Thursday, June 05, 2008

TracFone wins another DMCA round

Tracfone Wireless, Inc. v. GSM Group, Inc., --- F. Supp. 2d --, 2008 WL 2215059 (S.D. Fla.) (magistrate)

Following the lead of an earlier case, the court held that buying plaintiff’s prepaid wireless phones, then reconfiguring them so they could be used on networks outside the US, violated the DMCA. Phones are sold below cost in order to sell the airtime cards, and defendants’ practices mean that phone buyers don’t need to buy the airtime cards. The procedure allegedly involves the “alteration, erasure or removal” of TracFone’s software.

Tracfone sued for breach of contract, trademark infringement, unfair competition, copyright infringement, circumvention, trafficking in circumvention technology, false advertising, and generic state torts.

Defendants argued that the Librarian’s §1201 rulemaking provided them with an exemption for circumvention that enables wireless handsets to connect to a wireless network, when circumvention has the “sole purpose” of lawfully connecting to a wireless network. The magistrate, following the earlier—uncontested—case, held that since defendants sold the handsets for profit, they didn’t have the “sole purpose” of connecting to a network. As I said before, I call shenanigans; the exemption only has meaning if it allows people to open the phones and resell them, because otherwise the exemption is useless. “Sole purpose” should refer to whether there’s any relationship to copyright infringement—see also the Lexmark and Chamberlain cases.

The court also refused to dismiss the state-law deceptive and unfair trade practices claims. The argument was that buying TracFone phones in bulk, removing the software, then reselling the phones as new was a deceptive trade practice. The court found that trademark infringement is an unfair and deceptive trade practice that triggers state law. (Let me get this straight: removing restrictions on the phones, so they’re more useful to consumers, is an unfair trade practice. Look, I’m all for consumer protection, but TracFone’s practices don’t protect consumers, they protect its business model. To the extent that defendants’ practices invalidate the warranty, that needs to be disclosed to avoid trademark infringement and consumer deception, but I’d sure like to know how many warranty claims defendants’ customers are likely to make. I think the motion to dismiss was properly denied, but unless there are some other facts present I wouldn’t think this would survive summary judgment.)


Anonymous said...

I don't blame Tracfone for suing. The Contract phone companies in the US have gotten the consumers so accustomed to getting "Free" phones with a 2 year contract it makes it hard to compete with a prepaid phone. I think Tracfone would have been better off to modify their business model.

It will be interesting to see how all this comes out. America Movil has a lot of money to spend on lawyers I guess. What a waste of assets.

Anonymous said...

...and Tracfone, along with the contract carriers you mention, are making it impossible for anyone to sell standalone handsets.

Tracfone is one of the CAUSES of this situation, not one of its victims.

For long-term users who actually care about airtime rates, Tracfone could sell handsets for legitimate prices and advertise their lower rates.

But even if there were no way for Tracfone to operate without below-cost handsets, the legal arguments against unlocking phones are absurd and abusive. Not one of the laws cited was intended to apply to this situation.