Apple iPhone lawsuits – where are the economics?

Apple sold over one million iPhones in the first 74 days after the gadget went on sale in July 2007. According to analyst reports, Apple retains the revenue from the phone sale, plus gets as much as $18 months per subscriber. AT&T benefits from this relationship by signing up new customers or increasing the average revenue per user (ARPU) for existing customers who switch to the iPhone. The five year Apple-AT&T exclusive partnership has lead to a myriad of lawsuits. While I am still researching the exact number, I am aware of at least seven such lawsuits. It appears everybody from consumers, class action lawyers and competing companies wants a piece of the iPhone success. For instance, Apple was hit with an antitrust lawsuit in California over its practice to lock handsets, or more specifically relock unlocked handsets. Just last week, Apple was sued for alleged patent infringement of its visual voice mail feature. Then there is the consumer who sued Apple for running up a high phone bill while traveling in Europe. The consumer claims that but-for Apple’s practice to lock phones, he would have used a European SIM card while traveling there and hence would not have had such a high phone bill. My personal favorite, though, is the lady who sued Apple for lowering the price of the iPhone.

As I described in my blog of December 5, the iPhone is often also used as the poster child of bad behavior. Professor Wu seems to think that the iPhone symbolizes what is wrong with the U.S. mobile industry. I should also mention that there are a number of legal debates surrounding the iPhone in Germany.

While these lawsuits make for good headlines and apparently congressional hearings, I have yet to find any economic support for most of them. For instance, why should bricking be anticompetitive? Or, why should it be an unfair business practice to lock the device to a network or lock out third party software vendors? The U.S. mobile industry has repeatedly been found competitive. Apple and AT&T have no market power in this competitive market and there is not separate economic market for the iPhone (an argument which I have heard before). Hence, as long as consumers are properly informed of what they buy, then bricking, locking, or dropping the price is not anticompetitive. If anything, it is a competitive strategy.