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January 22, 2014

Refunding Your Kids' Mistakes: Apple Settles FTC Unauthorized In-App Purchases Case for $32.5M

Seller Beware: Consumer Protection Insights for Industry

We have previously written about the manner in which in-app content is marketed to children. Now, Apple Inc. has agreed to provide at least $32.5 million in refunds to consumers for in-app purchases made by minors accidentally or without parental consent.

The FTC's complaint alleges that Apple's procedures for in-app purchases are unfair because Apple often fails to obtain the parent's informed consent for in-app charges. After an iTunes user enters the account password to buy an app or make an in-app purchase, additional purchases may be made for fifteen minutes without reentering the password. Apple does not expressly warn users about this fifteen-minute window, which enables children to make additional purchases unbeknownst to their parents. Some children managed to rack up hundreds or even thousands of dollars of in-app charges during these fifteen-minute windows.

The settlement agreement requires Apple to provide full refunds for unauthorized or accidental in-app purchases made by children. The settlement also requires Apple to change its billing practices to ensure it has obtained the account holder's "express, informed consent" for all in-app purchases. If Apple wants to continue allowing users prospectively to authorize future in-app purchases, it must clearly disclose the scope of that authorization and allow the user to revoke that consent at any time.

This settlement demonstrates the FTC's willingness to pursue what it considers unfair practices in the high-tech realm. As FTC Chairwoman Edith Ramirez stated:

[W]hether you're doing business in the mobile arena or the mall down the street, fundamental consumer protections apply. You cannot charge consumers for purchases they did not authorize.

Digital content providers should take care to ensure that their disclosure practices are adequate.

This matter also illustrates the important role that consumer complaints can play in shaping enforcement priorities. The FTC's complaint twice mentions that tens of thousands of customers had complained to Apple about unauthorized in-app purchases by children. Apple's stated policy was that all in-app purchases were considered final, and Apple did not change its procedures or policy despite the continuing stream of customer complaints.

© Arnold & Porter Kaye Scholer LLP 2014 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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