Apple and AT&T are probably watching a lawsuit in California closely, as it could mean the end of their vaunted iPhone-exclusivity partnership.

As I wrote last month, service providers and software companies craftily get users to agree to early termination fees and keeping phones locked, by requiring that they agree to one-sided contracts before they can use a product or service. The point was to set the terms of the transaction to the companies's advantage, and protect themselves from lawsuits.

That's exactly what T-Mobile tried to do, when it was faced with a lawsuit challenging two industry-standard practices: early termination fees and phone-locking:

T-Mobile originally asked the lower courts to throw out the lawsuit, arguing its terms-of-service agreement requires aggrieved customers to submit to binding arbitration before a neutral mediator. T-Mobile said the service agreement also bars them from filing class-action lawsuits. But the plaintiffs argued it is in the public interest to use the courts, not mediators, because public-policy issues are at stake.

A state trial judge and a state appeals court rejected T-Mobile's position. The carrier appealed to California's highest court, which on Wednesday let those decisions stand.

Because of these developments, the lawsuit can go forward. And if T-Mobile loses this case, it could mean the relationship between service providers and their customers could change big time. Even if the legal effects of this case would apparently affect only the state of California, it's quite possible that other people could cite the precedents set here to try and break free from their limiting contracts.

Such a scenario could spell the end of AT&T's iPhone exclusivity. If US courts decide that the typical service agreement for smartphone and PDA phone users is unfair, companies may be forced to change to stay legal, and say goodbye to phone locking and early termination fees.

Another potential effect is that handset prices may actually rise. Service providers get to offer mobiles at low prices because they lock their buyers into two-year contracts, making money from the promised income.