Practical Guidance

  • In-app purchasing remains a priority for regulators.  
  • Companies with mobile apps should incorporate password protection and informative prompts to obtain informed consent from account owners for in-app purchases.

What the News?

Amazon.com, Inc. recently moved for partial summary judgment in a lawsuit brought by the Federal Trade Commission alleging that the company unfairly billed mobile app users for “in-app purchases.” In particular, the company asked the court to dismiss the agency’s request for injunctive relief, asserting that any misleading in-app billing practices ended prior to the FTC initiating the lawsuit. Whether or not Amazon is successful in avoiding the injunction sought by the FTC, this lawsuit should serve as a reminder to companies in mobile arena of the need for caution and transparency when offering in-app purchases.

Background on the Dispute

An “in-app purchase” allows a mobile app user to purchase a digital item while using or playing an application that the individual has already downloaded. When Amazon began developing apps for use on mobile devices like smartphones and tablets, the company often offered in-app purchases, allowing users to buy digital content such as extra game levels and virtual gems, coins, and weapons. In many cases, Amazon’s in-app purchases, like those of other app developers, did not require users to enter a password or billing information. The user was simply asked to click a button consenting to the purchase and the purchase would be billed to the individual’s Amazon account.

Not long after in-app purchases became popular, companies like Amazon began receiving complaints from parents whose children had made in-app purchases without permission. These complaints drew the attention of regulators. In January 2014, the FTC announced a major settlement with Apple, Inc. over allegations that the company unfairly billed users for in-app purchases made without parental consent. In addition to requiring Apple to pay out $32.5 million in refunds, the settlement required the company to change its in-app purchasing system to obtain “informed consent” from account owners for each in-app purchase.

In July 2014, the FTC filed suit against Amazon in federal district court, alleging that Amazon’s in-app purchasing system permitted children to incur unlimited charges on their parents’ accounts without consent parental. In its complaint, the FTC sought a permanent injunction to prevent future misleading in-app practices in violation of the Federal Trade Commission Act, and monetary relief necessary to redress injuries to consumers resulting from unauthorized purchases.

Amazon’s Recent Motion

Amazon has asked the court to dismiss the FTC’s request for a permanent injunction, claiming that any concerns related to its in-app offerings were remedied prior to the agency initiating the lawsuit in July 2014. In its motion, Amazon sets forth the numerous steps it has taken to address concerns relating to in-app purchasing since first receiving consumer complaints. For example, Amazon began informing customers who requested refunds on how to utilize parental controls to avoid future accidental purchases. It also implemented automatic password requirements in a number of situations, such as first-time in-app purchases, in-app purchases over $20, purchases in “high-risk” apps (i.e., those most frequently tied to consumer complaints), and “high-frequency” purchases (i.e., consecutive purchase attempts in a short span of time). According to Amazon, these refinements dramatically decreased the number of consumer complaints associated with in-app purchases.

After the FTC’s settlement with Apple in January 2014, Amazon made additional changes to its in-app purchasing process. According to the motion, although Amazon felt that it was already compliant with the FTC Act, it voluntarily refined its system to ensure that it provided the “informed consent” required in the Apple settlement. Specifically, in June 2014, Amazon developed a prompt delivered in connection with all first-time in-app purchases asking users if they want to require a password for all future in-app purchases.

As Amazon pointed out in its motion, permanent injunctive relief under the FTC Act requires proof that the alleged harm is ongoing or likely to occur in the future. Amazon believes that the updates to its in-app purchasing system described above brought the company into full compliance with the FTC Act a full month prior to the agency’s initiation of the lawsuit. Further, Amazon claims that its good-faith and consistent efforts to refine its in-app purchasing system and address consumer concerns are evidence that the company is highly unlikely to engage in misleading or deceptive in-app practices in the future. As Amazon argues in its motion, “[t]he FTC cannot rely on a remote possibility or unsupported speculation about future conduct to justify the extraordinary remedy of an injunction.”

The Takeaway

Regardless of the court’s decision on Amazon’s motion, this case should serve as a reminder to companies in the mobile arena that in-app purchasing remains a priority for regulators. Companies offering apps for sale should take reasonable steps – such as password protection and informative prompts – to obtain informed consent from account owners for in-app purchases. Companies should likewise note that the FTC’s interest in mobile payment systems is not limited to in-app purchasing. In 2013, the agency released a report on consumer protection issues associated with mobile payment, and has initiated mobile payment-related enforcement efforts in a number of contexts in the last several years.