The FTC last week announced a settlement agreement with Apple whereby Apple agreed to pay out, at a minimum, US$32.5 million dollars to the parents of children who made unauthorized in-app purchases.
At the root of the FTC's investigation was a 15-minute window which allowed iOS users, once an iTunes password was entered, to make in-app purchases without having to re-enter their credentials. So in Apple's effort to enhance the iOS user experience, they inadvertently gave kids 15 minutes to rack up huge bills. In one well-publicized case, an 8-year-old went on a Smurfberry binge and racked up a $1,400 bill in the Smurfs Village app.
Naturally, a class action suit was filed in 2011 with Apple ultimately reaching a settlement agreement with affected parents this past February.
While you would assume that that would be sufficient, the FTC, for reasons that defy explanation, was still keen on suing Apple. But rather than go through a protracted legal battle -- perhaps Apple learned its lesson after refusing to settle with the DOJ regarding e-book price fixing -- Apple decided to settle.
In a letter sent out to employees, Apple CEO Tim Cook said that the FTC setting their sights on Apple "smacked of double jeopardy."
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.
So what gives? Why is the FTC seemingly wasting its time on an issue that seems to have already been settled?
It's hard to say, but it's interesting to point out that the Google Play store inexplicably seems to be off of the FTC's radar. Even more so considering that the parental controls on the Google Play store are much less stringent than the ones that govern the Apple App Store.
Consumer Reports this weekend discovered that the 15-minute window that created quite a stir on the App Store is actually 30 minutes on Google Play.
In its complaint against Apple, the FTC noted that one parent of a young Apple user reported that her daughter had spent $2,600 in the Tap Pet Hotel game from Pocket Gems. So I installed the Android version of that game on an Android tablet by downloading it free from the Google Play Store. Having previously enabled the store's password protection feature (using the Google Play app's Settings), I approved one in-app purchase of a Bunch of Treats for 99 cents, just as any soft-hearted parent might do.
As you can see below, there was no indication on the screen that I had approved anything but that 99 cent purchase.
Morphing from Doting Dad to mischievous child, I then entered the Pet Hotel unsupervised, where I spent the next 30 minutes making seven more 99 cent in-app purchases of Treats or Coins, all without any further authorization. Just tap and spend.
Of course, with some in-app purchases on kids games costing upwards of $99 (a whole other issue altogether), it strikes me as odd that the FTC, in their zeal to prevent kids from going on spending sprees, focused exclusively on Apple. Even more so considering that Apple had already settled the case with affected parents.
If the FTC truly believes that giving children the ability to make in-app purchases is worthy of its attention, wouldn't you assume that they'd focus on all mobile app stores instead of singling out Apple? It's hard to know for sure, but perhaps the FTC didn't receive many complaints from Google Play users on the issue.
And if that weren't bizarre enough, the language of Apple's settlement with the FTC provides some more peculiarities.
Again Apple, at a minimum, will have to pay out $32.5 million in damages when all is said and done. Under terms of the settlement, if the amount paid out by Apple to affected consumers is less than $32.5 million, Apple must pay the difference to the FTC.
To hear a different take on the case, you might be interested in taking a look at FTC commissioner Joshua D. Wright's dissenting statement where he explains why the FTC shouldn't have gone after Apple in the first place.
Here, Apple did not anticipate the problems customers would have with children making in-app purchases that parents did not expect. When the problem arose in late 2010, press reports indicate that Apple developed a strategy for addressing the problem in a way that it believed made sense, and it also refunded customers that reported unintended purchases.44 This is precisely the efficient strategy described above when complex products like Apple's platform develop problems that are difficult to anticipate and fix in advance. Establishing that it is "unfair" unless a firm anticipates and fixes such problems in advance – precisely what the Commission's complaint and consent order establishes today – is likely to impose significant costs in the context of complicated products with countless product attributes. These costs will be passed on to consumers and threaten consumer harm that is likely to dwarf the magnitude of consumer injury contemplated by the complaint.
Wright also writes that the percentage of affected users was so small as to make the FTC's involvement completely unnecessary.