Diagnostic tools running on over 141 million handsets appear to record every keystroke made on the device. The software, which is made by Carrier IQ, is deployed by such carriers as HTC and Sprint on their smartphones.
The ability of telecommunications carriers to assess the health of their network is enshrined in federal law, which even gives carriers the ability to listen in on phone calls to ensure that they go through. But what's less clear is this: Does a third-party service such as Carrier IQ, which provides diagnostic software hidden on smartphones, enjoy the same protections as telecommunications providers?
Carrier IQ Vs. Wiretap Laws - Security - Privacy - Informationweek