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From Antitrust Law Daily, July 10, 2014

FTC sues Amazon over kids’ in-app purchases

By Jeffrey May, J.D.

Amazon.com, Inc. unfairly billed account holders for charges incurred by children without having obtained the informed consent of the account holder while using the firm’s mobile applications, according to a complaint filed today by the FTC in the federal district court in Seattle. According to the agency, Amazon was slow to change its in-app charge framework to obtain account holders’ informed consent for in-app charges. Not until roughly two and a half years after the problem first surfaced, and only shortly before the Commission voted to approve the lawsuit against Amazon, did Amazon change its in-app charge framework to obtain account holders’ informed consent for in-app charges on its newer mobile devices, the agency contends (FTC v Amazon.com, Inc., FTC File No. 122 3238, Civil Action No. 2:14-cv-01038).

“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” said FTC Chairwoman Edith Ramirez in a statement. “Even Amazon's own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents' consent for in-app purchases.”

The agency maintains that the company’s games and other apps blurred the lines between what cost virtual currency and what cost real money and, as a result, many children incurred unauthorized in-app charges without their parents’ knowledge. For example, in the app “Ice Age Village,” children used “coins” and “acorns” to buy items in the game without a real-money charge; however, they also could purchase additional “coins” and “acorns” using real money on a screen that was visually similar to the one that had no real-money charge. According to the complaint, a consumer whose child incurred unauthorized in-app charges in Ice Age Village explained that her daughter “thought she was paying with acorns, but it seems to be hitting my credit card.”

The case comes after Amazon sent a letter on July 1 to FTC Chairwoman Ramirez, objecting to pressure from the agency staff to agree to a settlement like the one imposed on Apple Inc. earlier this year for engaging in similar conduct. Under the recent FTC consent order, Apple agreed 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 also agreed to provide full refunds to consumers for unauthorized in-app purchases by children, totaling a minimum of $32.5 million.

In the Amazon letter, written by Associate General Counsel Andrew C. DeVore, the company contended that its approach was “responsible, customer-focused, and lawful.” The company provided “prominent notice of in-app purchasing, effective parental controls, real-time notice of every in-app purchase, and world-class customer service,” as well as refunds to customers for unwanted purchases. Amazon also touted its development of parental controls, such as Kindle Free Time, which enables parents to restrict or filter content available to children. Amazon expressed concern with the “Commission's unwillingness to depart from the precedent it set with Apple despite our very different facts.”

Companies: Amazon.com, Inc.; Apple Inc.

MainStory: TopStory ConsumerProtection FederalTradeCommissionNews

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