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The Federal Trade Commission <a href="http://www.ftc.gov/news-events/press-releases/2014/01/apple-inc-will-provide-full-consumer-refunds-least-325-million">announced</a> its sizeable <a href="http://www.ftc.gov/sites/default/files/documents/cases/140115appleagree.pdf">settlement agreement</a> with Apple, Inc. on Wednesday, over allegations that the company had violated Section 5 of the Federal Trade Commission Act by billing consumers millions of dollars for in-app purchases made by children on Apple devices without parental consent.  Apple agreed to fully refund affected consumers, paying a minimum of $32.5 million, with any remainder to be forfeited to the FTC.  Additionally, the settlement requires Apple to change its in-app billing practices to ensure that it has obtained “express, informed consent” from consumers.

The billing practice the FTC challenged allowed children using Apple mobile apps to incur charges to their parents’ accounts for the purchase of “in-app” virtual goods, ranging from $.99 to $99.99.  To authorize the transactions, a general prompt requiring a username and password would appear the first time a purchase was attempted.  Entering the information not only authorized the individual transaction but also enacted a 15-minute window during which a child could make unlimited purchases without further parental consent.  The prompt failed to give notice to parents about the transaction being made or the 15-minute window. (See below illustration).
<a href="http://dataprivacymonitor.bakerhostetlerblogs.com/wp-content/uploads/sites/5/2014/01/FTC.jpg"><img class="alignnone size-medium wp-image-2839" alt="FTC" src="https://www.dataprivacymonitor.com/wp-content/uploads/sites/5/2014/01/FTC-300x229.jpg" width="300" height="229" /></a>
In its <a href="http://www.ftc.gov/sites/default/files/documents/cases/140115applecmpt.pdf">complaint</a>, the FTC made clear that the Section 5 violation did not arise from Apple’s use of a 15-minute purchasing window in children’s apps, but rather from Apple’s failure to obtain informed consent for the in-app purchases incurred by the entry of a password by failing to notify parents of the consequences of doing so.  The FTC also noted that Apple had received tens of thousands of complaints about unauthorized in-app purchases made by children totaling in the millions of dollars and had failed to remedy the problematic practice.

The settlement with Apple further confirms the FTC’s <a href="http://www.ftc.gov/news-events/media-resources/mobile-technology">stated commitment</a> to monitoring and targeting deceptive and unfair trade practices in the mobile technology marketplace.  Companies that utilize mobile apps and mobile billing systems should take note of this significant settlement.  First, it is important to get consumers’ express consent before billing them.  This entails fully informing customers about the nature, extent, and duration of charges to be incurred through the use of mobile apps.  While conveying this information is crucial, it need not be overly burdensome.  The FTC, in a <a href="http://www.ftc.gov/sites/default/files/documents/cases/140115applestatementramirezbrill.pdf">statement</a> about the settlement, noted that Apple could easily comply with the notice requirement “through a few words on an existing prompt.”  Second, businesses that market mobile apps to children should exercise extra caution in its billing practices, to minimize the potential risk that a child could incur unauthorized charges on a parent’s account.

Thank you to Jenna Felz for her contribution to the preparation of this blog posting.

(Image credit: FTC.gov (<a href="http://www.business.ftc.gov/sites/default/files/files/apple-in-app-purchases.jpg">http://www.business.ftc.gov/sites/default/files/files/apple-in-app-purchases.jpg</a>)

FTC Reaches $32.5 Million Settlement Agreement with Apple, Inc. Over Deceptive Billing Practices in Mobile Apps for Children