The Cell Phone Unlocking Saga

On March 4, 2013, the White House announced that it disagreed with the decision of the Librarian of Congress not to allow consumers to unlock their cell phones to access other mobile networks. The White House took this position in response to a “We The People” petition that gained over 114,000 signatures. With legislation to address this issue pending in Congress, the five largest mobile carriers on December 12, 2013, adopted a voluntary commitment to allow cell phone unlocking after the expiration of a service contract. While this voluntary commitment provides some benefit to consumers, a comprehensive legislative solution may be precluded by the free trade agreements to which the United States is a party. This paper examines the legal background of this matter.[1]

INTRODUCTION

The Digital Millennium Copyright Act (DMCA) prohibits the circumvention of technological protection measures, and thus blocks the disabling of software that locks cell phone customers into a particular mobile network. The DMCA contains a handful of permanent exceptions. Additionally, it authorizes the Librarian of Congress to issue temporary exemptions during a rulemaking process that occurs every three years. In the 2006 rulemaking cycle, the Librarian of Congress granted an exemption for cell phone unlocking. This exemption was renewed in 2010. However, in the 2012 rulemaking, the Librarian of Congress decided to phase out the exemption. This triggered a petition to the White House, which gained over 114,000 signatures. In response to the petition, the White House stated that it supported legislation that would restore the exemption. This, in turn, precipitated action in Congress and the Federal Communications Commission that ultimately led to the voluntary commitment announced by the mobile carriers on December 12, 2013.

THE DMCA

Congress enacted the DMCA in 1998. Section 1201(a)(1) of the DMCA, 17 U.S.C. § 1201(a)(1), prohibits gaining unauthorized access to a copyrighted work by circumventing a technological protection measure (e.g., encryption) put in place by the copyright owner to control access to the work. To facilitate enforcement of the copyright owner’s ability to control access to his copyrighted work, section 1201(a)(2) prohibits manufacturing or making available technologies, products, and services that can be used to defeat technological measures controlling access. Similarly, section 1201(b) prohibits the manufacture and distribution of the means of circumventing technological measures protecting the rights of a copyright owner (e.g., measures that prevent reproduction). Violation of section 1201 leads to civil and criminal liability. A repeat offender can be imprisoned for 10 years and fined $1 million.

Section 1201 includes several specific exceptions from the prohibition on circumvention and circumvention devices for purposes such as achieving interoperability between computers programs, security testing, encryption research, and law enforcement. Congress understood that, aside from the exceptions mentioned above, there may be other legitimate reasons for circumventing technological protections. Accordingly, Congress suspended application of the prohibition on circumvention of access controls for two years, until the Librarian of Congress could conduct a rulemaking proceeding to determine whether additional exceptions were needed. The DMCA further requires the Librarian of Congress to conduct a similar rulemaking every three years thereafter. The Librarian’s principal question is whether the prohibition on circumvention will adversely affect the ability of users of copyrighted works to make non-infringing use of them. Under the process set forth in the statute, the Register of Copyrights (the head of the Copyright Office, which is part of the Library of Congress) makes a recommendation on exemptions to the Librarian after consulting with the National Telecommunications and Information Administration (NTIA) within the Department of Commerce. The Librarian is not required to follow the recommendations of either the Register or the NTIA.

THE CELL PHONE UNLOCKING EXEMPTION

A cell phone contains a computer program, in a firmware format, that enables the cell phone to connect to the network of a mobile communications provider. The program in the cell phone can be reprogrammed to enable a user to connect to another provider’s network. To prevent this reprogramming, and thereby lock a user into a particular network, the provider typically employs a technological measure that prevents access to the program.

TracFone, a cell phone provider, adopted a business model of making cell phones available below cost while generating profit by selling prepaid airtime cards. Several competitors purchased the inexpensive TracFone cell phones in bulk, circumvented the technological protection measure on the cell phones’ programs, reprogrammed the cell phones so that they could connect to another network, and sold the reprogrammed cell phones to consumers. TracFone sued the competitors for violating the DMCA, and the competitors applied for an exemption in the 2006 rulemaking cycle.

In her recommendation to the Librarian of Congress to grant an exemption, the Register of Copyrights found that a user who unlocks a cell phone to connect to another network is not “engaging in copyright infringement or in an activity that in any way implicates copyright infringement or the interests of the copyright holder.” Once the program was unlocked, it was reprogrammed, not copied. The reprogramming of a particular piece of firmware could be seen as making an adaptation of a copyrighted work, but 17 U.S.C. § 117(a)(1) specifically permits the owner of a copy of a program to adapt that copy “as an essential step in the utilization of the computer program in conjunction with a machine.” Accordingly, the Librarian of Congress in 2006 approved the following exemption: “Computer programs in the form of firmware that enable wireless telephone handsets to connect to a wireless telephone communication network, when circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network.”

Notwithstanding the exemption, TracFone continued to sue its competitors for violating section 1201(a) of the DMCA. Two federal district courts in Florida ruled that the exemption did not apply. The exemption permits circumvention when it is “accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network.” However, according to the courts in TracFone v. GSM Group, 555 F.Supp. 2d 1331 (S.D. Fla. 2008), and TracFone v. Dixon, 475 F.Supp.2d 1236 (M.D. Fla. 2007), the competitors circumvented for the purpose of reselling cell phones for a profit, not for the purpose of connecting to a communications network. In other words, the exemption was available only to the user who would actually connect to the communications network, and not to the firm with the expertise to reprogram the cell phone for the user. This limitation of the exemption to end-users significantly limited its effectiveness.

In the rulemaking cycle beginning in December of 2008, TracFone’s competitors requested a modification of the exemption to clarify its application to the providers of reprogrammed cell phones in addition to end users. In 2010, however, the Librarian actually narrowed the exemption to used cell phones.[2]

The Librarian revisited cell phone unlocking in the next rule-making cycle. On October 26, 2012, the Librarian renewed the exemption allowing the unlocking of cell phones in order to operate on other networks, but the exemption applied only to cell phones acquired within the next 90 days, i.e., before January 24, 2013. The NTIA had supported renewal of the exemption adopted in 2010 to prevent consumers from being locked into a particular carrier’s network. The Register of Copyrights, however, was persuaded that with respect to new wireless cell phones, there were ample alternatives to circumvention. The marketplace had evolved such that a wide variety of unlocked phones were available to consumers — even though not every device is available unlocked. At the same time, consumers who owned “legacy” phones would be adversely affected by an inability to unlock their phones. Accordingly, the Register recommended that the exemption be renewed only with respect to cell phones purchased no later than 90 day after the promulgation of the exemption. The Librarian agreed with the Register’s differentiation between new and legacy phones.[3]

THE PETITION AND THE WHITE HOUSE RESPONSE

On January 24, 2013, a “We the People” petition concerning this issue was initiated on the White House’s website. The petition noted that as of January 26, “consumers will no longer be able unlock their phones for use on a different network without carrier permission, even after their contract has expired.” The petition argued that “[c]onsumers will be forced to pay exorbitant roaming fees to make calls while traveling abroad.” Further, this decision “reduces consumer choice, and decreases the resale value of devices that consumers have paid for in full.” The petition requested the White House to “ask the Librarian of Congress to rescind this decision, and failing that, champion a bill that makes unlocking permanently legal.”

On March 4, 2013, R. David Edelman, the White House Senior Advisor for Internet, Innovation, & Privacy, responded publicly on the White House website.

The White House agrees with the 114,000+ of you who believe that consumers should be able to unlock their cell phones without risking criminal or other penalties. In fact, we believe the same principle should also apply to tablets, which are increasingly similar to smart phones. And if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network. It’s common sense, crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers’ needs.

This is particularly important for secondhand or other mobile devices that you might buy or receive as a gift, and want to activate on the wireless network that meets your needs — even if it isn’t the one on which the device was first activated. All consumers deserve that flexibility.[4]

The White House pointed out that the NTIA had recommended in favor of renewal of the existing exemption on the unlocking of cellphones, and that the Librarian of Congress had not followed this recommendation. It further observed that “the DMCA exception process is a rigid and imperfect fit for this telecommunications issue….” The Obama Administration would support “narrow legislative fixes in the telecommunications space that make it clear: neither criminal law nor technological locks should prevent consumers from switching carriers when they are no longer bound by a service agreement or other obligation.” In other words, the Administration called for a narrow bill that targeted this problem, not a broad overhaul of section 1201 of the DMCA. The White House noted that the Federal Communications Commission would join the NTIA in reviewing this matter, and encouraged mobile providers to take voluntary actions “to ensure that their customers can fully reap the benefits and features they expect when purchasing their devices.”

THE CONGRESSIONAL RESPONSE

On March 5, 2013, Senator Ron Wyden introduced the Wireless Device Independence Act of 2013, S. 467. It would amend the DMCA to provide that the prohibition on circumvention did not apply to “a user of a computer program … that enables a wireless telephone handset[] or other wireless device … originally acquired from the operator of a wireless telecommunications network … to connect to a different wireless telecommunications network.” The user would have this right to circumvent only if she legally owns a copy of the computer program; the computer program is used solely for the purpose of connecting to the wireless network; and access to the network is authorized by its operator.

On March 7, 2013, Senators Klobuchar, Lee, and Blumenthal introduced legislation that took a different approach. The Wireless Consumer Choice Act, S. 481, would require the Federal Communications Commission to direct providers of mobile services to permit subscribers or their agents “to unlock any type of wireless device used to access such services.”

It soon became apparent that both of these bills, and the White House position itself, may have been inconsistent with the U.S. proposal in the Trans-Pacific Partnership Agreement (TPP) and existing obligations in the Korea-U.S. Free Trade Agreement (KORUS) and other free trade agreements to which the United States is a party.[5] KORUS obligates the United States and Korea to adopt provisions concerning the technological protection measures based on section 1201 of the DMCA. Furthermore, KORUS mandates that the parties “confine exceptions and limitations” to the circumvention prohibition to a specific list of exceptions that matches the specific exceptions in the DMCA. Cell phone unlocking, of course, is not on that list. KORUS does allow for administrative procedures like the DMCA’s rule-making to adopt temporary exemptions, but not permanent ones. Likewise, the U.S. proposal for the IP chapter of TPP, which was leaked two years ago, contained KORUS’s closed list of exceptions, and thus would appear to preclude a permanent cell phone unlocking exemption.[6]

To be sure, Congress in theory could ignore the obligations in the free trade agreements, and enact a permanent exception for cell phone unlocking, but this would place the United States in breach of the agreements. It is highly unlikely that Congress would be willing to cause such a breach. Alternatively, the United States could seek to renegotiate this provision in the agreements in which it appears.

H.R. 1892, the Unlocking Technology Act of 2013, introduced by Representatives Zoe Lofgren, Thomas Massie, Anna Eshoo, and Jared Polis, adopted the latter approach by directing the President to “take the necessary steps to secure modifications to applicable bilateral and multilateral trade agreements to which the United States is a party in order to ensure that such agreements are consistent with the amendments made by this Act.” Moreover, H.R. 1892 went beyond cell phone unlocking, and would amend section 1201(a)(1)(A) to permit circumvention (and the development of circumvention technologies), “if the purpose of the circumvention is to engage in a use that is not an infringement of copyright….” In other words, H.R. 1892 would codify the Federal Circuit’s interpretation of the DMCA in Chamberlain v. Skylink, 381 F.3d 1178 (Fed. Cir. 2004).

In contrast, House Judiciary Committee Chairman Bob Goodlatte pursued a much narrower approach. His H.R. 1123, the Unlocking Consumer Choice and Wireless Competition Act, would reinstate the exemption that had terminated on January 26, 2013.[7] This reinstated exemption would last just until October 2015, when the other exemptions terminated. H.R. 1123 also directed the Librarian to conduct a supplementary rulemaking to determine whether to extend the exemption to other wireless devices in addition to wireless telephone handsets, e.g., tablets such as the iPad. At the markup of H.R. 1123, the exemption was amended to permit circumvention by the purchaser of the handset, by a family member of the purchaser, or by another person at the direction of the purchaser or family member, for the sole use or benefit of the purchaser or family member. H.R. 1123 was reported out of the House Judiciary Committee on July 31, 2013.

THE FCC RESPONSE

On September 17, 2013, the NTIA filed a petition with the Federal Communications Commission (FCC) asking it to issue a rule requiring telephone networks to unlock a wireless device such as a cellphone upon consumer request, once the initial service contract ends. In the petition, NTIA argued that an unlocking rule would be in the public interest because it would promote competition between networks and between new and used devices. It would also make it easier for consumers to use their devices when they travel. The petition requested a rule that would override a contractual restriction on unlocking. The NTIA claimed that the FCC has the authority to issue such a rule pursuant to Title III of the Communications Act, which defines the FCC’s authority to issue radio licenses and to regulate providers of radio communications.

On November 14, 2013, just ten days after becoming Chairman of the FCC, Tom Wheeler sent a letter to Steve Largent, the President of CTIA – The Wireless Association, calling on wireless industry to agree to voluntary principles concerning cell phone unlocking. Chairman Wheeler disclosed that the FCC had been working with CTIA for eight months to craft an approach that “would address consumers’ rights to unlock their mobile wireless devices once their contracts are fulfilled.”[8] Chairman Wheeler stated that the FCC is “anxious to work with you and your members to resolve this matter expeditiously.” Chairman Wheeler then issued a clear threat: “it is now time for the industry to act voluntarily or for the FCC to regulate.” He set a goal of having a policy in place before the December holiday season.

Evidently, Chairman Wheeler’s threat worked. On December 12, 2013, CTIA announced that AT&T, Sprint, T-Mobile, U.S. Cellular, and Verizon Wireless had committed to adopt a set of voluntary industry principles for consumer unlocking of mobile wireless phones and tablets. The companies will complete implementation of the principles within twelve months. The principles are as follows:

1. Disclosure: Each carrier will post on its website its clear, concise, and readily accessible policy on postpaid and prepaid mobile wireless device unlocking.

2. Postpaid unlocking policy. Carriers, upon request, will unlock mobile wireless devices or provide the necessary information to unlock their devices for their customers and former customers in good standing and individual owners of eligible devices after the fulfillment of the applicable postpaid service contract, device financing plan or payment of an applicable early termination fee.

3. Prepaid unlocking policy. Carriers, upon request, will unlock prepaid mobile wireless devices no later than one year after initial activation, consistent with reasonable time, payment, or usage requirements.

4. Notice. Carriers that lock devices will clearly notify customers that their devices are eligible for unlocking at the time when their devices are eligible for unlocking or automatically unlock devices remotely when devices are eligible for unlocking, without additional fee. Carriers reserve the right to charge non-customers/non-former customers a reasonable fee for unlocking requests. Notice to prepaid customers may occur at point of sale, at the time of eligibility, or through a clear and concise statement of the policy on the carrier’s website.

5. Response time. Within two business days after receiving a request, carriers will unlock eligible mobile wireless devices or initiate a request of the OEM to unlock the eligible device, or provide an explanation of why the device does not qualify for unlocking, or why the carrier reasonably needs additional time to process the request.

6. Deployed personnel unlocking policy. Carriers will unlock mobile wireless devices for deployed military personnel who are customers in good standing upon provision of deployment papers. Consumers will have access to clear, concise, and readily available policies about unlocking their devices.[9]

According to Chairman Wheeler’s November 14 letter, point 4, the issue of notice and the applicable fees, had been the sticking point in the discussions between CTIA and the FCC staff.

Chairman Wheeler issued a press release applauding the agreement and the FCC’s role in its formulation:

The voluntary industry agreement announced today caps nine months of hard work by mobile wireless providers and FCC Staff. It’s a win for consumers because of the FCC’s advocacy on their behalf and because of the industry’s responsiveness.[10]

Additionally, Gene Sperling, the Director of the National Economic Council, issued a statement in which the Obama Administration took credit for the agreement. Director Sperling noted that after hearing from 114,000 people via the “We the People” platform, “the Obama Administration called to restore the basic consumer freedom of cell phone unlocking – to allow you to use your mobile devices on any compatible network you choose — and provided a roadmap for the Federal Communications Commission, industry, and Congress to solve this for the American people.”[11] Director Sperling noted that the wireless carriers had reached their unlocking principles “with the support of FCC Chairman Tom Wheeler.” Director Sperling observed that “this issue is about the simple freedom to take your business where you please, and to find the wireless plan that suits your needs – provided you have paid for your mobile device.” Director Sperling concluded that the FCC and the carriers are doing their part, and that “now it is time for Congress to step up and finish the job” by passing the Goodlatte bill, H.R. 1123, mentioned above.

CONCLUSION

The speed of the Administration’s response to the cell phone unlocking controversy reflects how important cell phones have become in the daily lives of Americans. At the same time, Director Sperling’s call for enactment of the Goodlatte bill did not acknowledge that it is only a temporary measure whose short term nature is forced by free trade agreements supported (in the case of KORUS) and proposed (in the case of TPP) by the Obama Administration. Moreover, Director Sperling did not seem aware that the issue goes far beyond a consumer’s freedom to use her wireless device on the network of her choice. Cell phone unlocking is just the tip of the iceberg of the problems cause by the breadth of the DMCA’s prohibition on circumvention.  Only H.R 1892, introduced by Representatives Lofgren, Massie, Eshoo, and Polis, really addresses the DMCA’s fundamental flaw by amending it to prohibit just circumvention that leads to infringement.  Congress, however, appears more inclined to focus solely on cell phone unlocking, suggesting that in the near future another popular noninfringing use will collide with the DMCA.