United States: FTC Prevails In Action Against Amazon For Unlawfully Billing Parents For Children's Unauthorized In-App Purchases

In the wake of thousands of parental complaints about unauthorized in-app purchases made by their children, resulting in millions of dollars in disputed charges, the Federal Trade Commission ("FTC") brought suit against Amazon, Inc. ("Amazon") in July 2014. The FTC sought a court order requiring refunds to consumers for unauthorized charges and permanently banning the company from billing parents and other account holders for in-app charges without their consent.  This past April, a Washington district court granted the FTC's motion for summary judgment on liability, ruling that the billing of account holders for in-app purchases made by children without the account holders' express informed consent constituted an unfair practice under Section 5 of the FTC Act.  (FTC v. Amazon.com, Inc., 2016 WL 1643973 (W.D. Wash. Apr. 26, 2016)).  Despite rejecting Amazon's challenge to the FTC's claims, the court denied the FTC request for injunctive relief to prevent future violations.  The ruling underscores the trend of FTC enforcement, as it moves its enforcement energies more toward the mobile industry, and the importance of building proper consent mechanisms when consumers, especially children, are charged for purchases.

Amazon's in-app purchasing functionality began in November 2011 and despite regular parental complaints, no updates were made to the in-app charge framework until March 2012. While Amazon instituted some protections regarding in-app charges over $20 in 2012, and in 2013 offered users additional disclosures about in-app charges and options for prior consent in some circumstances, these updates did not prevent children from making unauthorized in-app purchases. Amazon did not make sufficient changes to its in-app purchasing methods until June 2014. At this time, in-app purchasing required account holders' express informed consent prior to completing purchases on its newer devices. For example, before a user's first in-app purchase is completed, users are prompted to answer whether they want to require a password for each future purchase or permit purchases without a password going forward; if users choose to require a password for future purchases, they are also prompted to set the parental controls to prevent app purchases by children or limit the amount of time children spend on these apps.

According to the FTC, children's games often encouraged children to acquire virtual items in ways that blurred the lines between what cost virtual currency and what cost real money, and some children were even able to incur "real money" charges by clicking buttons at random during play.  Moreover, it appeared that many parents simply did not understand that several apps, particularly ones labeled "FREE," allowed users to make in-app charges because such a notification was not conspicuously presented alongside the app's price prior to download, but instead was buried within a longer description that users had to scroll down to read.

In granting summary judgment on liability under the FTC Act, the court rejected Amazon's argument that its liberal refund practices sufficiently mitigated harm. The court reasoned that many customers may not have been aware of any unauthorized purchases and that the time spent pursuing refunds constitutes an additional injury.   The court also rejected Amazon's argument that the injuries were reasonably avoidable, indicating that it is unreasonable to expect a consumer to be familiar with in-app purchases within apps labeled as "FREE."  Lastly, Amazon's policy stated they did not provide refunds for in-app purchases so it was entirely reasonable for a consumer to be unaware of the refund procedures for unauthorized in-app purchases.

In denying the FTC's request for permanent injunctive relief, the court noted that Amazon had already implemented measures to protect consumers, and it found no "cognizable danger of recurring violation." Since the implementation of an in-app charge framework requiring account holders' express informed consent began in June 2014 the likelihood of future unlawful conduct is minimal, despite the fact that there still exists the possibility of in-app purchases under $1 without authorization on older, first generation Kindle devices (a device not sold since 2012).

With Amazon's liability under Section 5 of the FTC Act having been established, further briefing will be required to determine monetary damages that ran, in general, from when in-app charges began in November 2011 up until June 2014 when Amazon's revised in-app purchase prompt was instituted. It remains to be seen whether the amount of damages or any settlement will be in line with previous settlements the FTC has reached with other mobile platforms regarding issues involving similar in-app charges.

It appears, following the Amazon ruling, that best practices for a mobile platform or owner of an app that features in-app purchasing opportunities should include clear notice to the consumer and express informed consent from the account holder, for apps directed to both children and adults. Clear and conspicuous notice that in-app purchasing exists should be provided prior to downloading the app and express informed consent, in some form, should be provided before the in-app purchase is made. Further note, that while refund policies for unauthorized in-app purchases may reduce the number of consumer complaints, the Amazon court stressed that such policies may not be sufficient to prevent liability under Section 5 of the FTC Act as the process of acquiring these refunds has been deemed an additional injury to the consumers.

FTC Prevails In Action Against Amazon For Unlawfully Billing Parents For Children's Unauthorized In-App Purchases

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