Clearwire’s often-unclear “network management” policies are the subject of a lawsuit filed yesterday in Seattle seeking class action status.

Angelo Dennings vs. Clearwire Corporation was filed in the Western District of Washington federal court, and seeks refunds for consumers who were mislead by the company’s failure to disclose its network speed throttling and usage limitations, and charged early termination fees when subsequently canceling service.

Clearwire promises that its high-speed Internet service provides a “fast” and “always on, always secure” Internet connection allowing users to “[d]ownload pictures, music and videos.” But Clearwire does not provide an “always on,” “high-speed” connection as it promises. Clearwire purposefully slows the connection of its users because it cannot accommodate the high volume of traffic. Clearwire engages in a practice known as “throttling,” which is the intentional delay and/or blocking of Internet communications. This practice deprives Clearwire customers of the ability to “[d]ownload music and videos,” and leads to slow connection speeds.  Clearwire engages in throttling at times when demand for Internet use is highest, beginning at approximately 7:30 p.m. and ending at about 1:00-to-2:00 a.m.

If users attempt to cancel their service, Clearwire claims that, pursuant to its “contract” with them, it is entitled to collect an early termination or a re-stocking fee. The “contract” referred to by Clearwire is not a contract between it and its customers. The contract between Clearwire and its customers is simply that the customers will pay for, and Clearwire will provide, “unlimited” Internet usage at certain speeds, depending on the speed and payment plan selected in Clearwire’s stores, kiosks, or online.

The remaining “terms” invoked by Clearwire at its convenience are embedded in a document that consumers never see prior to subscribing to Clearwire’s service. Clearwire sells its services in its stores, kiosks at shopping centers, and online. Clearwire’s stores and kiosks do not have copies of this “contract” on hand for potential subscribers to read before they “agree” to its terms. Users who subscribe through Clearwire’s website never see the contract either because the link to it is at the bottom of a page, in substantially smaller font and lighter shade than all of the other text on the page. The text states: “Want to read the fine print (and who doesn’t read the fine print?) It’s all there in the CLEAR Legal Index.” No one wants to read fine print legalese and almost no one does. The statement is obviously and sharply ironic, and mocks anyone who may have been fussy enough to have considered continuing.

Despite not showing its terms to consumers, Clearwire refuses to allow users to cancel their service without paying the unconscionable fees it claims it is owed under this “contract.” These fees include an early termination fee (“ETF”), which penalizes consumers that want out before the end of the two-year term. Although Clearwire breached its contract with its customers, Clearwire insists on the payment of this ETF when customers realize they are not getting what they bargained for.

The suit argues that Clearwire has oversold its wireless broadband network, and allegedly quotes a company representative at one point telling Dennings, “Clearwire had signed up more customers than its cell towers could accommodate, and that therefore it was ‘managing’ users’ accounts.”

Attorney Clifford Cantor argues in the filing that Clearwire reduces customer speeds to 300kbps or lower when their network is congested, making the service unsuitable for most broadband applications.  Dennings, who lives near Ft. Worth, Tex., was outraged to learn Clear sold him a home and mobile broadband account that was advertised as a replacement for wired cable or DSL broadband, but was left with service he considered largely useless when throttled.  Even more upsetting, the suit alleges, Denning was asked to pay a $219 early contract termination and restocking fee when he tried to cancel service over the matter.

Cantor is asking for a court ruling declaring Clear’s policies to be unconscionable, attorneys’ fees of at least $5,000, and refunds for all impacted subscribers.

Thanks to Stop the Cap! reader Michael in Chicago for sending along a copy of the lawsuit.  He runs the “Clear/Clearwire internet not as advertised” Facebook group.

Back in 2002 Vincent and Liza Concepcion walked into a southern California AT&T Mobility store to purchase new cellphones for themselves.  AT&T advertised a buy one, get one “free” offer for cellphones.  What AT&T didn’t say was that the family would end up paying more than $30 in hidden sales taxes for both phones.

More than eight years later, that purchase — and the resulting class action lawsuit it launched — threatens to sweep away important consumer protections by letting corporations ban class action cases and curtail Attorneys General from enforcing state consumer protection laws.

Oral arguments in the case AT&T Mobility v. Concepcion were heard before the U.S. Supreme Court last Tuesday in one of the most important consumer protection cases in decades. At issue is this clause, inserted into the Concepcion’s service contract with AT&T that would disallow the family from participating in a class action lawsuit:

“You and AT&T agree that each may bring claims against the other only in your or its individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.”

That clause clashes with several state laws, California’s included, which basically say consumers cannot be compelled to sign away their basic consumer protection rights.  California law also says some contracts can be considered unenforceable ‘if they are built on deception, are too-one sided, or violate broader public policy.’

Hello, AT&T.

Vincent and Liza, through their attorney, argue that bringing an individual lawsuit against AT&T over $30 in sales taxes would be crazy — no lawyer would take the case and no plaintiff would front a retainer well beyond the amount in dispute.

As Justice Ruth Bader Ginsburg wrote in another class action case, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

The “class action” concept provides at outlet for aggrieved consumers who can attract legal representation if a company can be sued on behalf of every impacted customer.  For AT&T, that could mean facing not just the Concepcion family, but millions of Californians — each charged sales taxes for phones the company advertised as “free.”

How AT&T’s Case Has Broadened Into a Major Dispute Over Arbitration vs. Class Action Lawsuits

But what began as a legal argument over a “free” phone has broadened into a much larger legal case before the Supreme Court: can consumers be compelled to participate in company dispute settlement schemes and give up their legal right to petition the court system for relief?  Further, what happens when those contract clauses conflict with state consumer protection laws?

Following in the footsteps of the credit card industry, AT&T inserted a clause mandating customers stay away from class action lawsuits.  By telling consumers they are forbidden to participate in such cases, AT&T pushes customers into the murky world of “arbitration” — a system where AT&T picks a private company, with whom it has a financial-business relationship, to “impartially” rule on customer complaints in secret proceedings.  Consumers have to pay their own way to attend arbitration hearings, often held in cities a thousand miles away or more.  They also must agree the decisions are binding and final.

AT&T argues, both directly and through its dollar-a-holler advocates, that class action cases are annoying, expensive, and do not typically deliver substantial benefits to class members.  The wireless carrier argues arbitration of individual cases is much faster and potentially more lucrative to would-be class action members.  Stephen J. Ware, a professor of law at the University of Kansas School of Law argues consumers have often done far better avoiding litigation and entering into arbitration programs.

But consumer advocates claim AT&T’s arbitration rules are stacked against consumers.  Arthur H. Byrant, executive director of Public Justice argues:

First, AT&T’s “agreement” bars its customers from court (except small claims court) and requires them to utilize the company’s mandatory arbitration program. Its rules say that, if a customer completes the process and recovers more than the last written settlement offer AT&T made before the arbitrator was chosen, a $7,500 premium will be paid. Second, the “agreement” bans AT&T’s customers from bringing or participating in class actions against it. Third, the “agreement” provides that, if AT&T’s class action ban is found to violate the law (as 20 states have held contractual class action bans do when they effectively immunize a company from liability), the arbitration clause “blows up” and the class action must proceed in court. Then, when the class action ban is struck down under state law (as AT&T knew it would be), the company springs its wacky trap: It argues that the Federal Arbitration Act of 1925 (FAA) pre-empts — and invalidates — that state law because (believe it or not) the state law is biased against arbitration.

AT&T’s call for pre-emption suffers from a bad connection. State law is not biased against arbitration. It allows AT&T to resolve disputes in either arbitration or court. Only AT&T’s “agreement” is biased against arbitration. Its “blowup clause” precludes class actions from proceeding in arbitration, but not in court.

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Using the scroll bar to the right of the player, move down and click on Attorney Paul Bland’s name and watch him argue forcefully that AT&T’s motives are plain and simple — to allow them to get away with anything they want and not face accountability from the legal system. — “Arbitration is not the Candy Bridge into Rainbow Land.”

Tapping Into Consumer Discontent With Class Action Cases for the Benefit of AT&T

Ask anyone about the merits of most class action settlements and one will often get a response that the lawyers win while consumers lose.  Just this week many owners of HP printers will get word a deal has been reached over a class action case involving printer ink.  The multiple law firms involved will split not more than $2.9 million under the terms of the proposed settlement.  Consumers will get “e-credit” worth $5, $2, or $6 redeemable at HP’s online store, which sells ink cartridges at inflated prices.  In effect, HP has little to grumble about delivering “awards” to consumers that ultimately benefit its own enterprise, the only place those awards can be redeemed.

With settlements like that all too common, it is easy for AT&T’s advocates to tap into consumer discontent with class action lawyers, proclaiming AT&T’s case is actually consumer-friendly because it would cut those money-grabbers out of disputes with the company.

But consumer advocates stress class action cases do more than deliver settlements — they deter bad behavior on the part of would-be wrongdoers, bring corporations to account fiscally when they are forced to settle, and open the door to legal discovery which can uncover patterns of extensive wrongdoing that would otherwise remain secret in arbitration.

But most important of all, class actions impact every customer, not just the handful who navigate arbitration to achieve a confidential settlement.  That can be critically important to stop unfair business practices.

Of course, reform is also desperately needed in the class action system.  Too often, judges approve class action cases that deliver maximum benefits to the law firms that bring them, leaving consumers with peanuts.  Strict limits on legal fees recouped in such cases, perhaps tied to a percentage of total recovery would be a start, as are bans on settlements that don’t provide cash refunds to consumers who choose not to conduct further business with companies that abuse them.  Coupons, low value trinkets, and donations to third party groups (non-profit or otherwise) are insufficient.  Attorneys that selfishly claim most of the proceeds for themselves have only themselves to blame when corporations use that fact against them under so-called “tort reform” proposals.

Some advocates of AT&T’s position also argue that government oversight can provide a more effective system of checks and balances against corporate overreach.  While a noble sentiment, anyone who has watched the revolving door of lobbyists going to work for such agencies, later returning to lucrative jobs with the companies they formerly regulated, knows that is a classic case of the fox overseeing the hen house.  In an era of government “oversight” that missed everything from BP’s safety lapses, salmonella-infected eggs, produce, and meat, tainted pet food ingredients from China, and indecisiveness about telecommunications reform like Net Neutrality — such proposals are not to be treated seriously.

The Supreme Court Decision

While it will be months before the Court rules, most observers suspect consumers will ultimately win the case.  Liberals on the court are skeptical AT&T’s efforts to preempt state consumer protection laws are actually for the benefit of consumers, and some of the most conservative members of the court like Justice Clarence Thomas, big believers in “states’ rights” are likely to find for the Concepcion family.

“Based on what was said during the argument, I predict a 8-1 or 7-2 vote for the consumers and California, with Samuel Alito dissenting and John Roberts a toss up. Thomas, who never speaks at oral argument, will vote for the consumers and state on federalism grounds, as he always does in [arbitration] cases,” writes Lawrence Cunningham, Argument in Class Waiver Case Favors Consumers, States, Concurring Opinions.

“[I]t doesn’t look as though there are too many votes at the high court to do away with the right of consumers to band together to sue the great American manufacturers of fine print,” said Dahlia Lithwick, Can You Hear Them Now? The Supreme Court reads the fine print on your cell phone contract, Slate.

If these two observers are wrong, it will be open season on consumers who will be forced into arbitration agreements that deliver all of the benefits to companies like AT&T.  Under such a scenario, there would be little to dissuade companies from developing new fine print to trick and overcharge consumers.  Few will be willing to buy a ticket to fly halfway across the country to sit for arbitration proceedings over a $20 dispute, especially when the arbitration firm’s income depends on fees paid by the very companies that are accused of wrongdoing.

Frontier Communications has themselves an RV and they’re sending it on a “Great Conversations Tour” with their newest customers in Ohio, Illinois, and Wisconsin.  The company tweeted its intention to visit “10 Cities, 7 Executives, 5 Days, 3 States,” all in one recreational vehicle.

On the agenda are promises the company intends to deliver their version of broadband to a larger number of customers.

“On average, these properties that we purchased from Verizon had 62 percent broadband accessibility, and we will be looking to take that to 85 percent in two years,” says John Lass, president of Frontier’s Central Region. “In our current properties, we are averaging 92 percent broadband accessibility.”

The broadband most of those customers will end up with will range from 1-3Mbps in rural areas, perhaps up to 6Mbps in more urban ex-Verizon service areas, but everything is dependent on the quality of the lines Frontier has to work with.

That increasingly poses problems for the company, who had to cope with yet another major service outage in Illinois — the second in a month, that knocked out phone and emergency services for 28,000 residents across eight counties in central and northwestern Illinois.

The landline service failure, originally thought to be a fiber cable cut, turned out to be a hardware failure in the company’s central office in the village of McLean.  The impact was immediate as cell phone customers could not reach Frontier lines and Frontier customers in many areas could not make long distance calls or reach 911.

Peoria’s Journal-Star reported businesses were particularly impacted by the outage:

Carol Hamilton, Washington Chamber of Commerce executive director, said city business owners reported problems making landline-to-cell phone and cell phone-to-landline calls. Landline-to-landline calls were going through.

“We actually started hearing about the phone problems Wednesday,” Hamilton said. “People were getting a busy signal, or were told the number they were calling was out of order when they tried to make a call. The problem didn’t affect our office until Thursday morning.”

Frontier’s equipment failure also knocked out the Logan County computer system, and the Woodford County Sheriff’s Department computer system. Residents in those counties were instructed to call Illinois State Police posts in Springfield and Metamora for emergencies.

One local resident noted this is why he doesn’t have a landline anymore.

Since Frontier can gas up its RV and tour the countryside, Stop the Cap! can take you on a virtual RV tour of our own to visit with some disgruntled Frontier customers.  Our first stop…

Unauthorized Bill Cramming Plague Leads to Lawsuit Against Frontier

Hal Greene was reviewing his monthly Frontier phone bills when he discovered his monthly charges shot up from $230 to $290.  The Pine Bush, N.Y., resident found $39.95 charges on each of this bills for something called “Enhance SVCS Billing Inc Long Distance Calls … IBA-Services.”  He had no idea what that charge was for, and he knew he didn’t authorize it.

The Times Herald-Record picks up the story:

He called the company, Enhanced Services Billing Inc., but the company wouldn’t refund his money. He called the phone company, Frontier, which blocked the charges moving forward, but Greene never got a refund.

He went online to research the company, and found countless complaints from other consumers about ESBI, an aggregator that purports to bill for services provided by third parties.

Greene also found the contact information for a law firm, Giskan Solotaroff Anderson & Stewart in Manhattan, that was looking into the company. He called and became the named plaintiff in a class action lawsuit against Frontier and ESBI.

“I was very angry because it was so surreptitious the way they snuck that charge in there, and they’re just kind of counting on stealthing it into the bill without you noticing,” Greene said.

The suit alleges that the defendants know they are collecting charges customers didn’t authorize. It seeks monetary and compensatory damages, attorneys’ fees and further relief “as equity and justice may require.”

Representatives of ESBI and parent company BSG Clearing declined to comment. Frontier also would not comment, said spokeswoman Brigid Smith.

Greene is a classic victim of bill cramming, a practice where phone companies allow third parties to bill for services on their phone bills, in return getting a major cut of the action.

Most customers find themselves victims of cramming when they complete “surveys” or sign up for free trials of unrelated services.  Other victims purchase products from websites that offer future discounts just for “previewing” shopping clubs or credit monitoring services.  Even obtaining a “free reward” like a magazine subscription, ringtone, or avatar image for use on a social networking website could come with a very expensive “gotcha” on your landline or mobile bill a month later.

In Greene’s case, his “gotcha” was IBA Services — Internet Business Advisors, which offers a very dubious package of dial-up Internet, web hosting, and discounts at office supply stores.  For that, customers pay $20-40 or more per month.  Greene was paying for it across multiple phone bills, each with their own charges.

IBA Services is an example of how anyone can set up a business and use billing services like ESBI to sit back and wait for the checks to arrive.  Unfortunately, too often those charges are unauthorized and crammed onto phone bills.  Critics charge phone companies have a financial incentive to look the other way, as they earn a substantial percentage of the charges as a commission.  Millions are waiting to be earned at your expense.

Of course, phone companies correctly say they are required to accept third party billing services.  But what they don’t tell you is that they are not required to continue to accept those with a track record of cramming.

Stop the Cap! looked into IBA and discovered the “company” is “located” at 980 9th Street, 16th Floor Sacramento, CA 95814.  That sounds like quite a prestigious address, considering it is located in Sacramento’s US Bank Plaza.  But the 16th floor is a mighty crowded floor considering the enormous number of companies calling it home.  Those firms range from IBA to a scam operation trying to collect “fees” on behalf of the state of California to “Medical Hair Restoration.”  (That latter firm might be useful if you’ve torn all of your hair out fighting illegitimate charges on your phone bill.)

Truth be told, 980 9th Street — 16th Floor is a “virtual office” address.  A company that specializes in the practice, Regus, maintains that address as a mail drop and short term meeting space location for countless companies looking to keep their actual locations (often a home) out of public records.  Regus itself isn’t a questionable enterprise, but some of their clients are.

For $99, we could have an address at the US Bank Plaza as well.  Best of all, Regus throws in access to high speed Internet service as part of the package price — something IBA doesn’t even offer their own clients.

Greene’s anger is understandable considering anyone can get in on this action, peddling useless voicemail service, credit repair, ringtones, shopping clubs, and a myriad of other services carrying steep monthly fees, all conveniently billed to your monthly Frontier phone bill.

When we called IBA Services’ toll-free number, we were connected with a generic “customer care” department.  The representative, who would only give her first name, told us at first she had no idea what company we were calling about.

“We handle customer service calls for many different providers,” Inez told us. “When customers call, we ask for their phone number which usually brings up what provider they are doing business with.”

When she learned we were not a victim customer, she refused to answer any further questions about the company she works for or how many customers call claiming they are being crammed.

For dozens of customers who have been in similar circumstances, bill cramming quickly evolves into buck passing.

“The best part of this entire scam is that when you call Frontier, Verizon, AT&T or other phone companies, they tell customers to call the crammer directly to get the charges off the bill,” says our reader Gene who was also a victim of Frontier cramming.  “When you call the crammer, they always say you must have authorized it because they don’t bill just anyone, so you need to call your local phone company to deal with the charges.”

When customers tell phone companies the crammers refuse to credit their account and stop the charges, many will agree to place a block on future 3rd party billing, but neglect to reverse the charges.  By now many exasperated consumers just give up and eat the cost, something crammers count on.

“Frontier is happy because they got a substantial percentage of that fee and the crammer gets to walk away with whatever money they earned before the consumer noticed,” Gene says.

Marte Cliff, a freelance copyrighter who blogs from Priest River, Idaho was one of millions of ex-Verizon customers who received their first bill from Frontier over this summer.  Hers included $14.95 in charges for an “e-mail bundle.”  Cliff was alarmed:

When I opened our first bill from the new provider it was about $15 more than my normal bill, so I went looking to see why. And I found a charge from a company called Email Bundle. Why?

There was a notice – for billing questions call 888-934-7750 to reach PayOne Billing, so I did. I got a recording that told me everyone was busy and that I needed to wait. Then I got a brief busy signal and a message saying I was being transferred… and then a “looped” recording telling me a web address over and over and over.

Obviously, PayOne billing was not going to answer my call.

So I called Frontier. After 10 minutes or so of recorded messages I finally made contact with a live person… who said I just wouldn’t believe how many people had called this week over the same issue.

While Cliff doesn’t blame Frontier and got her money back, she is concerned many new customers may find it easy to miss such add-on fees, assuming they are just the cost of doing business with their new phone company.

“My bill is the same every month because I pay a flat for unlimited long distance, but other people have long distance charges and their bill is different each month,” she blogged. “They might not notice a $15 discrepancy – especially if they’re running a business and have large phone bills. And especially not since phone bills are generally so convoluted that it takes a puzzle expert to figure them out.”

ESBI, responsible for billing Greene $40 for dial-up Internet, itself has a long sordid history, having been the target of a Federal Trade Commission investigation in 2001. The biller, part of the Billing Services Group, Ltd. (an offshore entity incorporated in Bermuda), has 120 employees in San Antonio.  BSG’s financial presentations to their investors go to new heights to diplomatically explain away their questionable business practices, such as this passage from one of their recent press releases:

Background of Enhanced Service Billings and the Company’s Action Plan

Historically, enhanced service billings have been susceptible to misunderstanding between the enhanced service provider and the consumer over such issues as charges and scope of service. As a result, enhanced services have typically involved a higher consumer inquiry or complaint rate than regular telephone usage charges, which, in turn, can precipitate negative perceptions about enhanced service billings.

The Company has taken proactive measures, including the implementation of certain procedures over the last year, to minimize the level of disputed charges in connection with enhanced services. These measures include:

• Submitting enhanced service charges to each LEC (local phone company) only after that LEC has expressly approved the billing of a particular service offering by a specific enhanced service provider;
• Authenticating all enhanced product sales through the Company’s Bill2Phone™ authentication engine;
• Company employees anonymously subscribing to random enhanced services offerings to assess the quality of service and accuracy of charges; and
• Actively monitoring the level of complaints received in respect of its customers’ enhanced service offerings.

If there are perceived irregularities in the authentication of orders, quality of service, accuracy of charges or the frequency of consumer complaints involving an enhanced service provider, the Company takes appropriate action, including, if necessary, termination of billing for that customer. Each LEC in the United States requires that providers of enhanced services comply with certain end user inquiry or complaint thresholds; that is, a maximum number of inquiries or complaints in any particular month and in each LEC region. As described above, the Company actively monitors the level of consumer inquiries and complaints in respect of its customers’ enhanced service offerings and believes that the level of such inquiries or complaints is, for every one of its existing 98 enhanced service customers, below the contractual thresholds required by, among others, the largest LEC in the United States.

ESBI calls their business practices “powerful and innovative.”  Gene calls them “underhanded and deceptive.”

“These are bottom feeders that try and protect their ill-gotten gains by incorporating in Bermuda and throwing some goodwill contributions to the San Antonio chapter of the United Way to make you feel they’re ethical,” Gene says.  “When the company’s own financial presentations warn investors their future revenue is at risk from telephone company crackdowns, their long term future is an open question.”

What is also remarkable is that ESBI scores higher than Frontier Communications with the Better Business Bureau.

“One has to wonder how a bottom feeder operation like ESBI/BSG managed to earn a “D” while Frontier scored a rock-bottom “F,” Gene wonders.

How You Can Protect Yourself

1. Scrutinize your phone bill carefully, especially if it has increased recently.  Pay special attention to sections labeled “Miscellaneous,” and the long-distance, 900-number, and “third-party” charge sections on your bill. Third-party charges are charges from anyone other than your phone company. Many phone companies are trying to switch customers to “out of sight, out of mind” electronic billing with automatic payments.  That makes it easy to ignore a bill you have to click a link to see until after the amount due is withdrawn from your checking account.  Not paying illegitimate charges keeps the money in your pocket — trying to get a refund from the phone company keeps it in theirs.
2. Demand the phone company place a “3rd party billing block” on your phone line.  Frontier calls this service “Bill Block.”  I have yet to encounter a worthwhile service that needs to bill customers using 3rd party phone bill charges, so why give them the chance to try?
3. Avoid pop-ups and other online ads that promise free services in return for sharing your phone or mobile number.  Chances are the freebies also come with sneaky add-ons that will cost plenty.
4. Do not enter surveys or contests that require a phone number.  If you are a winner, they should be able to contact you by mail.  Many of these contests also include fine print authorizing the promoter to start telemarketing you later, so the prize is rarely worth the aggravation.
5. Obtain a virtual phone number from a service like Google Voice.  It’s free. You can give out this phone number to those you are not sure about.  If a crammer tries to sign that number up for unauthorized services, they’ll encounter a roadblock.
6. If you are a victim, tell the phone company you want all of those charges reversed at once — they are unauthorized.  Do not accept their request to contact these companies yourself.  They are capable of reversing the charges, letting the billing agency protest the chargeback.  They rarely do, and you don’t have to waste your time dealing with “Inez” at “customer care.”

Finally, if you are victimized, contact the Federal Trade Commission by calling 1-877-FTC-HELP (1-877-382-4357) and file a complaint.

Verizon, the nation’s largest wireless phone company, has agreed to refund erroneous data charges for 15 million subscribers who paid for data sessions they did not initiate.

Those familiar with the proposed refund settlement claim the company could spend between $50-90 million in refunds for customers without data plans who were charged, in some cases repeatedly, $1.99 for a few seconds of web access.

The problem stems from Verizon phones that make accessing data services easy to trigger.  One misplaced button press can launch a data session, resulting in a web access fee.  Verizon repeatedly denied the company was charging customers who accidentally landed on the provider’s wireless home page, but customers loudly claimed otherwise, filing hundreds of complaints against Verizon with the Federal Communications Commission.

Teresa Dixon Murray, a reporter for The Plain Dealer in Cleveland, was among the first to report on the mysterious charges many customers couldn’t figure out, especially as they continued even for customers who placed a “block” on accessing data services or who had powered their phones off and were still charged the fees:

In a column last summer, I chronicled my battle with Verizon after I discovered Verizon had been concocting $1.99 monthly charges for supposed Web use by my family plan numbers. Verizon’s ruse ended the month that my son’s phone was dead and locked away for weeks.

Verizon responded directly to me in a meeting with several top executives, and they promised to investigate the problems suffered by thousands of customers nationwide. The company in August also promised to change its policy of charging customers if they accidentally hit their phone’s “mobile Web” button. The new policy: To get charged, customers now supposedly have to type in a Web address.

A Verizon Wireless employee anonymously told the New York Times the scheme was a planned money-maker for Verizon, which earned up to $300 million a month just from accidental web access:

“The phone is designed in such a way that you can almost never avoid getting $1.99 charge on the bill. Around the OK button on a typical flip phone are the up, down, left, right arrows. If you open the flip and accidentally press the up arrow key, you see that the phone starts to connect to the web. So you hit END right away. Well, too late. You will be charged $1.99 for that 0.02 kilobytes of data. NOT COOL. I’ve had phones for years, and I sometimes do that mistake to this day, as I’m sure you have. Legal, yes; ethical, NO.

“Every month, the 87 million customers will accidentally hit that key a few times a month! That’s over $300 million per month in data revenue off a simple mistake!

“Our marketing, billing, and technical departments are all aware of this. But they have failed to do anything about it—and why? Because if you get 87 million customers to pay $1.99, why stop this revenue? Customer Service might credit you if you call and complain, but this practice is just not right.

“Now, you can ask to have this feature blocked. But even then, if you one of those buttons by accident, your phone transmits data; you get a message that you cannot use the service because it’s blocked–BUT you just used 0.06 kilobytes of data to get that message, so you are now charged $1.99 again!

“They have started training us reps that too many data blocks are being put on accounts now; they’re actually making us take classes called Alternatives to Data Blocks. They do not want all the blocks, because 40% of Verizon’s revenue now comes from data use. I just know there are millions of people out there that don’t even notice this $1.99 on the bill.”

Verizon’s decision to refund the erroneous data charges also comes long after a class action lawsuit was filed earlier this year against the company by Goldman Scarlato & Karon, P.C., of behalf of customers.

Impacted existing customers can expect credits, typically ranging from $2-6 on their October or November bills.  Former customers will get refund checks in the mail.

The Federal Communications Commission said it was opening an investigation into the Verizon overcharges, seeking a financial penalty from the wireless carrier, according to Reuters.

The news agency noted some customers were billed for data fees just because of software pre-loaded onto phones:

The charges affected customers who did not have data usage plans, but were billed because of exchanges initiated by software built into their phones.

For example, trying out a demonstration of a game that Verizon Wireless had pre-loaded onto a phone would sometimes trigger data transmissions from the phone unbeknownst to the customers who were then charged by Verizon Wireless for the data.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WPRI Providence Verizon To Pay Millions In Refunds 10-4-10.flv[/flv]

WPRI-TV in Providence covers the Verizon overcharges, pondering ‘why did it take more than two years for refunds?’  (3 minutes)

ivi, which we wrote about last week on Stop the Cap!, has begun receiving the predictable ‘Cease and Desist’ letters from just about every broadcaster and sports association around.  But in a pre-emptive strike, the online TV service filed sued Monday in Seattle District Court against them, asking the court to recognize its right to carry broadcast stations on its online service under existing royalty rules, with or without the permission of the broadcast stations involved.

To date, ivi says it has gotten ‘Cease and Desist’ letters from every major broadcast network, plus Major League Baseball, 20th Century Fox, two public broadcasters, and Fisher Communications, owner of Seattle-based KOMO-TV.  All of them ended up as defendants in ivi‘s suit.

ivi claims its online operations are not governed by the Federal Communication Commission, meaning it does not have to enter into negotiations with stations for carriage permission and retransmission fees.

“The secondary transmission by ivi of the primary transmission of content originating with the Defendants is permissible under the statutory licensing provisions of the Copyright Act,” the lawsuit claims. ivi seeks a ruling that finds the company has not infringed on any copyrights, and to force defendants to pay its legal expenses.

The company issued a statement Monday after filing suit:

“ivi, Inc., remains steadfastly on the side of the consumer, refusing to allow big media to limit consumers’ choice or its technology. Instead, ivi has responded to the C&D letters with both written clarification explaining how its technology works within the parameters of existing law, and offers to meet with broadcasters to begin a constructive dialogue about implementing ivi’s proprietary technology. The ivi technology is a clear reflection of consumer demand and evolutionary forces in the technology marketplace,” the company said.

“ivi is not another Pirate Bay or Napster trying to gain from others’ works. Rather, ivi wishes to work with content owners in helping them to realize new revenue streams and reach more viewers from around the globe,” said Todd Weaver, founder and CEO.  “The ivi team has spent more than three years developing a compelling technological solution that no other company has come close to matching.  ivi enables content owners to protect and monetize their assets while simultaneously giving consumers what they want.  We recognize that it is disruptive to existing cable offerings and remain confident that we have adopted a model that is allowed under all applicable laws. We remain receptive to formal partnerships with broadcast networks and are discussing carriage rights for premium cable, international, and a la carte channels.”

What’s likely to happen next?  One of the named defendants will almost certainly walk into a court and obtain a temporary injunction from a judge that will force ivi to pull its network or station off of ivi‘s lineup.