ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, February 15, 2011

AT&T, “Phantom Data”, and Office Space: A Legal Brouhaha

Iphone As reported by CNET News here, consumers have recently filed a class-action lawsuit in the Northern District of California against AT&T for breach of contract, unjust enrichment, and unfair business practices stemming from the “systemically overbilling” of its iPhone and iPad customers for data transactions. For most consumers, independently verifying the data used on their smartphones can be anywhere from extremely difficult to downright impossible. That’s why Plaintiff Patrick Hendricks hired an independent consulting firm to conduct a 2-month study of AT&T’s billing practices of data usage.

The findings should give AT&T customers pause. According to the class action complaint filed on January 27, 2011 in Hendricks v. AT&T Mobility, LLC, AT&T regularly overcharges consumers between 7% and 14%, but in some cases by over 300% for data transfers. Beyond inflated charges, the complaint also alleges charges for what it calls “phantom data traffic”, or data charges when there is no actual data usage by the customer. The consulting firm purchased an iPhone, disabled all web-based data functions, and let the phone sit idle for 10 days. During that period, AT&T billed the account for 2,922 KB of usage, or roughly 35 transactions. In response to the class-action lawsuit, AT&T issued a brief statement, saying, “We intend to defend ourselves vigorously. Transparent and accurate billing is a top priority for AT&T.”

The complaint compares AT&T’s billing practices to “a rigged gas pump that charges for a full gallon when it pumps only nine-tenths of a gallon into your car’s tank.”  Count II of the complaint alleges that AT&T breached its contract with members of the class consisting of all U.S.-based iPhone or iPad users with a usage-based AT&T plan.  AT&T allegedly breached its agreement by rigging its billing system to overstate data usage.  Plaintiffs seek restitution and cessation of the practice.

Fans of the movie Office Space can clearly see the similarities between AT&T's plan, as alleged, and the penny tray at your local 7-11:

Peter Gibbons: [Explaining the plan] Alright so when the sub routine compounds the interest is uses all these extra decimal places that just get rounded off. So we simplified the whole thing, we rounded them all down, drop the remainder into an account we opened.

Joanna: [Confused] So you're stealing?

Peter Gibbons: Ah no, you don't understand. It's very complicated. It's uh it's aggregate, so I'm talking about fractions of a penny here. And over time they add up to a lot.

Joanna: Oh okay. So you're gonna be making a lot of money, right?

Peter Gibbons: Yeah.

Joanna: Right. It's not yours?

Peter Gibbons: Well it becomes ours.

Joanna: How is that not stealing?

Peter Gibbons: [pauses] I don't think I'm explaining this very well.

Joanna: Okay.

Peter Gibbons: Um... the 7-11. You take a penny from the tray, right?

Joanna: From the cripple children?

Peter Gibbons: No that's the jar. I'm talking about the tray. You know the pennies that are for everybody?

Joanna: Oh for everybody. Okay.

Peter Gibbons: Well those are whole pennies, right? I'm just talking about fractions of a penny here. But we do it from a much bigger tray and we do it a couple a million times.

Hopefully, the legal defense team at AT&T can come up with a more convincing argument than Peter Gibbons.

[JT & Jon Kohlscheen]

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Its just like the gas companies. charging $3.47 and 9/10ths of a cent for a gallon of gas... I want my 1/10th of a cent back. After all these years of filling up, i know its not gonna be a big amount but its something and they are taking it from us. now imagine all thos tents of a penny from everyone who uses gas....everyone is getting jipped.

Posted by: David | Feb 25, 2011 5:17:49 PM

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