MobileCrunch reported earlier this month that Chinese Pirates Copy (the) iPhone. Not to be undone by China, American pirates have unlocked the iPhone booty chest. 17-year-old George Hotz spent 500 hours this summer with a twelve-pounder soldering iron and a T-Mobile SIM card grappling hook to steal AT&T’s and Apple’s pieces-of-eight. Other pirates also claim to have cracked AT&T’s exclusive license with Apple that is imbedded into the iPhone.

Modified iPhones are appearing for sale on places like eBay, and instructions for modifying the popular mobile device are springing up all over the Web. Apple built the iPhone with a locked SIM card to keep people from inserting a SIM that competes with AT&T. This lock has been picked, and both companies could lose millions of dollars.

AT&T has a five year agreement with Apple for the license to provide wireless service for the iPhone in the United States. An iPhone in America requires the user to sign a two year contract with AT&T. Apple is paid a percentage from AT&T for each call made on an iPhone over AT&T’s airwaves.

Pirate activity could interfere with negotiations between Apple and European operators who want an exclusive iPhone franchise in their countries. MobileCrunch reported earlier this month that Apple is to Share Operators Revenue in the lucrative European market. Three companies, T-Mobile of Germany, Orange of France, and O2 UK have agreed to pay Apple 10% of all revenues generated from iPhone calls and data functions. If the iPhone can’t be locked down, these agreements may be in jeopardy.

AT&T and Apple may be forced to hire pirate hunters to stop iPhone piracy. They could sue distributors of modified iPhones under copyright law. And if the companies’ lawyers are worth their salt, they can argue that distributing modified iPhones interferes with the business relationship between Apple and AT&T. It will be more difficult to go after people who distribute information on how to modify an iPhone, but anyone who bought an iPhone from a legal distributor signed a contract promising not to modify the device. It’s conceivable that Apple may demand the return of any iPhones that have been modified.

If you are a swashbuckler trying to take advantage of this new development beware: piracy is a hanging offence.

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