Confirmed: Apple and AT&T signed five-year iPhone exclusivity deal -- but is it still valid?

By Nilay Patel

posted May 10th 2010 5:04PM

Feature

Exclusive

The term of Apple and AT&T's iPhone exclusivity deal has long been a mystery -- although USA Today reported a five-year arrangement when the original iPhone came out in 2007, that number has never been independently confirmed, and it's been looking suspect in recent weeks as Verizon iPhone chatter has gotten louder. But we've been doing some digging and we can now confirm that Apple and AT&T entered into a five-year iPhone exclusive in 2007, based on court documents filed by Apple in California. Read on!

Here's the deal: an ongoing California class-action lawsuit filed in 2007 claims that Apple and AT&T illegally exerted a monopoly over iPhone service by telling customers the iPhone's required service contract was two years long when the Apple / AT&T exclusivity deal was actually for five years -- thus requiring buyers to re-up with AT&T for three years (and not, say, T-Mobile) if they wanted to keep using the iPhone. Obviously Apple had to respond to these allegations, and in addition to arguing that no one was ever promised an unlocked iPhone after two years, the company's lawyers repeatedly confirm the existence of the five-year agreement while noting it was publicly reported in USA Today. It's extremely black and white -- check these choice quotes from Apple:

"The duration of the exclusive Apple-[AT&T] agreement was not 'secret' either. The [plaintiff] quotes a May 21, 2007 USA Today article – published over a month before the iPhone's release – stating, "AT&T has exclusive U.S. distribution rights for five years-an eternity in the go-go cellphone world."
...
"[T]here was widespread disclosure of [AT&T's] five-year exclusivity and no suggestion by Apple or anyone else that iPhones would become unlocked after two years... Moreover, it is sheer speculation – and illogical – that failing to disclose the five-year exclusivity term would produce monopoly power..."

Now, this all went down in October of 2008, and while it's sort of amazing we hadn't seen it earlier, the real question is whether or not the exclusivity deal is still on the books. (The case is ongoing, but most of the relevant bits have been under seal since 2009.) Contracts can be canceled, amended, and breached in many ways, and AT&T's spotty recent service history plus the explosion of the iPhone and the mobile market in general have given Apple any number of reasons to revisit the deal. In addition, the two companies obviously hit the negotiating table again to hammer out the iPad's pricing plans, and there's no way of knowing whether that deal involves the iPhone as well. But it's nice to finally know for certain that AT&T's initial iPhone exclusivity period was booked until 2012 -- now we just have to see if all this recent chatter means something's changed.

P.S.- Oh, and this case also covers some other relevant and controversial ground: the plaintiffs argued that Apple exerted illegal monopoly power over the iPhone applications market by barring third-party apps from iPhone OS 1.0, and the court ruled the argument was valid enough to go forward. Pretty prescient for 2008 -- we're guessing Adobe and the Federal Trade Commission are very interested in what's going down in California's Northern District right around now.