warranty is enough to deter a decent percentage of consumers from altering their iPhones, depending on how valuable the consumer perceives the warranty to be. See Id.

In essence, Apple, or any other device-maker, can lawfully maintain a certain level of control over their products, without resorting to threats of litigation because it can still reduce the value of the device post-purchase. But, for Apple it doesn't seem to be enough.

• Apple's warranty for the iPhone most likely already prohibits jailbreaking.

The Genius Bar at your local Apple Store probably won't provide service for an iPhone that is obviously jailbroken because the warranty is already rather restrictive.

The relevant terms of the iPhone 3g's warranty already includes the following language:

This warranty does not apply...to damage caused by operating the product outside the permitted or intended uses described by Apple; [or]...to a product or part that has been modified to alter functionality or capability without the written permission of Apple. See Apple's Limited Warranty for the iPhone 3g (warning: pdf).

Apple also has similar provisions in its warranties for its other products although they generally aren't quite as strict with regard to software.

• Jailbreaking an iPhone is not the same thing as unlocking it.

One thing that Roark overlooks in his column is that there is a distinction between jailbreaking and unlocking an iPhone. The process of jailbreaking entails altering the iPhone so as to allow it to run applications other than those from Apple's official App Store. Unlocking, on the other hand, refers to enabling the iPhone to be used on other cellular networks. Presumably, unlocked phones threaten the profits of both Apple and AT&T whereas jailbroken phones really only threaten Apple's monopoly over the software distribution channel.

• Apple contends that merely jailbreaking an iPhone should be illegal under the DMCA.

In February, the Electronic Frontier Foundation ("EFF") submitted exemption requests to the U.S. Copyright Office as part of the 2009 DMCA Triennial Rulemaking. One of them pertains specifically to jailbreaking.

• Proposed Class #1: Computer programs that enable wireless telephone handsets to execute lawfully obtained software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications with computer programs on the telephone handset. (The entire text is available here as a PDF).

In its opposition, Apple argues that the EFF is trying to use the DMCA exemption to change Apple's business model.

Specifically, [the EFF] seeks through the proposed exemption to clear the path for those who would hack the iPhone's operating system so that a proprietary mobile computing platform protected by copyright can be transformed into one on which any third party application can be run, without taking account of the undesirable consequences that would ensue from the transformation. (The entire text of Apple's Comment is available here).

The Copyright Office will issue its final rulemaking order in October.

• So, should Apple have the right to sue individuals who run unapproved third-party software on their iPhones?

I'm still somewhat undecided. In any case, I don't think it would be particularly worthwhile for Apple to start suing its customers. I doubt that the threat of litigation will prove an effective deterrent to iPhone hackers. Moreover, both the EFF and Apple agree that there are only a few hundred thousand jailbroken iPhones even though millions have been sold.

At best, Apple may get a few popular websites to shutdown. At worst, Apple will find itself in a position similar to that of the RIAA.

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On the transactional side, the Obama Administration seems to believe that quite a bit can be accomplished in as little as thirty days. The administration released a report yesterday about the crisis in the auto industry, which states, among other things, that Chrysler has until April 30 to finalize an agreement with Fiat as well as reduce health care and other debt in order for the company to receive more aid according to The New York Times. In other words, the struggling automaker has about thirty days to put a massive agreement together that a variety of interested parties find satisfactory.

Normally, joint ventures, however categorized, take at least a few months to materialize, and joint ventures of international scale can take years. However, I think the Obama Administration has at least one good reason to impose such a harsh deadline on the agreement--if Chrysler does finalize an agreement with Fiat by April 30, it will show that, at least when necessary, both government and private business (or whatever amalgamation we have now) can act fast, and perhaps even efficiently.

Of course, in this case, there are unusual and extraordinary circumstances involved given the government-imposed ultimatum that Chrysler faces. The question is whether such circumstances are necessary in order for large business transactions to move at a fast pace.

Similarly, on the litigation side of the fence, disputes that have reached litigation may still be resolved in a relatively short timeframe, depending on the willingness of the parties to settle.

For example, Ars Technica reports that Microsoft and TomTom have settled their patent dispute. I discussed Microsoft's suit against TomTom in a previous post. In short, Microsoft sued TomTom alleging patent infringement. In the time since that post, TomTom filed a counter-claim for patent infringement against Microsoft.

As far as I know, the exact details of the settlement have not been released, but, according to Ars Technica, TomTom essentially agreed to pay Microsoft for its patents and remove support for the FAT filesystem from its products over the next two years.

While the few details released seem to imply that the agreement is a little one-sided, Microsoft and TomTom still managed to resolve their patent dispute in about a month. Thus, despite the size of the businesses and the scope of the claims involved, it was apparently possible to reach an agreement rather quickly.

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Microsoft filed a complaint against TomTom yesterday alleging eight counts of patent infringement. TomTom makes in-car navigation devices. The software powering the devices is built upon Linux.

Given that this is the first instance of Microsoft directly asserting that an implementation of the Linux kernel infringes upon Microsoft's intellectual property, the geeks with the long beards, err, open-source software advocates, are concerned. If successful, Microsoft may create a very slippery slope for Linux as well as the myriad of devices it powers.

According to Ars Technica, "[t]he lawsuit, which was reported [yesterday] at Todd Bishop's Microsoft blog, is thought to be the first time that Microsoft has directly targeted Linux with patent litigation." And, in an interview with Todd Bishop, posted today, Horacio Gutierrez, Microsoft's corporate vice president and deputy general counsel for intellectual property, confirmed it.

Gutierrez states that "three of the eight patents in this dispute read on the Linux kernel as implemented by TomTom. The other five relate to car navigation proprietary software used by TomTom." When questioned as to what he meant by "reads on the linux kernel," Gutierrez responded that "the patents cover the implementation of the Linux kernel done by TomTom in their products." Id.

"Reads on" is actually a legal term of art. In very general terms, determination of patent infringement has two steps. First, the patent claim at issue must be construed to determine its scope and meaning. Second, one determines if the accused device or process infringes the properly construed claim. Interpreting the meaning and scope of a claim is generally a matter of law. The question of infringement, specifically literal infringement is generally a question of fact, and requires the factfinder to decide whether the patent claim, as construed, reads on the accused object or process.

As Ars Technica explains, at least two of the patents at issue involve the FAT32 filesystem. FAT is an acronym that stands for File Allocation Table. The FAT filesystem was first developed around thirty years ago for use with MS-DOS and later Microsoft Windows. Although FAT has largely been discarded in favor of the NTFS filesystem, removable devices such as Windows-formatted iPods are still formatted using FAT32. FAT32 is also one of the only, if not the only filesystem with native read/write support in most of the major computing platforms, including Microsoft Windows, Linux, and Mac OS X.

Last year, Microsoft asserted that Linux infringes on over 200 of its patents. From what I can tell, most businesses that rely on Linux either entered into licensing agreements with Microsoft to protect themselves from potential liability (such as TomTom's competitor Garmin), or just entirely dismissed the assertion, assuming it was just FUD aimed at decreasing Linux's share of the server market.

So, what's the point of this litigation? Why attack Linux? Does it actually pose a threat to Microsoft's dominance in most things computer related?

Microsoft should be able to protect its intellectual property; however, FAT32 is essentially outdated technology, so why waste the money suing over it?

According to a blog post on CNET, Microsoft is adding broader support for FAT32 formatted hard drives to Windows 7. Could the push for better backwards compatibility with FAT32 in Windows 7 have anything to do with the case against TomTom? I suppose it's possible (though somewhat unlikely). And, even if it is the driving motivation, it still doesn't necessarily mean that Microsoft has finally decided to wipe Linux from the face of the planet—it may just mean that Microsoft wants to get paid for what it owns. In fact, Gutierrez was fairly adamant in his assertion that the suit against TomTom is not an attack on open-source software, but rather the result of TomTom's absolute unwillingness to come to an agreement regarding licensing of Microsoft's intellectual property—including the five patent claims relating to purely proprietary technology. See Tom Bishop's Blog.

(You can find the complaint here (warning: pdf)).

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