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Monday, June 9, 2008

T-Mo Sues Starbucks Over Free Wi-Fi Plan

Coffeecup01_3In light of slumping profits, it is no secret that Starbucks is looking to restore its image to the humble coffeehouse of Seattle in 1971. That is, it has undertaken "initiatives intended to restore an authentic coffeehouse experience to the stores and, in turn, re-energize an ailing stock that has lost half its value in the last 15 months." (Query whether it is possible to turn back time when a corporation has 15,011 stores in 44 countries).

In this effort, the ubiquitous coffee chain carted out a new logo (causing some controversy because the new logo sports a bare chested mermaid). It also purchased the Clover coffee machine, likely pulling from underneath the non-publicly held, truly local coffee shops the possibility of obtaining a $11,000 coffee machine that brews by the cup and had the potential to change how we think about coffee (note that this Slate piece was written before Starbucks got its hand on the Clover). Starbucks has also announced a "loyalty program" - which could act like the punch card system of the local coffee house ("get your 10th cup free"), but sounds more like the fine print bureaucracy of frequent flier programs of major airlines (will Starbucks have blackout dates?).

Further to the effort, Starbucks has announced free wi-fi (that is, at least for a couple of hours a day). This actually does sound like the small, local coffeeshop - though, they ordinarily don't limit access to two hours. T-Mobile, however, is not happy with the coffee chain's plan. Starbucks had an existing wi-fi contract with T-Mo, pursuant to which Starbucks customers paid for the wi-fi access. The cellphone giant claims that Starbucks breached that contract by allowing rival AT&T to supply the free wireless service to customers. Here's more on the lawsuit:

In its 12-page complaint, filed Thursday in New York State Supreme Court in Manhattan, T-Mobile alleged breach of contract, interference with contract and unfair competition over a recent Starbucks Wi-Fi promotion with AT&T Internet Services Inc., which T-Mobile claims risks overloading its lines and equipment.

T-Mobile, which had been exclusively providing Wi-Fi service at Starbucks since 2002, accused Starbucks of "secretly" developing a promotional plan to let AT&T provide free Internet service at more than 7,000 U.S. Starbucks stores. T-Mobile said it is bearing the cost and burden of that offer, because it still provides equipment and technology in all but two of Starbucks' U.S. markets.

"The conduct of Starbucks has caused T-Mobile monetary damages, and such damages will continue should Starbucks continue its breaching conduct," T-Mobile said.

Starbucks began transitioning from T-Mobile to AT&T as its Wi-Fi provider in February. T-Mobile maintains that the Starbucks promotion violates a transition agreement giving T-Mobile exclusive rights to market and sell Wi-Fi Internet access at Starbucks stores until Jan. 4, 2009.

The transition agreement gave AT&T and Starbucks only "limited rights" to promote the move to another Wi-Fi provider. T-Mobile said only two markets, San Antonio and Bakersfield, Calif., have fully converted from T-Mobile to AT&T, the biggest U.S. phone company.

T-Mobile said Starbucks gives free Wi-Fi service using T-Mobile's equipment and lines to anyone with a Starbucks Card, which causes "risks of spikes in usage, drains on that network and T-Mobile's resources and therefore causes delays, frustrations and other harm to all users of T-Mobile's network."

The provider seeks unspecified damages, legal fees and an order preventing Starbucks from breaching the transition agreement.

In a statement Friday responding to the suit, Starbucks said, "Our goal is to ensure Wi-Fi access at all Starbucks locations. This is a benefit offered to our Starbucks Card Rewards members as well as AT&T subscribers, and steps are being taken to ensure that this access continues."

Bradley Ruskin of the law firm Proskauer Rose, who is representing T-Mobile, declined to comment further on the suit.

The case is T-Mobile USA Inc. v. Starbucks Corporation, 601702/2008, New York State Supreme Court (Manhattan).

[Meredith R. Miller] [disclosure: some time ago, I worked at Proskauer, and participated in the representation of T-Mobile, but not in connection with the matter discussed in this post]

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