What’s the News?

Apple Inc. and other leading technology companies have reached an agreement with the European Union (EU) regarding their use of the word “free” in relation to mobile applications. The EU alleged that the companies were labeling apps as “free” in contexts that were likely to mislead consumers. By entering into the agreement, the companies each avoided the possibility of $5.65 million in fines.

More on the Agreement

The agreement is the culmination of an investigation that began in May 2014, when Italy’s Antitrust and Competition Authority received a complaint from a consumer organization about the companies’ use of the so-called “freemium” model. This describes the increasingly prevalent practice in which an app is initially free, but later requires payment for continued use. Under the terms of the agreement, the companies must stop using the word “free” to describe apps that are free to download but require payment at any point thereafter, whether to continue using the app or to access additional features.

The Takeaway

The increased regulatory focus on the “freemium” model is unsurprising, given that it has become the dominant means of marketing apps. And it is not limited to the EU: In 2014, Apple settled with the Federal Trade Commission (FTC) over unauthorized charges from the use of “freemium” games. As such, companies across all industries are advised to be cautious before marketing products as “free,” and to ensure compliance with state and federal consumer protection laws before doing so.