The controversy over Carrier IQ software –installed on millions of phones – continued this week, as costly class action lawsuits start to get filed and the company defends itself.

Plaintiffs filed federal lawsuits against Carrier IQ, as well as phone makers HTC (News - Alert) and Samsung, claiming a federal wiretapping law was violated, news reports said.

The class action lawsuits were filed on Thursday in Chicago and St. Louis, in an attempt to recover “hundreds of millions of dollars on behalf of all US residents who had mobile phones containing the software,” according to PaidContent.org.

AT&T and Sprint (News - Alert) said their smartphones have Carrier IQ software preinstalled, according to news reports. HTC and Samsung also have it on their phones, news reports add.

In its newest statement, Carrier IQ denies doing anything that violates the privacy of phone users but says its software will “measure and summarize performance of the device” for improved service.

The company response comes after allegations surfaced that software from Carrier IQ is allegedly being used to track as many as 100 million smartphones to find out sensitive details about owners, according to news reports.

Fox News said the software even reveals when phone owners log “individual keystrokes” or make “button presses.”

The allegations come from Trevor Eckhart – an Android (News - Alert) developer who displayed his findings in a new video, according to TMCnet. However, Carrier IQ denies its software violates wiretap laws.

“While a few individuals have identified that there is a great deal of information available to the Carrier IQ software inside the handset, our software does not record, store or transmit the contents of SMS messages, email, photographs, audio or video,” Carrier IQ adds in a statement released on Thursday. “…We do not record or transmit the content of the SMS. We know which applications are draining your battery, but do not capture the screen.”

“Our software allows Operators to figure out why problems are occurring, why calls are dropped, and how to extend the life of the battery. When a user calls to complain about a problem, our software helps Operators’ customer service more quickly identify the specific issue with the phone,” the company adds in the statement.

“The software receives a huge amount of information from the operating system,” Andrew Coward, Carrier IQ’s vice president of marketing, said in an interview by All Things D. “But just because it receives it doesn’t mean that it’s being used to gather intelligence about the user or passed along to the carrier.”

“What the Eckhart video demonstrates is that there’s a great deal of information available on a handset,” Coward added. “What it doesn’t show is that all information is processed, stored, or forwarded out of the device.”

“It’s the operator that determines what data is collected,” Carrier IQ CEO Larry Lenhart was additionally quoted by All Things D. “They make that decision based on their privacy standards and their agreement with their users, and we implement it.”

“The carriers are highly sensitive about what data they’re allowed to capture and what they’re not allowed to capture,” Coward adds.

But the company found it recently had to apologize both to Eckhart and the Electronic Frontier Foundation, TMCnet said.

Meanwhile, Sen. Al Franken (D, Minn.) wrote to Lenhart to clarify what’s going on.