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Arbitration Denied in Smartphone Spying Case

SAN FRANCISCO (CN) - Smartphone manufacturers cannot force consumers to arbitrate claims that Carrier IQ collects personal information and sends it to Sprint, AT&T and other companies, a federal judge ruled.

Carrier IQ and various telecoms were hit in 2011 with a raft of class actions alleging that it used a device called IQRD to access smartphones while hiding its presence and subverting standard operating system functions or other applications.

A consolidated amended class action in the Northern District of California alleges violations of the Federal Wiretap Act, the Computer Fraud and Abuse Act, and the Stored Communications Act, as well as multiple federal and state-law warranty and consumer-protection claims.

While Carrier markets the device as capable of measuring performance and user experience while not affecting the devices, consumers say the so-called rootkit software actually decreases battery life and overall performance while increasing data use and recording all keystrokes, messages, media, and location statistics and other information.

The defendants tried to force the class to arbitrate claims based on user agreements with wireless carriers, but U.S. District Judge Edward Chen ruled Friday that the agreements did not apply because the class made them with the wireless carriers, not the device manufacturers or Carrier. In fact, the class allegedly did not know Carrier existed at the time.

"Generally, one who is not a signatory to an agreement has not right to enforce it," the 24-page opinion states.

Citing the 9th Circuit's emphasis on the "narrow" nature of the doctrine of equitable estoppel, Chen said the defendants "have failed to point to any case law, federal or state, indicating the contrary."

Moreover, "each of the arbitration agreements refers to a customer making an agreement with the wireless carrier and not any other person or entity," the judge added (italics in original).

There is also no reason to apply a California law that lets nonsignatories compel arbitration if the other party is relying on the terms of the contract to assert their claims, the court found.

In this case, the class is asserting its claims for violation of state and federal laws, and not for violating the terms of their agreement with wireless carriers, according to the ruling.

The defendants failed to show as well that the class "should not be able to avoid arbitration simply by taking the tactical strategy of not naming the wireless carriers with whom they would clearly be required to arbitrate."

"The problem here is that plaintiffs' unlawful interception/transmission claims asserted herein are not predicated on allegations that defendants colluded or otherwise acted in concert with the wireless carriers," Chen wrote. "Plaintiffs' claims are based on interception for and transmittal to persons or entities other than the wireless carriers, whether it is [Carrier] itself, the [device manufacturer] defendants, Google, application vendors or developers." (Italics in original.)

It is worth emphasizing that the complaint alleges that "private information was being collected beyond the scope of what wireless carriers wanted - such information was not needed in order for the wireless carriers to maintain service to their customers and diagnose problems in providing service," Chen noted (italics in original).

The court additionally refused to force arbitration of breach-of-warranty claims.

Shana Scarlett with Hagens Berman Shopol Shapiro in Berkeley represents the class, which includes "people who communicated with said smart phones and whose electronic communications were intercepted by defendants Carrier IQ ... called IQRD, without the individual's authorization."

Other named defendants are HTC Corporation, Huawei Devices, LG Electronics, Motorola Mobility, Pantech Wireless and Samsung. Motorola Mobility did not join the motion to compel arbitration.

They are represented by Rodger Cole of Fenwick & West in Mountain View.

Neither side replied immediately to a request for comment.

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