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Miami-based TracFone, the nation’s largest provider of prepaid wireless phone services, is suing a small Miami wireless company for allegedly buying up its cheap cell phones in large quantities, then reselling them at a profit. But before reselling the Nokia-made cell phones — which are sold by TracFone under an agreement with Nokia — Sol Wireless Group allegedly disables special software in the phones that allows them to be used only in conjunction with TracFone airtime cards. TracFone sells the phones at deeply discounted rates — as little as $20 — and makes its profit through the sale of the cards. TracFone’s attorney says other companies around the country are engaging in the same type of piracy. On Dec. 21, TracFone, which has more than 5 million customers, filed an unfair competition and deceptive trade practices lawsuit against Sol Wireless in U.S. District Court in Miami. TracFone alleges that Sol Wireless engaged in a widespread scheme to steal business. The software modification allegedly allows TracFone cell phones to be used on almost any carrier’s network. “Defendants are in possession of certain instrumentalities that avoid, bypass, remove, disable, deactivate or otherwise impair the technological measures within the TracFone Prepaid Software that effectively control access to the proprietary software,” the suit contends. The complaint details how a private investigator hired by TracFone arranged to buy TracFone phones at the offices of Sol Wireless. Before selling the phones, the owner of Sol Wireless, Carlos Pino, allegedly connected each phone to a computer to modify or disable the software. TracFone attorneys said there will be more such suits. “This is a nationwide issue facing not only TracFone but other prepaid cellular phone companies,” said Steven J. Brodie, a shareholder at Carlton Fields in Miami who is representing TracFone. “We are trying to put an end to the unlawful hacking of prepaid phones. This is an issue TracFone is getting out in front of. There may be other suits forthcoming.” In an interview, Pino acknowledged that he buys up large quantities of TracFone phones, in addition to cell phones distributed by other companies. But he denied that he disables or modifies them. “Not that I’m aware of,” he said. Pino contended that what he is doing is perfectly legal, and compares it to a hot dog vendor buying hot dogs at Costco and reselling them cooked to customers. “This is just a power play by a big, huge company,” Pino said. “We are a penny-and-nickel company. If they had a problem, why didn’t they just knock on my door to talk to me?” Brodie, who filed the case with Carlton Fields shareholder James Baldinger, a former vice president of security for AT&T, declined to say whether his client has asked the Florida attorney general’s office to open a criminal investigation. “The company is looking at all its options,” he said. Jon Peck, a spokesman for the attorney general’s office, said the office has received more than 150 complaints about problems with prepaid cell phones since 2003, but does not know the nature of the complaints. SOLD OUT AT WAL-MART TracFone is subsidiary of America Movil, Mexico’s largest cell phone company. America Movil, which has more than 66 million subscribers and is publicly traded, is controlled by Carlos Slim Helu, reportedly Latin America’s richest man. TracFone is one of dozens of companies offering a “pay as you go” plan for customers who can’t afford, or don’t want to sign, long-term contracts with cell phone providers such as Cingular and AT&T. TracFone contracts with Nokia to manufacture the special cell phones that are sold at retailers like Wal-Mart, Target and Sam’s Club. The phones are equipped with software that only allows them to be used with TracFone airtime cards. According to TracFone, small companies like Sol Wireless are buying up the cheap Nokia TracFones in large quantities and reselling them at a profit over the Internet. The companies have found a way to hack into and disable the special software, TracFone alleges in its suit. Brodie said TracFone became aware last August that large quantities of TracFone phones were being bought up in the Miami area, and that stores like Wal-Mart were unable to keep the phones in stock. Somehow — Brodie declines to say how — the company discovered that Sol Wireless was buying up the phones in bulk. TracFone hired a private investigation firm to look into the situation. The investigators contacted Sol Wireless and arranged for the purchase of several Nokia 1100 wireless phones and several Nokia 2600 phones. REPROGRAMMED PHONES According to the complaint, one of the investigators watched Pino take a Nokia 1100 handset out of a plastic bag, remove the phone’s back cover and insert a small, square device into the back of the phone where the battery is located. The device was connected to the back of a desktop computer. A couple minutes later, Pino removed the device from the back of the phone. The suit alleges that Pino performed the same process on each of the cell phones the investigator bought. The phones, along with a battery and charger, were then packaged in Nokia container boxes. When the investigator paid for the phones, Pino printed a Sol Wireless invoice with the words “Nokia 1100 New” and “New Handset(s).” The invoice also stated “One-year guarantee from Nokia and 30 days from Sol Wireless.” TracFone technicians and fraud analysts later examined the phones purchased from Sol Wireless and determined that they were manufactured by Nokia for TracFone and had been programmed with the TracFone’s special software, the complaint states. The phones had TracFone’s name and logo on the bottom and back of each handset. “TracFone’s proprietary prepaid software had been disabled or erased, and could no longer access the TracFone’s prepaid wireless service,” according to the complaint. “The phones were also ‘unlocked,’ permitting them to be used on virtually any carrier’s network.” The suit alleges the following counts — federal trademark infringement, federal unfair competition, injury to business reputation and dilution of mark, unfair competition and deceptive trade practices, circumvention of technological measures that control access to proprietary software, trafficking in services that circumvent technological measures protecting proprietary software, tortious interference with business relationships and prospective advantage, and tortious interference with the business relationship with TracFone and Nokia. Purchasers of the hacked phones also are likely to call TracFone’s customer service department with complaints and questions, “causing TracFone to incur substantial costs associated with responding to such inquiries,” the complaint says. Sol Wireless has 20 days to respond to the suit.

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