【Watch Project X Online】

Google has suspended hundreds of accounts owned by people who took part in a smartphone resale scheme designed to exploit a loophole in sales tax law.

The Watch Project X Onlinebanned accounts had apparently all ordered Google Pixel phones to be shipped to a single address in New Hampshire, a state with no sales tax. From there, a vendor resold the phones and then split the tax-free profits with participating users.

Google said the coordinated operation was a violation of its purchase terms, which ban any commercial resale of its hardware.

The company's crackdown was first reported by the cost-cutting tips blog Dan's Deals, after site owner Daniel Eleff heard from many of the users affected.

More than 200 people were reportedly locked out of their accounts when his initial article was published.

Instead of just banning the users from Google's online store, the company shut them out of all of the services under the search engine's umbrella, including saved photos, documents and email.

"I’m not defending those who violated the terms of the sale," Eleff wrote, "but I do think it is heavy-handed for Google to block access to all of their services for doing so."

"Was violating Google’s phone resale policy really worthy of an effective digital death penalty?"

A Google spokesperson said in a statement Thursday afternoon that the company took action after it noticed an unusual number of phones being directed to a single address.

The company claims that many people seemed to be creating fake shell accounts for the sole purpose of the scheme, and it is now in the process of unlocking those that it deems to be legitimate.

"We prohibit the commercial resale of devices purchased through Project Fi or the Google Store so everyone has an equal opportunity to purchase devices at a fair price," the company said in a statement. " After investigating the situation, we are restoring access to genuine accounts for customers who are locked out of many Google services they rely on."

The New Hampshire reseller responsible for setting up the deal has organized similar arrangements involving Google products in the past without any penalty, Eleff said.

Eleff told Mashablein an email that he has yet to hear from any users who've had their account restored.

He still thinks the punishment was unnecessarily harsh.

"Shutting off all Google Services seems draconian to me and blocking access to past data, which is supposed to be owned by the user, is just beyond the pale," Eleff said. "The punishment doesn't seem to fit the crime."

As a growing portion of people's online lives are consolidated onto a handful of platforms owned by major corporations, wielding this kind of power over users can have far-reaching implications. Oftentimes, users entrust Google with storing priceless family photos, valuable documents and critical emails.

Amazon customers who've run afoul of the e-commerce giant have faced similarly devastating consequences -- losing out on pre-paid memberships and media they supposedly owned.

"It’s the 21st century version of losing priceless mementos in a house fire," Eleff said.