Re/code reported earlier this morning that Apple has signed a consent decree with the Federal Trade Commission (FTC). This agreement is intended to resolve complaints that the company didn't go far enough in preventing kids from making in-app purchases without understanding that there was real money involved.
Update: At a Washington, DC press conference this afternoon, FTC chairman Edith Ramirez noted that Apple will refund at least $32.5 million to consumers to settle the case in which children had made in-app purchases without their parents' consent or knowledge. That $32.5 million figure is a minimum -- Apple must pay full restitution to consumers for the unauthorized purchases, so the number could be bigger.
Apparently, if the number paid out is less than $32.5 million, Apple will pay the difference to the FTC. Apple also has until March 31, 2014 to revise its billing system to make it more obvious that an actual purchase is being made during a game and to make sure that consumers have given their informed consent before being billed for in-app purchases.
Last year, Apple settled a lawsuit over unauthorized use of IAP in games and apps, but apparently the FTC decided that wasn't enough. Apple CEO Tim Cook sent an email to all employees this morning explaining the company's decision:
From: Tim Cook
Date: January 15, 2014
Subject: FTC announcement
I want to let you know that Apple has entered into a consent decree with the U.S. Federal Trade Commission. We have been negotiating with the FTC for several months over disclosures about the in-app purchase feature of the App Store, because younger customers have sometimes been able to make purchases without their parents' consent. I know this announcement will come as a surprise to many of you since Apple has led the industry by making the App Store a safe place for customers of all ages.
From the very beginning, protecting children has been a top priority for the App Store team and everyone at Apple. The store is thoughtfully curated, and we hold app developers to Apple's own high standards of security, privacy, usefulness and decency, among others. The parental controls in iOS are strong, intuitive and customizable, and we've continued to add ways for parents to protect their children. These controls go far beyond the features of other mobile device and OS makers, most of whom don't even review the apps they sell to children.
When we introduced in-app purchases in 2009, we proactively offered parents a way to disable the function with a single switch. When in-app purchases were enabled and a password was entered to download an app, the App Store allowed purchases for 15 minutes without requiring a password. The 15-minute window had been there since the launch of the App Store in 2008 and was aimed at making the App Store easy to use, but some younger customers discovered that it also allowed them to make in-app purchases without a parent's approval.
We heard from some customers with children that it was too easy to make in-app purchases, so we moved quickly to make improvements. We even created additional steps in the purchasing process, because these steps are so helpful to parents.
Last year, we set out to refund any in-app purchase which may have been made without a parent's permission. We wanted to reach every customer who might have been affected, so we sent emails to 28 million App Store customers – anyone who had made an in-app purchase in a game designed for kids. When some emails bounced, we mailed the parents postcards. In all, we received 37,000 claims and we will be reimbursing each one as promised.
A federal judge agreed with our actions as a full settlement and we felt we had made things right for everyone. Then, the FTC got involved and we faced the prospect of a second lawsuit over the very same issue.
It doesn't feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy. However, the consent decree the FTC proposed does not require us to do anything we weren't already going to do, so we decided to accept it rather than take on a long and distracting legal fight.
The App Store is one of Apple's most important innovations, and it's wildly popular with our customers around the world because they know they can trust Apple. You and your coworkers have helped Apple earn that trust, which we value and respect above all else.
Apple is a company full of disruptive ideas and innovative people, who are also committed to upholding the highest moral, legal and ethical standards in everything we do. As I've said before, we believe technology can serve humankind's deepest values and highest aspirations. As Apple continues to grow, there will inevitably be scrutiny and criticism along our journey. We don't shy away from these kinds of questions, because we are confident in the integrity of our company and our coworkers.
Thank you for the hard work you do to delight our customers, and for showing them at every turn that Apple is worthy of their trust.
The FTC is holding a press conference at this time to discuss the details of the consent decree.