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[Senate Report 113-212]
[From the U.S. Government Publishing Office]

113th Congress                                                   Report
                                 SENATE
 2d Session                                                     113-212

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         UNLOCKING CONSUMER CHOICE AND WIRELESS COMPETITION ACT

                                _______
                                

                 July 17, 2014.--Ordered to be printed

                                _______
                                

            Mr. Leahy, from the Committee on the Judiciary, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 517]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 517), to promote consumer choice and wireless 
competition by permitting consumers to unlock mobile wireless 
devices, and for other purposes, having considered the same, 
reports favorably thereon, with an amendment, and recommends 
that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Bill...............................1
 II. History of the Bill and Committee Consideration..................5
III. Section-by-Section Summary of the Bill...........................5
 IV. Congressional Budget Office Cost Estimate........................7
  V. Regulatory Impact Evaluation.....................................8
 VI. Conclusion.......................................................8
VII. Changes to Existing Law Made by the Bill, as Reported............9

                 I. Background and Purpose of the Bill

                             A. BACKGROUND

    As of January 2014, 90% of American adults own a cell 
phone, 58% percent own a smartphone, and 40% own tablets.\1\ 
Wireless devices like cell phones, smart phones, and tablets 
empower consumers, facilitating communication, education, work, 
and entertainment for Americans of all ages. Network carriers 
that operate voice and data networks often sell these devices 
in conjunction with service contracts, at a reduced cost in 
exchange for the consumer's agreement to use the carrier's 
voice or data plan for a predetermined period, often two years. 
Carriers typically place software on the device that prevents 
it from being used on another carrier's network.\2\ This is 
often referred to as ``locking'' the device; efforts to alter 
this software are typically referred to as ``unlocking'' the 
device.
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    \1\See Mobile Technology Fact Sheet, Pew Research Internet Project 
(January 2014), 
http://www.pewinternet.org/fact-sheets/mobile-technology-fact-sheet.
    \2\See Consumer and Governmental Affairs Bureau, Consumer Guide: 
Mobile Phone and Device Unlocking FAQ's, Federal Communications 
Commission (Feb. 24, 2014), http://www.fcc.gov/
device-unlocking-faq (``Unless you purchased a phone or device 
specifically sold as `unlocked' at the point of purchase, you should 
assume that it is locked to a specific service provider's network. This 
is true whether you purchase the device from a service provider, at a 
general retail outlet (in person or on the web), or through a third-
party.'').
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    Consumers whose contracts with their original carrier have 
expired, or who have otherwise complied with the applicable 
contractual terms, may wish to continue using their old devices 
with new carriers who may offer better prices or better 
coverage. Alternatively, they may wish to give their old phone 
to a family member or friend or sell it to another consumer. 
Smart phones and tablets, for example, can cost many hundreds 
of dollars--sometimes more than $500 each--and many consumers 
would like to choose which network they connect to without 
incurring the substantial cost of purchasing a brand new 
device. From 2006 until 2012, an exemption to the Digital 
Millennium Copyright Act (DMCA) expressly permitted cell phone 
users to ``unlock'' their cell phones when their contract 
expired, allowing them to connect to their chosen wireless 
network. The Unlocking Consumer Choice and Wireless Competition 
Act restores that exemption to promote consumer choice.
    Some carriers, including the four largest national 
carriers, have established principles under which they will 
help consumers unlock their phones, and the Committee expects 
that most unlocking will continue to be done by wireless 
carriers at the request of their customers.\3\ There are, 
however, circumstances in which additional avenues for 
unlocking may be preferable over attempting to unlock through 
the carrier. For example, some carriers require customers to 
bring their devices to the carrier's physical store to have 
them unlocked.\4\ For those customers who do not live near the 
carrier's retail location--perhaps because they live in a rural 
area, because they have limited mobility, or because the device 
was a gift from a friend or family member who lives in another 
part of the country--this requirement may prevent them from 
being able to get their devices unlocked.
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    \3\Consumer Code for Wireless Service, CTIA--The Wireless 
Association, http://www.ctia.org/docs/default-source/default-document-
library/ctia-consumer-code-for-wireless-service.pdf; see also Letter 
from Steve Largent, President and CEO, CTIA--The Wireless Association, 
to Thomas E. Wheeler, FCC Chairman, and Mignon L. Clyburn, Jessica 
Rosenworcel, Ajit Pai, & Michael P. O'Reilly, FCC Comm'rs (Dec. 12, 
2013), https://apps.fcc.gov/edocs_public/attachmatch/DOC-324664A1.pdf. 
The carriers that established the unlocking principles have agreed to 
fully implement them by early 2015. The principles do not address 
questions related to unlocking phones by third parties for bulk resale. 
See Letter from Senators Richard A. Blumenthal, Amy Klobuchar, Cory A. 
Booker, Mark R. Warner, and Edward J. Markey to Thomas E. Wheeler, FCC 
Chairman (April 29, 2014), www.blumenthal.senate.gov/download/letter-
to-fcc-on-bulk-unlocking; Letter from Thomas E. Wheeler, FCC Chairman 
to Senator Richard A. Blumenthal (June 17, 2014), 
www.blumenthal.senate.gov/download/fcc-reply-to-bulk-unlocking-letter-
from-sen-blumenthal.
    \4\See Consumer and Governmental Affairs Bureau, Consumer Guide: 
Mobile Phone and Device Unlocking FAQ's, Federal Communications 
Commission (Feb. 24, 2014), http://www.fcc.gov/ device-unlocking-faq 
(``Contact your mobile wireless service provider. Devices can be 
unlocked with unlock codes or other software updates provided to you by 
your provider. Some providers will complete the unlocking process in-
store, others will unlock your device remotely and automatically.'').
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    While it is not particularly difficult for a tech-savvy 
phone owner to unlock her device independently, it is possible 
that those who unlock their own devices to connect to their 
chosen network may violate Section 1201(a)(1) of the DMCA, 
which prohibits the circumvention of technological measures 
that control access to copyrighted works.\5\ Because of the 
availability of civil or criminal sanctions under the DMCA, 
consumers with a legitimate interest in unlocking their 
wireless devices may be afraid to do so.
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    \5\17 U.S.C. 1201(a).
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    From 2006 until 2012, because of an exemption granted by 
the Librarian of Congress pursuant to Section 1201(a)(1) of the 
DMCA, consumers had a guarantee that they were not breaking any 
laws when they unlocked their own cell phones simply in order 
to connect to their chosen network. The DMCA gives the 
Librarian of Congress the authority to conduct a triennial 
review process through which it may grant exemptions to anti-
circumvention measures in Section 1201(a)(1). Beginning in 
2006, the Librarian granted an exemption that allowed users to 
unlock their own cell phones in order to connect to their 
chosen network, provided that the carrier authorized the 
connection. The Librarian's exemption was narrowly focused on 
cell phones, which were then the dominant mobile digital 
devices on the market. The exemption was also granted by the 
Librarian in 2010.\6\
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    \6\See Exemption to Prohibition on Circumvention of Copyright 
Protection Systems for Access Control Technologies, 71 Fed. Reg. 68472 
(Nov. 27, 2006); Exemption to Prohibition on Circumvention of Copyright 
Protection Systems for Access Control Technologies, 75 Fed. Reg. 43,825 
(July 27, 2010).
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    In its 2012 rulemaking, the Librarian chose not to 
recognize an ``unlocking'' exemption for new cell phones 
purchased after January 26, 2013, finding that an adequate 
record had not been established pursuant to the Librarian's de 
novo review requirement.\7\ The Librarian's decision prompted a 
strong public reaction: a ``We the People'' petition on the 
White House website opposing the Librarian's decision garnered 
over 110,000 signatures.\8\ On March 4, 2013, in response to 
the ``We the People'' petition, the White House said that it 
would ``support a range of approaches'' to permitting mobile 
phone unlocking.\9\
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    \7\See Exemption to Prohibition on Circumvention of Copyright 
Protection Systems for Access Control Technologies, 77 Fed. Reg. 65260 
(Oct. 26, 2012); id. at 65266 (``[I]n light of carriers' current 
unlocking policies and the ready availability of new unlocked phones in 
the marketplace, the record did not support an exemption for newly 
purchased phones.'').
    \8\Make Unlocking Cell Phones Legal, The White House: We The 
People, https:// petitions.whitehouse.gov/petition/make-unlocking-cell-
phones-legal/1g9KhZG7.
    \9\R. David Edelman, It's Time to Legalize Cell Phone Unlocking, 
The White House: We The People (March 4, 2013), https://
petitions.whitehouse.gov/response/its-time-legalize-cell-phone-
unlocking.
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    On March 11, 2013, Senators Leahy, Grassley, Franken, Lee, 
Hatch, and Klobuchar introduced the bipartisan Unlocking 
Consumer Choice and Wireless Competition Act, S. 517, to 
restore the exemption for cell phone unlocking that had been in 
effect in previous years. Senators Thune and Whitehouse were 
also cosponsors. Chairman Goodlatte subsequently introduced 
identical legislation in the House of Representatives, and the 
House passed a modified version of the legislation in February 
2014 (H.R. 1123).

                     B. PURPOSE OF THE LEGISLATION

    The Unlocking Consumer Choice and Competition Act, S. 517, 
ensures that individual consumers are not prevented from 
unlocking their phone for the legitimate purpose of connecting 
to a wireless network of their choice. While many network 
carriers already sell unlocked phones, or will unlock phones 
for consumers under the terms of their contracts, the Committee 
recognizes that many consumers want the ability to unlock their 
cell phones themselves--or receive assistance doing so--for 
purposes of connecting to a network of their choice. The 
exemption created by the Librarian of Congress from 2006-2012 
permitted users to unlock their cell phones for this purpose 
without fear of penalties under the DMCA. The Unlocking 
Consumer Choice and Competition Act restores that exemption 
until the Librarian of Congress' next triennial rulemaking 
under the DMCA, promoting flexibility for consumers and 
enhancing competition in the wireless market. A further 
provision instructs the Librarian of Congress to consider, 
during its next rulemaking, whether to allow unlocking for 
wireless devices other than cell phones, such as tablets.
    The legislation provides two ways that cell phones may be 
unlocked, in addition to authorized unlocking by a device 
owner's wireless carrier. First, it restores the Library of 
Congress' 2010 exemption so that consumers may unlock their 
cell phones themselves in order to change carriers consistent 
with the terms of their contracts, provided that access to the 
chosen network is authorized. Second, the legislation ensures 
that cell phone owners who lack the technological understanding 
to unlock their phones can direct others to do the unlocking 
for them, solely to enable the owner or a family member to 
connect to a new wireless network.
    Neither of the methods for unlocking recognized by the 
legislation excuses owners from compliance with applicable 
service agreements they may have with the wireless carriers 
that service their phones. Such agreements may, for example, 
require fulfillment of an applicable postpaid service contract, 
device financing plan, or payment of an applicable early 
termination fee. Moreover, nothing in the bill permits third 
parties to unlock devices independently of the device owner's 
direction, or for a purpose other than allowing the owner or a 
family member to connect to a new wireless network. As the 
Librarian of Congress explained with respect to the scope of 
permissible commercial activity under the 2010 determination 
that is reinstated by the bill, ``the designation of this class 
will not benefit those who engage in the type of commercial 
activity that is at the heart of the objections of opponents of 
the proposed class: the `bulk resellers' who purchase new 
mobile phone handsets at subsidized prices and, without 
actually using them on the networks of the carriers who market 
those handsets, resell them for profit. The type of commercial 
activity that would be permitted would be the resale of used 
handsets after the owners of the handsets have used them and 
then given or sold them to somebody else, who then resells them 
just as a used bookstore sells used books.''\10\
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    \10\Exemption to Prohibition on Circumvention of Copyright 
Protection Systems for Access Control Technologies, 75 Fed. Reg. 
43,825, 43,831-32 (July 27, 2010).
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    The legislation also creates no new obligations for cell 
phone manufacturers or wireless carriers, such as how a carrier 
may choose to process unlocking requests or provide unlocking 
codes to third parties.
    Section 2(b) of S. 517 instructs the Librarian of Congress 
to consider, as part of its next triennial rulemaking under the 
DMCA, whether to allow unlocking for wireless devices other 
than cell phones, such as tablets, many of which may also be 
locked by carriers. This instruction acknowledges the growing 
importance of tablets and the potential for consumer harm if 
used tablets cannot be taken to a network of the consumer's 
choice, while respecting the independence and judgment of the 
Librarian of Congress and the rulemaking process established 
under existing law for exemptions to the anti-circumvention 
prohibitions of the DMCA.
    While there are larger ongoing debates about the scope and 
application of Section 1201 of the DMCA, as well as other 
aspects of phone unlocking, those issues are not addressed by 
the legislation, which makes no changes to Section 1201 of the 
DMCA. The bill respects the independence of the Library of 
Congress under existing law to conduct the triennial 
rulemakings set forth in Section 1201(a)(1) and does not alter 
the authority of the Librarian in future rulemakings. Instead, 
the legislation takes a narrow, targeted approach to protect 
consumers and promote competition in the wireless market by 
allowing consumers, and those acting at their direction, to 
transfer their phones to alternative providers as described in 
the bill.

          II. History of the Bill and Committee Consideration

    On March 11, 2013, Senators Leahy and Grassley introduced 
the Unlocking Consumer Choice and Wireless Competition Act. 
Senators Franken, Hatch, Lee, and Klobuchar were original 
cosponsors. The bill was referred to the Committee on the 
Judiciary.
    The bill was placed on the Committee's agenda on June 26, 
2014. The Committee considered S. 517 on July 10, 2014. 
Senators Leahy and Grassley offered a substitute amendment 
which added a provision allowing consumers to seek help 
unlocking their devices from a third party. Senators Coons and 
Blumenthal were added as cosponsors of the bill during 
Committee consideration of the substitute amendment.
    The substitute amendment was accepted by a voice vote 
without objection.
    The Committee then voted to report the Unlocking Consumer 
Choice and Wireless Competition Act, with an amendment in the 
nature of a substitute, favorably to the Senate by voice vote.

              III. Section-by-Section Summary of the Bill

Section 1--Short title

    This section provides that the legislation may be cited as 
the ``Unlocking Consumer Choice and Wireless Competition Act.''

Section 2--Repeal of Existing Rule and Additional Rulemaking by 
        Librarian of Congress

    Subsection (a): This subsection repeals Paragraph (3) of 37 
C.F.R. Sec. 201.40, as amended and revised by the Librarian of 
Congress on October 28, 2012 and replaces that text with the 
equivalent paragraph that was in effect on July 27, 2010.\11\ 
In so doing, the subsection repeals the Library of Congress' 
2012 cell phone unlocking exemption, and reinstates the 
exemption that was granted pursuant to the triennial rulemaking 
conducted by the Librarian of Congress in 2010. The exemption 
created by the bill will remain in effect until the Library of 
Congress conducts its next triennial rulemaking and reaches a 
new decision on whether or not the record supports such an 
exemption. This subsection does not alter any other section of 
the Librarian of Congress' 2010 or 2012 rulemakings, nor does 
it alter the authority of the Librarian of Congress in future 
rulemakings.
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    \11\Exemption to Prohibition on Circumvention of Copyright 
Protection Systems for Access Control Technologies, 75 Fed. Reg. 43,825 
(July 27, 2010).
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    Subsection (b): This subsection directs the Librarian of 
Congress to consider, as part of its next regularly scheduled, 
triennial rulemaking, whether to extend an unlocking exemption 
to ``other categor[ies] of wireless devices.'' The subsection 
instructs the Register of Copyrights to consult with the 
Assistant Secretary for Communications and Information at the 
Department of Commerce before presenting a recommendation on 
this matter to the Librarian of Congress, as is required under 
17 U.S.C. Sec. 1201(a)(1)(C). The Librarian's determination 
shall be conducted as a part of and subject to the applicable 
rules governing the Librarian's triennial rulemaking under 17 
U.S.C. Sec. 1201(a)(1).
    Subsection (c): Some consumers may find it challenging to 
unlock their devices. Accordingly, Subsection (c) allows owners 
of mobile devices to seek help unlocking their devices from a 
third party, and provides that they will likewise be able to do 
so under any future exemption applied to other wireless devices 
under Subsection (b), or future unlocking exemptions granted by 
the Librarian of Congress as described in Subsection (c)(2). In 
authorizing consumers to seek unlocking assistance, the 
Committee notes the limited circumstances under which phone or 
mobile device unlocking will occur. Unlocking a cell phone or 
other wireless device enables the device owner to connect his 
or her device to a wireless telephone network of his or her 
choice, and does not enable the device owner, or a third party 
on an owner's behalf, to engage in other activities that 
infringe copyrighted works. Unlike many other situations where 
an exemption from the circumvention prohibition may be sought 
or granted, unlocking a cell phone to connect to a wireless 
network typically does not facilitate copyright infringement.
    The ``direction of the owner'' extension is limited in 
scope. A person authorized by an exemption to unlock their 
wireless telephone handset or other wireless device may 
authorize a third party to unlock the device for them where: 
(1) the circumvention is done solely to connect to a wireless 
telecommunications network; (2) the person directing the act of 
circumvention is the owner of the device; (3) the person 
connecting to the new wireless network is either the owner of 
the device or a family member of the owner; and (4) access to 
the new wireless network is authorized by the operator of the 
network. This section does not authorize circumvention in order 
to enable other unauthorized or harmful actions, such as 
removing or impairing security features that limit access to 
personal data or by exposing copyrighted content in ways that 
enable copyright infringement. Nor does the ability to seek 
help from a third party to unlock a device alter the 
contractual relationship between a consumer and that consumer's 
wireless carrier. Directing a third party to unlock his or her 
device does not excuse a consumer from complying with his or 
her contractual obligations in any underlying service 
agreement.
    Subsection (d): This subsection sets forth two rules of 
construction to clarify and ensure that the legislation does 
not alter the scope of any party's rights under existing law, 
and that the legislation does not alter the authority of the 
Librarian of Congress under Section 1201(a)(1) to engage in the 
rulemaking process created by the DMCA. Nor does this bill 
affect the scope and applicability of other aspects of Section 
1201, including the prohibitions of Sections 1201(a)(2) and 
1201(b), which remain critical components of the DMCA.
    Subsection (e): This subsection defines terms that appear 
in the legislation. The terms ``commercial mobile data 
service'' and ``commercial mobile radio service'' are intended 
to cover what are typically known as data plans and voice 
plans. The terms ``wireless telephone handset'' and ``wireless 
device'' mean a handset or other device that operates on a 
wireless telecommunications network.'' Smartphones and 
wireless-enabled tablets are two examples of the types of the 
devices that are covered by these respective definitions.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S.517, 
the following estimate and comparison prepared by the Director 
of the Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 17, 2014.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 517, the Unlocking 
Consumer Choice and Wireless Competition Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
            Enclosure.

S. 517--Unlocking Consumer Choice and Wireless Competition Act.

    CBO estimates that implementing S. 517 would have no 
significant effect on discretionary spending over the 2015-2019 
period. Enacting S. 517 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    S. 517 would repeal a rule published in October 2012 by the 
Librarian of Congress (LOC) that limited the ability of certain 
owners of wireless telephone handsets to ``unlock'' their 
phones, that is, to circumvent software protections that 
prevent the owner from connecting to a different wireless 
network. The bill would reinstate an earlier rule that provided 
broader authority to circumvent such protections. S. 517 also 
would direct the LOC to consider whether to extend that broader 
authority to other categories of wireless devices in addition 
to smartphones. Based on information from the LOC, CBO 
estimates that implementing the provisions of the bill would 
not have a significant effect on the agency's workload.
    S. 517 contains no intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    S. 517 would impose a private-sector mandate by eliminating 
an existing right of action for wireless carriers (and others), 
who are currently able to pursue legal action against those 
who, without permission, circumvent the access controls on 
certain wireless telephone handsets. The cost of the mandate 
would be the forgone net value of settlements and damages in 
such cases. A search of the literature suggests that few, if 
any, of those types of lawsuits have been brought against 
individual consumers. Because such claims would probably be 
uncommon in the future and the damage awards allowed in such 
cases would be relatively small, CBO estimates that the cost of 
this mandate would be small and fall below the annual threshold 
established in UMRA for private-sector mandate ($152 million in 
2014, adjusted annually for inflation). If the Librarian of 
Congress decides to broaden the exemption allowed under the 
bill to cover other types of mobile devices, such an action 
would eliminate additional rights of action. The cost of that 
expansion would depend on what devices the Librarian would 
include under the exemption and the forgone net value of 
settlements and damages. CBO has no basis to estimate the cost 
of such mandates as it would depend on the regulatory actions 
taken by the Librarian. On November 5, 2013, CBO transmitted a 
cost estimate for H.R. 1123, the Unlocking Consumer Choice and 
Wireless Competition Act, as ordered reported by the House 
Committee on the Judiciary on July 31, 2013. The provisions of 
both pieces of legislation are similar, as are the CBO cost 
estimates.
    The CBO staff contacts for this estimate are Susan Willie 
(for federal costs) and Marin Burnett (for the private-sector 
impact). The estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with subsection (b) of paragraph 11 of rule 
XXVI of the Standing Rules of the Senate, it is hereby stated 
that the passage of S. 517 will require the Librarian of 
Congress to make a determination concerning an exemption for 
wireless devices other than cell phones during its next 
triennial rulemaking conducted pursuant to 17 U.S.C. 1201(a). 
The Committee finds that no significant regulatory impact will 
otherwise result from the enactment of S. 517.

                             VI. Conclusion

    The Unlocking Consumer Choice and Wireless Competition Act 
will ensure that consumers will be able to take their cell 
phones with them to the network of their choice after 
satisfying their contracts without violating the copyright 
laws.

       VII. Changes to Existing Law Made by the Bill, as Reported

    Pursuant to paragraph 12 of rule XXVI of the Standing Rules 
of the Senate, the Committee finds no changes in existing law 
made by S. 517, as ordered reported.

                                  
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