Epic Games will pay $520 million to settle FTC's 'Fortnite' case

Fortnite maker Epic Games will pay $520 million to settle allegations that it violated the Children’s Online Privacy Protection Act (COPPA) and "tricked millions of players into making unintentional purchases," using deceptive design strategies called dark patterns, the Federal Trade Commission said. The agency notes that there are two separate settlements, each of which broke FTC records.

Epic will pay $275 million for allegedly violating the COPPA rule as part of a proposed federal court order. The agency says that's the largest penalty it has obtained to date over a rule violation. Epic will also refund customers $245 million over its billing practices and use of dark patterns. The FTC claims that's the largest refund in a gaming-related case and its biggest administrative order to date. It will decide whether to finalize the consent order after a 30-day public comment period.

"As our complaints note, Epic used privacy-invasive default settings and deceptive interfaces that tricked Fortnite users, including teenagers and children," FTC chair Lina M. Khan said in a statement. "Protecting the public, and especially children, from online privacy invasions and dark patterns is a top priority for the Commission, and these enforcement actions make clear to businesses that the FTC is cracking down on these unlawful practices.”

Fortnite has been a colossal success for Epic. The game generated $9 billion in profit between 2018 and 2019, and $5.1 billion in gross revenue in 2020.

The FTC claimed that Epic violated the COPPA rule by collecting personal data from Fortnite players aged under 13 without notifying or seeking consent from their parents. In its complaint, the FTC said parents who wanted Epic to delete personal information on their kids had to "jump through extraordinary hoops" and even then the company sometimes didn't honor those requests.

The agency also accused Epic of engaging in "unfair practices" and harming children and teens by enabling voice and text chat by default. "Children and teens have been bullied, threatened, harassed and exposed to dangerous and psychologically traumatizing issues such as suicide while on Fortnite," the FTC claimed.

As part of the COPPA settlement, the FTC says there's a first-of-its-kind provision that forces Epic to have more stringent default privacy settings for kids and teens, including making sure that voice and text chat are off by default. The company also needs to delete personal data it has collected on Fortnite players unless a player says they're 13 or over or it gets parental consent to retain the information.

Earlier this month, Epic rolled out "cabined accounts" for young Fortnite, Fall Guys and Rocket League players. It said at the time these accounts provided a safe way for kids to play its games. Without parental consent, users with cabined accounts are locked out of features like using voice chat or buying items from in-game stores with real money.

The second complaint accused Epic of using "dark patterns to trick players into making unwanted purchases and [letting] children rack up unauthorized charges without any parental involvement." The FTC claimed that players could be charged when resuming Fortnite from sleep mode, when it was on a loading screen or by accidentally clicking a button next to an item preview option. The agency said these design decisions led consumers to pay "hundreds of millions of dollars in unauthorized charges."

The FTC said children were able to buy V-Bucks, Fortnite's in-game currency, without parental consent until 2018. "Some parents complained that their children had racked up hundreds of dollars in charges before they realized Epic had charged their credit card without their consent," the agency noted. The FTC has targeted the likes of Amazon, Google and Apple for similar reasons in the past.

On top of that, Epic allegedly locked the accounts of users who disputed unauthorized payments with their credit card companies. The FTC said Epic ignored more than a million user complaints and employee concerns over wrongful charges.

Along with the $245 million Epic will pay to cover refunds, the proposed consent order seeks to block it from using dark patterns to charge users or otherwise charge them without obtaining explicit consent. Epic will also agree not to enact blanket bans for accounts that perform chargebacks, only disabling those it suspects of actual fraud. The FTC will send emails to those who made Fortnite in-game purchases when it has more details to share about the refund program.

Epic said in a lengthy statement that, among other things, it has "restored thousands of accounts that were banned due to reported chargebacks under our previous policy." Payment information will no longer be saved by default, with users offered the chance to opt out. This will add more friction to the checkout process and perhaps help to avoid unintended purchases. "We accepted this agreement because we want Epic to be at the forefront of consumer protection and provide the best experience for our players," the company said.

This isn't the end of Epic Games' legal troubles when it comes to Fortnite, which the FTC notes has more than 400 million players. Earlier this month, a judge ruled that a Quebec class action suit claiming the game is addictive (leading one child to reportedly spend more than $6,000 CAD on skins) could move forward.