On September 24, 2007, Dongmei Li of Queens, New York filed a lawsuit against the maker and exclusive carrier of iPhones, Apple Inc. and AT&T Inc., for price discrimination, underselling, discrimination in rebates, deceptive actions, and other wrongdoings. The lawsuit claimed that Apple violated price discrimination laws when it slashed the price of the 8-gigabyte iPhone by one-third, from $599 to $399, only two months after its debut in June 2007.

The lawsuit also names AT&T Inc., alleging that the two companies’ required two-year service contract for the iPhone constituted unfair business practices.

On September 5, 2007, Apple announced a reduction in the price of their 8-gigabyte iPhone. Steve Jobs, CEO of Apple Inc. and the third party named in the lawsuit, issued an apology the next day and offered a $200 refund to those who bought the phone within 14 days of the price reduction. For others who purchased the iPhone before the 14 day period, the company offered a $100 credit towards future purchases at Apple stores. According to Li’s lawsuit, Apple’s price reduction injured early purchasers because they could not resell the product for the same profit as those who bought the cell phone after the price cut.

Li felt cheated by Apple’s rebate policy because she was only able to take advantage of the $100 store credit, while other consumers who purchased their iPhone within the two week window were given a full $200 cash refund.

In addition to the price reduction, Jobs also announced that Apple would stop selling the $499 4-gigabyte iPhone model. Hundreds of early customers complained that the owners of the 4-gigabyte model were given less favorable terms as they could not trade up to the 8-gigabyte model and are now left with a discounted product.

Included in Li’s 8-page complaint were historical stock graphs that showed Apple’s share prices rising between the time the iPhone was released and the price cut. Li argues that this was proof that there was no sound reason for the price cut, which Li calls “underselling.”

Li requests $1 million for compensatory damages and an additional amount for punitive damages to be determined at trial.

Sources: Jennifer LeClaire, “An iPhone Class Action in the Works,” Mobile Tech Today, October 1, 2007; “Woman sues over Apple’s iPhone price cut,”Yahoo!News, October 1, 2007.