Legal snags put plans to unlock iPhone on hold

NEW YORK — Hackers have figured out how to unleash Apple's iPhone from AT&T's cellular network, but people hoping to make money from the procedure could face legal problems.

At least one of the companies hoping to make money by unlocking iPhones said it is hesitating after calls from lawyers representing the phone company.

Unlocking the phone for one's own use, for instance to place calls with a different carrier, appears to be legal. But if it's done for financial gain, the legality is less certain.

"Whether people can make profits from software that hacks the iPhone is going to depend very much on exactly what was done to develop that software and what does that software do," said Bart Showalter, head of the intellectual-property practice group at law firm Baker Botts in Dallas.

John McLaughlin of Uniquephones.com, an outfit based in Northern Ireland, said last week that its unlocking software for iPhones is ready, but the company is holding off while it gets legal advice.

He said it had been contacted by lawyers from O'Melveny & Myers, an international law firm representing AT&T, who told him the software contained material copyrighted by Apple.

"They don't have it, so therefore they can't actually threaten us," McLaughlin said. "It was 'friendly advice.' "

AT&T spokesman Mark Siegel and Apple spokeswoman Jennifer Bowcock said their companies had nothing to say about the case.

Uniquephones.com had planned to release the software via iphoneunlocking.com. The price for people on its mailing list, which contained just fewer than half a million addresses, would be $25 per iPhone, McLaughlin said.

"From their e-mail addresses, they're from everywhere in the world," McLaughlin said. "Everybody is just waiting for it."

The iPhone is sold only in the U.S., and only for use on the AT&T network, but it is compatible with cellphone technology used around the world, which means an unlocked phone can use an overseas account and number. In the U.S., T-Mobile is the only other major carrier compatible with the iPhone; Sprint and Verizon Wireless use different network technologies.

Most U.S. phones are locked to their carrier when sold, because the carrier subsidizes the cost of the phone. The iPhone, however, is apparently not subsidized by AT&T.

Some carriers provide the unlock codes on request when a subscriber's contract expires, but that doesn't apply to the iPhone, and in any case, the phone only went on sale two months ago, while the minimum contract length is two years.

Another Web site, iphonesimfree.com, has said it plans to release iPhone-unlocking software in a few days.

The Copyright Office of the Library of Congress last year issued a statement that unlocking cellphones was not a violation of copyright under the Digital Millennium Copyright Act. That law has been used to go after software that copies DVDs.

But Tracfone Wireless, a Florida company selling phones that use prepaid plans, won an injunction in February against a couple who bought its phones in large numbers and resold them unlocked.

The U.S. District Court in Orlando found that the law's exception did not apply to those unlocking a phone with the intent to resell it.

Bruce Sunstein, a patent lawyer with Boston-based Bromberg & Sunstein, said unlocking software could well stand up to a legal challenge.

"They're aiding and abetting something that's completely legal ... the exemption the Copyright Office created does not state that it applies only to the user," Sunstein said.

George Hotz, a 17-year-old in New Jersey who managed to unlock his iPhone last month, using both software and hardware modifications, tried to sell it on eBay but ended the auction after apparently fake bids sent the price to $100 million.

Instead, Hotz traded the unlocked phone for "a sweet Nissan 350Z" and three iPhones, according to his blog.

Hotz made the deal with Terry Daidone, co-founder of CertiCell, a cellphone-repair company in Louisville, Ky.

In a statement on his Web site, Daidone said he was "keenly interested" in having the teenager help his engineers modify phones, but does not have any plans to commercialize Hotz's unlocking procedure.