Can the FCC Comply With the President’s Call for Legalization of Cell Phone Unlocking?

On March 4, 2013, the White House officially responded to an online petition calling for the legalization of cell phone unlocking. The process of unlocking a cell phone usually refers to installing software that allows a cell phone to be used on multiple wireless carriers. Cell phone unlocking had previously been legal under an exemption granted by the Copyright Office pursuant to its DMCA 1201 Rulemaking powers; however, in 2012 the Copyright Office declined to renew the exemption.

Following the end of the exemption, several consumers protested the end of legal cell phone unlocking. A petition to the president was created, and crossed the recently raised 100,000-signature threshold, guaranteeing a response from the Administration. The White House responded to the petition astonishingly fast—within a weekend—by voicing strong support for cell phone unlocking. One of the suggestions put forth by the White House was that the Federal Communications Commission should investigate whether it is within their power to address the legalization of cell phone unlocking. Notably, this suggestion has been well received by the FCC, as Chairman Genachowski has expressed enthusiasm for the FCC investigating the issue. The question remains, however, whether there are steps the FCC can actually take that fall within their agency powers to address the issue. This post explores that question.

Background on Cell Phone Unlocking

The process of cell phone unlocking involves, at its most basic level, installing software on a cell phone to allow the phone to be used with a verity of mobile service providers. For example, a consumer that purchases an Apple iPhone for use on AT&T’s network can install unlocking software on the phone to allow it to be used on a different mobile carrier, such a T-Mobile.

Perhaps not surprisingly, however, several mobile service providers are against this process. This is because most smartphones such as the iPhone are sold at a subsidized price, with mobile service providers counting on recouping the cost of the phone through multi-year service agreements. Such arrangements are complicated by efforts to unlock the phone.  

The process of installing cell phone unlocking software, however, typically interferes with technical protection measures (TPMs) installed on the cell phone that prevent direct access to the phone’s baseband firmware. As such, in many instances installing or running unlocking software involves circumventing a TPM in violation of § 1201 of the Digital Millennium Copyright Act.

In 2006 the U.S. Copyright Office was presented with a request to exempt the process of cell phone unlocking from the provisions of § 1201(a) of the D.M.C.A. The Copyright Office granted the exemption. In 2010, the Copyright Office granted a renewal of the exemption. However, in 2012, the Copyright Office decided not to renew the exemption for a third time. The Copyright Office based its decision not to renew primarily on two factors. First, the Copyright Office asserted that the state of copyright law had changed since its last decision. Namely, the Office cited the case of Vernor v. AutoDesk, in which the 9th Circuit clarified the requirements for when a software license agreement  constitutes a “sale” of the software versus a contractual license. As a result of that decision, the Copyright Office asserted that cell phone owners were not owners of the baseband firmware running on their cellphones, but merely licensees. The Copyright Office accepted the copyrightability of this baseband firmware and stated that owners of the phone did have authority to circumvent the TPMs that block access to it. The Copyright Office also cited to changes in the cell phone market itself, namely, that a variety of cell hone manufactures have begun to afford consumers an option to directly purchase an unlocked cell phone. 

Based on these factors, the Copyright Office decided not to fully renew the exemption for cell phone unlocking. Instead, the Office granted a limited 90-day window following its decision, during which time any cell phones purchased could be unlocked under the exemption. Following the 90-day window, however, the Copyright Office stated that the exemption request would no longer apply. Thus, phones purchased after January 26, 2013 could no longer be unlocked without running afoul of § 1201.

The Petition and Response

Following the expiration of the exemption, many consumers and technology advocate groups expressed discontent with the state of the law. They advocated for a change in the law; namely, that the process of cell phone unlocking should still be legal.

One particular voice of advocacy through this effort was Derek Khanna, a former Republican Study Committee staffer who gained attention in 2012 following the circulation of a Copyright Reform Memo he authored that was subsequently withdrawn by the RSC. Khanna helped started a petition asking the White House to “ask the Librarian of Congress to rescind [its 2012 Rulemaking decision], and failing that, champion a bill that makes unlocking permanently legal.” The petition reached the recently-raised 100,000 signatures needed to guarantee a response from the White House several days before the deadline. All told, more than 114,000 individuals signed the petitioned before the deadline.

The White House responded with unusual quickness. R. David Edelman, a Senior Advisor for Internet, Innovation, & Privacy, posted a response to the petition on March 4, 2013. The response, titled, “It’s Time to Legalize Cell Phone Unlocking,” voiced strong support for the ideals articulated in the petition. The response stated that “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.” The White House’s response has been rightly championed by many technology interest groups, law professors, and consumers like for its strong stance on the issue.

The response then notes that this position was first endorsed by “the President’s chief advisory Agency on these matters: the Department of Commerce’s National Telecommunications and Information Administration (NTIA)….in a letter to the Library of Congress’ Register of Copyrights (.pdf), voicing strong support for maintaining the previous exception to the…DMCA…for cell phone carrier unlocking.” Despite recognizing advice from NTIA on this matter,

The response indicates that the Obama Administration is in favor of addressing the problem through a “range of approaches.” One approach the Administration voiced support for was “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.” The Administration also asked mobile providers themselves to play a role in finding a solution, stating that they should “consider what steps they as businesses can take to ensure that their customers can fully reap the benefits and features they expect when purchasing their devices.” 

Perhaps most interesting, however, was the fact that response called upon the Federal Communications Commission to investigate the problem as well. The response states that the White House believes the FCC, “with its responsibility for promoting mobile competition and innovation, has an important role to play” in addressing the problem. The response also links to a recent statement by FCC Chairman Genachowski in which he “voiced his concern about mobile phone unlocking (.pdf).” The response states that in order to “complement his efforts, NTIA will be formally engaging with the FCC as it addresses this urgent issue.”

The Copyright Office also issued a statement that same day as the White House’s response to the petition. Copyright Registrar Maria Pallante, who oversees the DMCA Rulemaking process, stated that there are valid policy considerations associated with cell phone unlocking. However, she noted that in conducting 1201 Rulemakings, the Copyright Office must follow a “technical, legal proceeding” that “involves a lengthy public process” that must be “based on a factual record developed by the proponents and other interested parties.” As such, she states that the while “the rulemaking serves a very important function…it was not intended to be a substitute for deliberations of broader public policy.”

The Copyright Office thereby appeared to adopt a position that it was not within their agency powers to directly address the cell phone unlocking issue. In light of this statement by the Copyright Office, as well as the White House’s response, it would appear that a solution to the cell phone unlocking issue must either come from Congress of the FCC. While a solution from Congress may be difficult to pass, it is at least feasible to conceptualize: Congress can pass legislation that addresses the problem. Indeed, immediately following the White House’s response, at least one bill was introduced into Congress to address the issue.

The path through which a solution can emerge from the FCC, however, is less apparent. Just what can the agency do to address the problem

The FCC’s History: Carterfone 

One way to answer this question is to examine the FCC’s history on the subject. Indeed, the FCC has encountered a very similar issue before, except that the technology involved wired phones instead of modern day wireless cellphones.

For much of the 20th century, AT&T prohibited its customers (which at the time were just about everyone) from attaching anything but a Bell phone to its services. The AT&T rule stated that:

No equipment, apparatus, circuit, or device not furnished by the telephone company shall be attached to or connected with the facilities furnished by the telephone company, physically, by induction or otherwise. 

The rule was eventually challenged in court by the makers of the “Hush-a-Phone,” a new type of phone designed to keep conversations private. It’s remarkable telling how similar the arguments advanced by AT&T in defense of its rule at the time are to mobile phone companies justifications against cell phone unlocking in the modern day. During the litigation, AT&T stated that:

It would be extremely difficult to furnish ‘good’ telephone service if telephone users were free to attach to the equipment, or use with it, all of the numerous kinds of foreign attachments which are marketed by persons who have no responsibility for the quality of telephone service but are primarily interested in exploiting their products.

After eight long years of litigation, the D.C. Circuit Court of Appeal ruled in favor of the Hush-a-Phone and ordered AT&T to allow its customers to attach the device to their phone. Following the court’s ruling, the FCC embarked on a multi-year rulemaking process throughout the 1960s and 1970s that incorporated the spirit of the holding into FCC policy. The rulemaking procedures, according to scholar Tim Wu, “progressively deregulated network attachments— ordering the local phone companies to allow users to connect any devices that complied with a set of basic rules.” 

The FCC Carterfone rules have been widely hailed as a success, especially for innovation, competition, and consumer choice.

The FCC and Cell Phone Unlocking

It is possible that FCC could respond to going calls of addressing the cell phone unlocking problem similar to the way the agency responded to wired phone restrictions. Indeed, at least one commentator has indicated that the White House’s response calls upon the FCC to do exactly that. Scholars and other commentators have called on the FCC to institute Carterfone-like rules for cell phones for several years. 

However, it must be noted that the ability of the FCC to fully respond to the problem is complicated by the manner in which cell phones are currently sold to consumers. Almost all phones in the U.S. all sold on a subsidization model; a model that most consumers “love” because it purportedly results in more affordable smartphone devices. As such, almost all phones purchased by consumers are contractually obligated to remain on the carrier’s service for a set amount of time—usually two years. In addressing cell phone unlocking, the FCC would have to either limit the ability of telecommunications companies to engage in such contractual agreements—something the companies are likely to fight strongly against—or create a rule that applies only to out-of-contract phones. While a rule that applies only to out-of-contract phone would be significantly more feasible to adopt, such a rule would likely give limited relief to consumers.

It must also be noted, of course, that there are technical limitations in place for existing cell phones that limits the carriers a phone can operate on. This presents a technical obstacle for the FCC in addressing the cell phone unlocking problem.

However, neither of these two obstacles are insurmountable. The FCC likely can take steps to institute Carterfone­-like regulations on cell phones; however, it will have to operate under these two existing preconditions. As a first step, the FCC can begin the process to institute rules that ensure that consumers can use cell phones that are out of contract on any network the phone is capable of operating on. To address the circumvention problem, the FCC can instruct mobile phone providers to provide authorization for users to unlock their legally purchased cell phones; such authorization would likely be enough to address DMCA concerns.

In the future, the FCC in conjunction with Congress and the rest of executive branch can work to promulgate standards that broaden the Carterfone principles within the context of mobile phones. While doing so, Congress may also wish to heed the broader call to revisit § 1201 of the DMCA. Cell phone unlocking is but the most recent example of troublesome applications of § 1201; garage door openers, reading assistant devices for the blind, and printer cartridges all have unexpectedly fallen subject its provisions. Section 1201 has proven to have many adverse repercussions  and it may be time for the statute to be revisited.The White House’s response, in connection with the FCC’s statement on the issue, illustrate that there is sufficient interest within D.C. to accomplish these goals. The potential benefits to consumers that would result, as indicated by the past success of the Carterfone principles, should compel swift government action.