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Apple Asks for a Class Action Lawsuit

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Is the iPhone the beginning of the end of Apple’s days as a company who can do no wrong?

In retrospect, the change of the name of the company from “Apple Computer” to “Apple” may have been the tip-off. It made official the Cupertino company’s shift in orientation from being a personal computer company to a consumer electronics business, a 21st century version of Sony in its heyday.

The problem is that Apple had carved out two very lucrative niches, its hardware (which observers have noted achieve vastly better margins than other PC makers) and its iPod. It appears to have underestimated its ability to compete effectively in fields where competition is keen, product life cycles are short, and having good partners is key to success.

Today, the New York Times and ZD Net (among others) bemoan the latest flat-footed Apple iPhone move, namely providing software updates that terminally damage (aka “brick”) iPhones that have been unlocked to work on other carriers’ networks. This is popular (aside from the general geek pursuit of making hardware do new tricks) because AT&T isn’t a great cell phone service and the contracts themselves have some undesirable features (such as horrific international roaming charges). Both bemoan this move as a PR disaster, again, like the sudden price drop, alienating Apple’s most loyal customers.

But worse, as we discuss later, this “bricking” of the phones is flat out illegal. Once title has passed, owners have certain rights, and modifying their goods is one of them. Voiding the warranty is one issue (there are ways Apple could to that within the law) but breaking devices that you don’t own isn’t kosher. Legally, this is tantamount to disabling the transmission of a car because you don’t like tires someone put on them.

What has enabled Steve Jobs to reincarnate himself and his company is his dedication to superior, user friendly technology. Even his commercial failures put him ahead. The NeXT computer was far and away the best operating system on the market at the time, and was the darling of derivatives firms who needed a platform that would both allow for fast development yet be rock solid stable in running mission critical apps in a high transaction volume setting. The old NeXT OS is the guts of the Mac OS X, which also runs on the iPhone.

But Jobs now appears to be reverting to the sort of behavior that one associates with Bill Gates: putting commercial considerations ahead of consumer needs and innovation. Is that the price of market leadership?

From ZD Net:

Apple is clearly in a war with hackers over the iPhone and its most loyal fans could take a few hits. How Apple performs through these battles will determine the company’s overall reputation going forward.

Today’s angst over iPhones becoming iBricks because they were modified is really just the beginning. There are a few reports of non-hacked iPhones going dark following Apple’s latest firmware update. Adrian Kingsley-Hughes and others note that Apple has a PR problem on its hands. These issues could affect how Apple is perceived in its core markets.

The iPhone issues are really just a side effect of a much larger issue. As Apple grows it increasingly loses that feel-good underdog image. It starts looking like every other large company. Apple even starts to look like a bully–even to large media players that merely want to try different pricing schemes on iTunes. To make matters worse Apple is alienating its base. Add it up and customer service declines. Customer service declines won’t happen overnight, but Apple will have issues simply based on numbers–the more customers it has the more people it can annoy. Steve Jobs is treated as a messiah able to leap over options scandals and create a never-ending stream of delightful products, but that won’t last forever.

There is something futile about the way Apple appears to be fighting some of its most ardent fans, those who want to use the full capabilities of the iPhone.

Saul Hansell of the New York Times also focuses on the damage to Apple’s image and creation of barriers to innovation. One man’s hacker is another’s freedom fighter:

Thursday afternoon, Apple released the scheduled update to the iPhone software. And the gadget blogs confirm that it does, as Apple threatened, wreak havoc on modified iPhones. Some phones have indeed been “bricked.” In others, unofficial applications have been disabled. And there are worries that hacking the updated phone will be harder.

The result: Serious hackers will keep finding new ways to break in. Less technically inclined may well find themselves chastened into technological submission, assuming they can get their pricey toys to work at all. Will Apple really refuse to help people with iBricks?….

On Monday, Apple had issued a press release warning of “irreparable damage” to iPhones that have been modified or unlocked from the AT&T network. It also threatened users that “the permanent inability to use an iPhone due to installing unlocking software is not covered under the iPhone’s warranty.”…

Apple may well be justified using tough tactics against people who modify their phones so they no longer use the AT&T network. Apple stands to receive several hundred dollars for each phone over the course of two years from AT&T’s service fees.

Some people—actually a lot of people—don’t much like AT&T. Or they don’t want to pay AT&T’s roaming fees overseas and would rather use a local cellular company. And these people will always be looking for ways to defeat Apple’s locking system. The simple way to defuse this fight, of course, would simply be for Apple to sell an unlocked iPhone for, say, $300 more than the locked version.

But this gets at Apple’s propensity for control. The phone is, in some ways, a better experience on AT&T because of its links to voice mail and so on. But does that mean if Apple’s way is better it should always prevent people from using its products in some less optimal way?

Since the iPhone is a very sleek, capable handheld computer, people are going to want to run programs on it. They are going to want to hack and see what they can build. It’s a law of nature. And Apple might as well be fighting gravity…

Apple essentially has two choices. Either it exposes most of the iPhone’s capabilities to developers. Or it will have to gird for an ever escalating war in which it will have to send ever more electronic brick-bombs to its best customers who don’t follow its strict rules.

In an earlier post, we discussed how Apple’s program of damaging modified iPhones is clearly against the law, specifically the Magnuson-Moss Warranty Act:

The second question of updates from Apple damaging unlocked iPhones, is much more complicated. If an update can, unintentionally, do damage, is again a question Apple must answer before rendering iPhone’s warranty void. And, Apple is legally required to prove it… at least on the civil grounds of more-likely-than-not. If Apple will release an update that intentionally detects the baseband modification, and then does damage iPhones that have it is more simple to answer; they could, but it’s illegal for them to do so. Magnuson-Moss prevents Apple from intentionally voiding the warranty based on the presence of a modification. Extrapolating from that, it also prevents them from damaging other components of iPhone (such as Boot ROM or baseband components) simply because the modification has been detected (which an updater can detect by checksumming the baseband).

The post, citing an article in PhoneNews, also states that contractual provisions in the sale agreement cannot override Magnuson-Moss.

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