Samsung And HTC Hit By Wiretapping Lawsuit Over Tracking Software [UPDATED]

Big Brother is watching you

The swirling controversy over a company that reportedly installed tracking software on users’ mobile phones has already produced its first two lawsuits. On Thursday, plaintiffs sued the company, Carrier IQ, and phone makers HTC and Samsung for violating a federal wiretapping statute.

The class action lawsuits, filed in Chicago and St. Louis, seek hundreds of million of dollars on behalf of all US residents who had mobile phones containing the software. The lawsuits were brought on the basis of the Federal Wiretap Act, a law that forbids intercepting “oral, wire or electronic communications” and provides penalties of $100 per day for every violation that takes place.

The details of the Carrier IQ incident are still emerging but the controversy was set off when a security researcher released a YouTube (NSDQ: GOOG) video that purportedly showed the company’s software recording phone users’ keystrokes and encrypted communications. Carrier IQ initially claimed that the software was simply to help carriers provide better service and threatened to sue the researcher who made the allegations.

The issue became a full-blown scandal
yesterday when Senator Al Franken (D-Minn) sent a letter to Carrier IQ asking for details about the software and the company’s business practices.

Meanwhile, the technology press reported on a chaotic series of statements and denials as companies like Sprint and Nokia sought to clarify their role in the affair.

The lawsuits for now target only the two phone makers and Carrier IQ, not any of the carriers, but this could change in the coming days (see UPDATE below). These type of lawsuits are typically filed very soon after privacy incidents by law firms who specialize in class actions and keep templates and a roster of potential plaintiffs at hand.

In the St. Louis lawsuit against HTC, the heart of the allegations are as follows:

Plaintiff, Erin Janek owns an HTC Android phone using the Sprint (NYSE: S) network. At all relevant times Plaintiff used her phone to electronically send over her cell phone network various types of private data. This data was not readily accessible to the general public. She did not know that Defendants were surreptitiously monitoring and collecting this data, nor did she give them permission to do so.

The fallout of this incident could be enormous on both a privacy and a financial level. Unlike other privacy lawsuits in which the nature of the damage can be difficult to quantify, the existence of the wiretap sets out very specific penalties which mean the phone companies could be on the hook for potentially enormous liability.

The story is also playing out in Germany where the data regulator has sent a letter to Apple (NSDQ: AAPL), one of the companies that put Carrier IQ code into its devices, requesting further information on the matter. Apple has said it will stop incorporating Carrier IQ software into iOS and related devices. (see more via Bloomberg)

Carrier IQ is a small company and appears to be still shaping its crisis response strategy. In the last few days, it has received hundreds of new consumer ratings on Google reviews that give it an average of one star.

UPDATE: By late Friday, a new trio of law firms claimed they filed another class action in Delaware. This one also names Apple and Motorola (NYSE: MMI) as well as the carriers Sprint, AT&T (NYSE: T) and T-Mobile. Other filings will no doubt pop up in coming days as more class action lawyers jockey to get a piece of the action. The name of the game for the law firms is to be first to court because the early birds typically get the lion’s share of the attorney fees that are included if a settlement is reached.

UPDATE 2
: Federal court records on Monday morning show that at least eight cases have now been filed against Carrier IQ, including several in California and one in Florida. This number does include the Delaware cases cited above which have yet to appear in the records.

For more on Carrier IQ’s role in shaping the mobile market, see Tom Krazit’s “Why Both You And Carrier IQ Are Pawns In The Fight For Mobile Data

Class Action against Carrier IQ_ HTC
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