Apple has reached a deal with parents who accused the company of allowing their children to spend real money for currency in games like Zombie Toxin and City Cash.

Garen Meguerian filed his class action in 2011 after discovering that his then nine-year-old daughter charged $200 to a credit card via his iTunes account on in-app purchases for “free” iPhone games. After an initial log-in to download a game, players were given a 15-minute window to make purchases without re-entering a password, enabling children to purchase game currency without parental permission or knowledge, the suit alleged. Other parents filed similar suits, which were consolidated in the Northern District of California federal court.

After presiding U.S. District Court Judge Edward J. Davila denied Apple’s motion to dismiss the suits last year, the parties began settlement negotiations in earnest.

On March 1 they presented their deal to the court. Apple agreed to provide, at a minimum, a $5 iTunes gift card to class members. Those members who no longer maintain an iTunes account may receive a cash refund. In the alternative, parents may receive an iTunes gift card for the aggregate total of all in-app charges within a single 45-day period by submitting information about the app in question, the date of purchase, and the price for each charge. If the total is greater than $30, the class member may request a cash refund.

Addressing the proposed notice to potential class members, the parties suggested a three-fold approach of Web site, e-mail, and postcard announcements. Importantly, the notice will also instruct parents how to use Apple’s parental controls and how to disable in-app purchases or set the requirements for entering a password for each purchase transaction. “This information will assist members of the settlement class in preventing minors from purchasing game currency without their knowledge and permission in the future,” the parties explained in the motion in support of the settlement.

Although the precise class size is unknown, notice would be distributed to more than 23  million iTunes account holders who made game currency purchases in the qualifying apps. Between the additional passwords and parental controls implemented by Apple and the potential for full recovery of past game currency charges (with a “significant majority” of purchases made for less than $5), most members of the class would receive complete relief, the parties told the court.

Apple also agreed not to oppose a class counsel award totaling $1.3 million.

To read the settlement motion in In Re Apple In-App Purchase Litigation, click here.

Why it matters: The proposed deal could cost Apple millions of dollars, depending on the size of the class, but it ends the litigation in the consolidated suits. For the plaintiffs, the settlement eliminates the risk of no recovery – Judge Davila denied Apple’s motion to dismiss but wrote that he was “skeptical” of the class’ ability to recover. Combined with the additional passwords and parental controls implemented by the company, the refunds could provide complete relief to many class members.