FCC taking up the fight against unlocked cell phones?

According to an interview with Techcrunch, FCC Chairman Julius Genachowski has stated the unlocking “ban raises competition concerns; it raises innovation concerns.” The FCC’s proposed action may be in response to the petition to the White House asking the government to reverse the Library of Congress’ decision to ban cell phone unlocking, or to propose law that would negate said decision. The petition reached over 100,000 signatures and has garnered the attention of the federal government (if you haven’t signed the petition, you should. It’s located here).

On March 4, 2013, the White House has responded to the petition in this press release. To sum it up (read the entire release to get all the information) R. David Edelman, Senior Advisor for Internet, Innovation and Privacy, stated that 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.” Further, Edelman said that tablets should be included when talking about removing unlocking restrictions.

As for what the White House will do to promote it’s view, Edleman had this to say: “[t]he Obama Administration would support a range of approaches to addressing this issue, including 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.”

DMCA Background Information

To give a little background on the Digital Millennium Copyright Act (“DMCA”), one provision states that unlocking cell phones from carriers is illegal. As it’s been repeated many times, unlocking a cell phone from a carrier is not the same as unlocking the bootloader. Unlocking a cell phone from a carrier enables a user to purchase a phone that is locked to a carrier like AT&T and then unlocking that cell phone from AT&T and using it on T-Mobile’s network. For six years, this was perfectly legal, as the Library of Congress exempted cell phones from this locking requirement. As most of our readers know, on January 26, 2013, unlocking cell phones by an individual became illegal under the DMCA. However, carriers can still unlock cell phones from their network at their discretion.

What are the penalties for unlocking?

The DMCA has two levels of penalties to punish unlocking, criminal and civil (you can view the entire damages section of the DMCA with this pdf). Does unlocking your cell phone mean you will go to jail? Probably not. Section 1203, the civil remedies section, states “[a]ny person injured by a violation of section 1201 or 1202 may bring a civil action in an appropriate United States district court for such violation.” This is an all encompassing section, meaning anyone who violates the DMCA, with regard to cell phone unlocking, will be subject to potential civil damages. However, section 1204 states “[a]ny person who violates section 1201 or 1202 willfully and for purposes of commercial advantage or private financial gain….” This section deals with a subset of cell phone “unlockers”, who unlock cell phones without carrier approval and are doing it as a business or for some private financial gain.

Actual Damages

If a user is unlocking a cell phone for personal use (i.e., not selling the unlocked phone as part of a business — we’ll get into what happens to people who subsequently sell unlocked phones when they’re upgrading later) then the user is firmly within section 1203.  However, just because a user who unlocks their cell phone won’t be spending time in a federal prison, doesn’t mean that user has nothing to worry about.  Section 1203 authorizes actual or statutory damages. Actual damages are those damages that are actually incurred by the aggrieved party (wireless carriers) and they include any profits, attributable to the violation of the DMCA, made by the person who unlocked the cell phone.

Statutory Damages

This is where, if the carrier decides to bring a civil suit, they will seek high damages. Unlike actual damages, which the carrier must prove the dollar amount the individual unlocker damaged them, statutory damages provide a flat rate for each violation. What this means is, a carrier does not have to prove they were injured by “x” amount of money, only that the person who unlocked the cell phone, actually unlocked the cell phone in violation of the DMCA.  This is a much easier burden.  So what exactly does the law provide as a remedy? A person who unlocks a cell phone in violation of the DMCA may be subject to “statutory damages for each violation… in the sum of not less than $200 or more than $2,500 per act of circumvention, device, product, component, offer, or performance of service.”

The DMCA does provide a “safe harbor” provision that states “[t]he court in its discretion may reduce or remit the total award of damages in any case in which the violator sustains the burden of proving, and the court finds, that the violator was not aware and had no reason to believe that its acts constituted a violation.” This is section (Section 1203(5)(A) for those who are curious) is likely to protect users who unlock their phone for their own personal use, then, subsequently sell it on eBay (or another site like that) when they upgrade to a new device.

The DMCA basically gives users a one time free pass if they’re sued for unlocking their own device and use it as such or upgrade and sell the unlocked device. However, to curb abuse of subsection 5, the DMCA has a specific provision for repeat violators, and it is where real damages can start adding up.  If a user is caught more than once in three years, the courts, in their discretion, can award treble (triple) damages.

For those who are curious what DMCA violation penalties may look like if a person were to fall into the criminal category:  Section 1204(a)(1) authorizes up to 5 years in jail and/or up to $500,000 in fines for a first offense; a repeat offense, section 1204(a)(2), ups the ante to up to 10 years in jail and/or up to $1,000,000 in fines. Just to put that in perspective, in NY, 2nd Degree Manslaughter (which is recklessly causing the death of another person) is not to exceed 15 years in prison and includes no fines.

Does the FCC have the power to do anything?

Even the FCC’s Chairman isn’t sure whether the FCC has the power. However, Genachowski stated, “[i]t’s something that we will look at at the FCC to see if we can and should enable consumers to use unlocked phones.” The FCC is an executive agency, meaning they do not have the power to create or modify law, that power solely resides within the legislative branch. However, executive agencies are charged with enforcement of the law. These agencies can adopt policies that interpret the law and define how enforcement will be carried out.

Since the DMCA is federal law, the FCC cannot simply change it, that would take an act of Congress or judicial intervention. The FCC may choose to a) not enforce it; b) enforce it very loosely (i.e., only against major offenders); or c) try to convince the Library of Congress, using political pressure, to change its mind. As we’ve seen in other areas of politics, executive agencies can choose to not enforce laws they believe are unjust, unconstitutional or not in line with policy goals, such as the US Department of Justice not prosecuting marijuana violations in states that have legalized marijuana in one form or another.

What does it all mean?

Well, the FCC has at least acknowledged the issue, which is a step in the right direction. This provision of the DMCA only protects carriers. Verizon Wireless and AT&T posted $8.63 billion ($6.8 billion and $1.83 billion respectively) in profit in Q2 of 2012 , while cell phone unlocking was legal. It may be a tough sell to show, despite soaring profits, the carriers are being hurt by unlocking.

As you’ve read, the law is pretty severe when compared to typical “criminal” acts. We cannot say for certain how, or even if, the FCC will act.  If you’re interested in reading how the FCC’s statements may actually play out, in the opinion of an attorney familiar with the FCC, and a discussion of the whether this section of the DMCA is even needed, check out the forthcoming opinion piece on the DMCA unlocking ban.

In the mean time, tell us what you think of the law as it stands now. How do you feel about the consequences for violations of this law or the law in general?