Proof Elusive in Claims of Five-year Apple, AT&T Deal

Ever since Apple unveiled the iPhone in 2007, users have wondered how long the company and its U.S. partner AT&T would be locked in an exclusive relationship.

Despite reports this week claiming that conclusive evidence of a five-year pact is contained in court documents, they're still wondering. According to an expert who has reviewed documents from an ongoing class-action antitrust lawsuit against both companies, it's not clear how long Apple's iPhone is married to AT&T's network.

"At the end of the day, it remains an open issue," Hillard Sterling, an antitrust attorney at Chicago-based law firm Freeborn & Peters LLP, said in an interview yesterday. "I'd be lying if I said this was anything but unclear. But at some point, the contract will be revealed."

One thing is clear, said Sterling: Court documents in a nearly three-year-old lawsuit do not prove that Apple and AT&T have a deal until 2012.

That was the contention Monday by technology site Engadget, which said Apple's lawyers admitted in court documents that the company had a five-year contract with AT&T. Since that story ran, scores of sites and blogs have referenced the piece, running headlines such as "Apple, AT&T struck five-year deal in 2007; now, who knows?" (Macworld) and "Will an Apple five-year exclusive AT&T deal cripple the iPhone?" (Computerworld).

Engadget's claims received wide attention because iPhone owners, and potential owners, have been asking, almost since the smartphone's debut, when the device will be offered by carriers other than AT&T. Most analysts believe that Apple struck a three-year agreement with AT&T, not a five-year deal. A shorter contract would mean other carriers would get a shot at the iPhone sooner, not later. For example, speculation that Verizon will soon strike a deal with Apple has been intensifying in recent weeks.

The lawsuit, filed in October 2007, accuses Apple and AT&T of violating antitrust laws by agreeing to a multi-year deal that locks U.S. iPhone owners into using the mobile carrier. The case has not yet reached trial.

According to Engadget, documents in the case -- one a brief that Apple's lawyers wrote to support their demand that U.S. District Court Judge James Ware dismiss all charges, the second an order by Ware tossing out most, but granting some of Apple's requests -- supposedly confirmed that Apple and AT&T had a deal lasting through 2012.

USA Today story cited

"The duration of the exclusive Apple-AT&T agreement was not 'secret' either," Apple wrote in its June 27, 2008 brief. "The [plaintiff] quotes a May 21, 2007 USA Today article -- published over a month before the iPhone's release -- stating, "AT&T has exclusive U.S. distribution rights for five years-an eternity in the go-go cell phone world."

Ware mentioned the agreement in his order as well, seemingly saying as fact that it was a five-year deal. "The Agreement, which lasts until 2012, provides that iPhone purchasers who want voice and data services must sign a two-year service contract with AT&T," Ware wrote." Although the Agreement itself is not public, some of its provisions have been revealed in the press."

That's not proof, said Sterling.

"A judge must accept all allegations on their face," Sterling said, referring to claims made by the parties before the discovery phrase of a case, where lawyers for both sides begin demanding documentation and other evidence from each other. "And it's easy for lawyers to allege almost anything as long as there is some rational basis."

As Sterling pointed out, the May 2007 USA Today story cited by Apple was same one mentioned by the plaintiffs in an amended complaint they filed in June 2008.

In other words, both the plaintiffs and Apple cited the same media report -- each for their own reasons -- to back up their allegations of a five-year deal. Meanwhile, the judge was required to accept those claims at face value.

Risky move

"News reports are a sufficient basis [for an allegation], although they're a somewhat uncommon source of information for allegations," said Sterling. "It's especially risky for the plaintiffs to [cite news stories] in this case, when the length of the contract is the heart and soul of the case for the plaintiffs. It shapes the pillar of their antitrust claim."

The move was risky because it could make it easier for Apple to end the case by demanding, and receiving a summary judgment, a step it took when it filed for the latter in February 2010. That decision is still pending.

Nor did Apple or AT&T admit to any details of their contract in answers to the plaintiff's amended complaint of June 2008. In that modified complaint, the plaintiffs alleged that "Apple and AT&T entered into a five-year exclusive service provider agreement, which on information and belief expires in 2012," said the plaintiffs' lawyers.

The phrase "on information and belief" is important, said Sterling. "That rolls off lawyers' tongues like a waterfall," he said, "especially when the information is not within their control." It's the equivalent of "I have heard" or "I think," he agreed.

In separate filings, Apple and AT&T answered the amended complaint with nearly identical language.

"Apple admits that it entered into a contract with AT&T under which AT&T is the exclusive provider of wireless voice and data services for iPhones sold in the United States," Apple's answer of October 2008 read. "Apple further admits that, in general, AT&T would not provide voice and data services to iPhone purchasers in the United States without the entry of a two-year service contract. Apple denies the remaining allegations of this paragraph."

"That's what I would call a 'soft' denial," said Sterling. "It would have been strategically wise to instead deny that the plaintiffs' correctly captured the term of the exclusive deal."

And that's what bothers Sterling, and led him to believe that there may well be a five-year contract.

Reading tea leaves

"Reading the tea leaves [in the case documents], it looks to me like the contract is for five years," he said. "It would be in Apple's legal interest to deny a contract term that is so crucial to the plaintiffs' antitrust case."

By his line of thinking, the only reason Apple would not deny that there was a five-year deal was because there really was one.

Even though Apple is notoriously secretive? "[Not denying it] would be more in line with Apple's philosophy of secrecy," Sterling admitted.

Since the discovery phase of the case has concluded, it's likely that the contract was among the evidence the plaintiffs' lawyers requested and received. But it's probably under a protective order that keeps it from being made public, Sterling said. "I think it's going to be very tough for Apple [and AT&T] to conceal the contract terms," he said. "It's such a critical fact, so close to the core of this case, that it will very difficult for Apple [and AT&T] to keep it from being disclosed at trial."

Legal maneuvering

But maybe, just maybe, that won't happen. There's always the chance that the legal maneuvering by Apple and AT&T is simply a way to delay the case until the contract expires, in which case disclosing it won't be as big an issue. "Apple may be just trying to ride it out," said Sterling.

Apple does not comment on pending lawsuits. An AT&T spokesman declined to comment beyond a statement the company has issued previously when asked to comment on the exclusive iPhone deal: "We have a great relationship with Apple. We don't comment on the specifics of the relationship."

Yesterday, in fact, Ware issued a continuance to postpone a hearing on the class-action status of the lawsuit, and Apple's motion for summary judgment, until late this month. Apple requested the delay because it said its lead counsel was tied up with another case on the original date for the hearing.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at Twitter @gkeizer or subscribe to Gregg's RSS feed. His e-mail address is gkeizer@ix.netcom.com.

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