FTC Obtains $32.5 Million Settlement with Apple, Inc.

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211573_3952Three weeks ago, we blogged concerning the increased scrutiny that the Federal Trade Commission (“FTC”) has directed towards mobile application (“apps”) providers who market to children.  (See New COPPA Complaints Filed)  Yesterday the FTC announced a multi-million dollar settlement with Apple, Inc. relating to Apple’s alleged failure to secure parental approval prior to allowing children to make purchases from the company’s App Store or within apps.  Despite having previously settled a nation-wide class action lawsuit concerning similar allegations, the FTC alleged that Apple continued to engage in unlawful business practices that target minors.  Specifically, the FTC alleged that Apple failed to inform consumers that entering a password to install an app on their phones triggered a 15-minute window in which a user could download and incur “in-app” charges.  Such practices allowed children to purchase and download virtual items within a game, resulting in parents being charged for services they did not authorize.

“In-app” Charges

According to the FTC’s Complaint, Apple offered thousands of apps for free, or at reduced charges.  To download such apps, the user had to enter a password.  The purpose of the password is to ensure that the user (typically a parent) is aware of charges that may be incurred upon downloading an app.  However, Apple failed to inform users that after entering their password to download a free app, subsequent app purchases, or purchases within the free app, could be made within an immediately following 15-minute window without use of a password.

The FTC alleged that this practice resulted in situations where parents downloaded free apps for children’s games (through use of their passwords), but were unaware that for the next 15 minutes, their child could then download or purchase virtual objects without entering a password.  Parents would then incur “in-app” charges that they did not authorize.  The FTC alleges that it received approximately 37,000 complaints from parents who alleged that their children could not or did not understand that their activities while playing the app could result in charges that cost their parents real money.

The Apple Settlement

Pursuant to the terms of the settlement, Apple is 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 (if the total amount of refunds issued is less than $32.5 million, Apple must remit the balance of the settlement pool of funds to the FTC).  Apple must provide notice of refund availability to affected consumers and, in the future, it must also give clear and conspicuous notice to consumers when other purchases can be made within 15 minutes after entering the subject user’s password.  Additionally, the FTC is also requiring Apple to give consumers a choice when they download an app about whether to accept the 15-minute window for in-app purchases, as well as the ability to withdraw such approval.

The settlement is subject to public comment until February 14, 2014, after which the FTC will decide whether to finalize the proposed consent order.

Protect Yourself

The FTC continues to remain vigilant when it comes to mobile app providers obtaining informed consent prior to purchase.  The FTC has been especially watchful of app providers and marketers that target children.  (See, July’s New COPPA Requirements and Their Effect on Mobile Apps and FTC Amends the Children’s Online Privacy Protection Rule (COPPA)).   The FTC will continue to launch investigations involving app providers and marketers who collect and disseminate the personal information of minors.  Therefore, it is critical that companies with an online and mobile presence seek competent counsel in connection with crafting their information collection, use and sharing practices.

If you have been served with legal process relating to your marketing practices or require assistance with respect to regulatory compliance issues in general, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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