If you ever glanced at your credit card statement and see a dozen $0.99 purchases from Apple, Google, or Amazon, then you are familiar with “in-app” purchases. For a responsible adult, in-app purchases are a nuisance if they forget to keep track. But for a child, an in-app purchase is a harmless, $0.99 purchase that they just make one time. Until the next purchase, which may be $1.99 or $2.99.
It is not uncommon for parents look at their bill and see that the child has made $300 worth of purchases for a one game that advertises as “free”. Now, most people are familiar with the concept of the “pay-to-play” game. Companies like Apple, Google, and Amazon allow parents to put a lock pay-to-play games to prevent in-app purchases.
But what about the thousands and millions of dollars already spent by children on in-app purchases? Can their parents get a refund? If so, why would they get a refund?
The Basics of FTC’s Lawsuit Against Amazon
The Federal Trade Commission (“FTC”) filed a lawsuit against Amazon, Inc. in July 2014. The lawsuit sought to give refunds to customers for unauthorized charges. It also sought to ban Amazon from billing parents (or anyone else) for in-app charges made without their consent.
The FTC found that the games encouraged children to buy virtual items in a way that made it unclear the purchase is made with actual money. The games title the purchases as “coins” or “acorns”, and they can cost up to $99.99 for a bulk purchase.
Amazon stated that they require a password for in-app purchases over $20. But, even if the parent authorizes a purchase, the authorization opens a 15 minute window where any person can make purchases of any value. Ultimately, parents were finding bills for over $300 worth of unauthorized charges. Even children who are unable to read but are able to click buttons at random have racked up a large bill.
Still, Amazon maintained the policy that all in-app charges are final and nonrefundable. Ultimately, the court decided that Amazon violated Section 5 of the FTC Act.
Section 5 and Unfair Practices
Section 5 of the FTC Act bans “unfair or deceptive acts or practices” that affect commerce, In this case, the unauthorized in-app purchases are the deceptive acts that affect commerce.
An act or practice is unfair if they:
- Cause or are likely to cause substantial injury to consumers;
- The injury is not reasonably avoidable by consumers; AND
- The injury is not outweighed by any benefits to consumers.
The court considered billing customers without permission as an injury under Section 5. The court also decided that it is not reasonable for customers to avoid injury because the app’s are “free.” Customers who download the app can believe that advertising the app as “free” means that they cannot make actual purchases within the game.
Finally, the court decided if there were any outweighing benefits from Amazon’s in-app purchase design. The court replied with a resounding “No.” Amazon argued that customers prefer a seamless experience. "Seamless," meaning that they can buy things without interrupting the game. But the court refused to believe that claim. They state that Amazon failed to give any evidence of customers being “upset or harmed” by the existence of a password request.
First Came Apple, then Google, and Now Amazon…. Will Companies Ever Learn?
In January 2014, the FTC settled with Apple, Inc. to refund consumers $32.5 million of in-app purchases. In September 2014, FTC settled with Google to refund consumers $19 million of in-app purchases. As of May 2016, it is unclear how much Amazon will need to return to consumers. But the FTC stated it is seeking full refunds for most of the affected consumers.
The trend is clear: the legal system is cracking down on companies that try to profit off of in-app purchases. In 2014, the popular game “Candy Crush Saga” raked in $1.3 billion from such purchases alone. Over time, consumers began to realize how much they spend on in-app purchases and fought back. However, many apps still require consumers to actively disable in-app purchases.
The courts have caught on to the fact that in-app purchases are deceptive and can amount to a significant purchase. We can only hope that companies like Amazon will realize they must change their practices or face the consequences.
Authored by Janice Lim, LegalMatch Legal Writer