Actually in Austin TX it's been a common practice for a very long time. The reason being, in many degree programs at University of Texas students are required to do a semester internship to graduate. Therefore, it can actually put a pretty enormous burden on companies in the area to facilitate internship programs twice a year. Because it is tied to degree programs, there's also a fair amount of documentation and work that these employers must do. In addition, interns require training which costs money and wastes time, and they usually quit as soon as their requirements are complete.

That said, unpaid internships are justified and common here. However, as a general best-practice I always advise companies to pay their interns if they are working on billable / revenue-generating work. If they are just doing mindless work, then I feel they are compensated with 3 hours of school credit and the cost/time sink.

Having worked with a lot of interns from the school, you get a lot of fickle results and often it's really more of a waste of time than beneficial situation for the company. And I damn sure would not trust an intern to work on mission-critical projects until they proved themselves, which often takes longer than their internship requirement. To any UT students, I was able to get out of mine and get 3 hours credit because I was self-employed w/ 2 companies. :)