sanctity of contract — VOICES for REASON

The other day I blogged about an antitrust class action suit against Apple and AT&T, relating to Apple’s hugely successful iPhone. That post was based on press reports. I’ve now had a chance to read the plaintiffs’ complaint as filed in court, and a subsequent court decision. They provide interesting detail, but the basic injustice of this antitrust case remains.

As I mentioned in my earlier post, Apple sells “locked” iPhones. That means they work only on AT&T’s network. Consumers know the phones are locked into one network—there’s no mystery or fraud involved.

Okay, so what about the plaintiffs in this class action? They managed to scrape together enough money to buy iPhones and enter into two-year contracts with AT&T. They used their phones for the full two years. Then their contracts expired. Now they want to unlock their phones and use them on T-Mobile or some other network. There’s only one small problem with that—their individual software license agreements with Apple forbid such tampering. That’s not to mention violation of Apple’s software copyrights. But none of that bothers the plaintiffs and their class action lawyers.

Elsewhere, I have called antitrust laws a “war against contract,” and this case is a perfect illustration. These plaintiffs don’t want to be bothered with the contracts they signed. “I promise” means nothing to them. Instead, they assert what amounts to a divine right of hacking—to be achieved with the help of the infamous Sherman Act.

Here’s the plaintiffs’ legal theory: Apple and AT&T are monopolizing the so-called aftermarket for the iPhone. This “aftermarket” is not to be confused with the market for smartphones—that’s a huge market in which Apple is a significant but by no means dominant player (Blackberry, anyone?). No, the “aftermarket” amounts to the various ways of hacking the iPhone to make it work outside AT&T. Do you get this? Since the only way you can keep making calls on an iPhone after two years is sign up with AT&T for another two years, that’s evidence the companies are “monopolizing” the “aftermarket.”

Now you might say, wait: This “aftermarket” sounds more like an illegal enterprise than a market. If licensing agreements forbid unlocking, then why would the law protect an “aftermarket” devoted to unlocking? Well, in the wonderland of antitrust, anything is possible. If this class action is successful, Apple and AT&T may have to pay damages and abandon their policies against unlocking.

So much for sanctity of contract, which is but a distant memory in American law.

Image: WikiMedia Commons

Writing in The Wall Street Journal, sports journalist Allen Barra has hailed the recent Supreme Court decision in American Needle v. NFL as “a clear victory for free enterprise.”

I want to leave aside the complex antitrust technicalities on which this decision hinged and just focus on what it means for enterprise to be “free.” Free from what? If the term has any objective meaning, it denotes freedom from coercion, from physical interference by others. So if Barra is correct about this court decision being a victory for freedom, it must mean that some coercive practice has been swept away. But was it?

Consider what led to the court case. All thirty-two teams in the National Football League formed an association (NFL Properties) that entered into a contract with Reebok, a manufacturer of sporting goods. In this contract, Reebok promised to pay NFL Properties licensing fees on the sales of headwear featuring team logos. In exchange, NFL Properties promised that Reebok would have exclusive licensing rights for ten years.

That contract was entered into freely. The court case featured no evidence that Reebok made physical threats against NFL Properties—or that NFL Properties made physical threats against Reebok—or that any of the member teams made physical threats against the others. Physical coercion was simply not an issue in the case. On the contrary, the Supreme Court’s decision to declare the contract illegal is itself coercive. It obliterates, by government force, the freedom in which the NFL-Reebok contract was conceived and written.

According to the decision’s supporters, the 32 teams who formed NFL Properties are now “free” to enter into individual contracts with American Needle. But when the teams actually had freedom, they chose differently. They chose to contract together, as an association, and they chose to contract with Reebok. Now that contract has been swept into the trash can, by force of law. The teams are, in fact, less free than they were before the Supreme Court decided their case. That’s anything but a “clear victory for free enterprise.”

Image: WikiMedia Commons