Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Apple, Inc. settles FTC charges in billing of kids’ in-app purchases without parental consent, (Jan 15, 2014)

By Linda O’Brien, J.D., LL.M.

The FTC announced today that Apple, Inc., the world’s second largest information technology company, has agreed to provide full refunds to consumers to settle an FTC complaint that the company billed consumers for millions of dollars of charges incurred by children within mobile applications without parental consent. Under the terms of the settlement with the FTC, Apple, Inc. will be required to change its billing practices to ensure that express, informed consent from consumers has been obtained before charging them for items sold in mobile applications.

Apple offers many applications for children in its App Store that allow users to incur charges within the applications. Many of the charges are for virtual items or currency used in playing a game on a mobile device. The charges generally range from 99 cents to $99.99 per in-app charge. In its complaint (In re Matter of Apple, Inc., File No. 112-3108), the FTC charged that Apple violated the FTC Act by failing to inform parents that, by entering a password, they were approving a single in-app purchase and also 15 minutes of additional unlimited purchases by their children without further action by the parent. In addition, Apple often presented a screen with a prompt for a parent to enter his or her password in a children’s app without explaining to the account holder that the password entry would finalize any purchases. According to the complaint, the FTC noted that Apple received at least tens of thousands of complaints from consumers about unauthorized in-app purchases by children.

The proposed consent decree to settle the FTC charges requires Apple to modify its billing practices to ensure that Apple obtains consumers’ express, informed consent prior to billing them for in-app charges, and that if the company gets consumers’ consent for future charges, consumers must have the option to withdraw their consent at any time. Apple must make these changes no later than March 31, 2014.

Under the settlement, Apple will be also required to provide full refunds, totaling a minimum of $32.5 million, to consumers who were billed for in-app charges that were incurred by children and were either accidental or not authorized by the consumer. Apple must make these refunds promptly, upon request from an account holder. Apple is required to give notice of the availability of refunds to all consumers charged for in-app charges with instructions on how to obtain a refund for unauthorized purchases by kids.

In a joint statement with Commissioner Julie Brill, FTC Chairwoman Edith Ramirez said the FTC is confident that the settlement today fully preserves the incentive by companies, such as Apple, to innovate and develop digital platforms that are user-friendly and beneficial for consumers. The FTC also firmly believes that technological innovation and consumer protections can coexist if all marketplace participants abide by the basic principal that they must obtain consumers’ informed consent to charges before they are imposed.

“This settlement is a victory for consumers harmed by Apple’s unfair billing, and a signal to the business community: whether you’re doing business in the mobile arena or the mall down the street, fundamental consumer protections apply,” said FTC Chairwoman Edith Ramirez. “You cannot charge consumers for purchases they did not authorize.”

In a separate statement, Commissioner Maureen Ohlhausen emphasized that the FTC action was consistent with the fundamental principle that any commercial entity, before billing customers, has an obligation to notify such customers of what they may be charged for and when, a principle that applies even to reputable and highly successful companies that offer many popular products and services.

The rapidly expanding mobile area has been the focus of the Commission’s consumer protection efforts. In 2013, in addition to its consumer protection enforcement activity, the FTC issued staff reports addressing mobile payments and providing recommendations for the mobile industry on how to protect consumers as new and innovative payment processes come into use, advocating improved privacy disclosures in the mobile environment, and addressing advertising disclosures in the context of mobile devices.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 3-1, with Commissioner Joshua D. Wright voting no.

Companies: Apple, Inc.

News: ConsumerProtection FederalTradeCommissionNews