The Federal Trade Commission (“FTC”) recently sued Amazon.com (“Amazon”) in the action captioned Federal Trade Commission v. Amazon.com, Inc., Case No. 14-CV-1038 (W.D. Wash.), for an alleged scheme involving deceptive in-application charges.

The In-App Charge Scheme

According to the Complaint, Amazon offers thousands of apps through its mobile app store, including games targeted at children.  Many of these apps are free to download to mobile devices, but they also offer in-app virtual items for purchase.  Such items can be purchased with virtual “currency” including, for example, acorns in an “Ice Age Village” game.  However, what children (and sometimes parents) usually don’t realize is that virtual currency must be purchased – with real currency (i.e., charges billed to a credit card linked to the Amazon account).   These charges range from as little as $0.99 to a whopping $99.00.  The FTC alleges that because no password was required in order to accept the charges, children would be able to make in-app purchases without their parents’ knowledge or consent.  In or around March 2012, Amazon began to require that passwords be entered to confirm in-app charges exceeding $20.00. Needless to say, children were still capable of incurring significant charges despite this change.

The Complaint alleges that Amazon knew about this issue as far back as 2011, when it started to receive thousands of complaints related to unauthorized in-app purchases by children in numerous apps.  Since Amazon allegedly retains 30% of all revenue for in-app charges, it has profited in the tens of millions of dollars.  The Complaint further alleges that one of Amazon’s Appstore managers described the issue as a “house on fire” situation.

Through the action, the FTC is seeking a permanent injunction restraining future violations of the FTC Act.  The FTC is also seeking complete disgorgement of “ill-gotten monies” and consumer restitution, along with its costs associated with bringing the action.