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7/11/2014
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FTC Sues Amazon Over In-App Purchases

Amazon's own employees acknowledge the ease with which children could make purchases.

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Ten days ago, Amazon.com penned a letter to Federal Trade Commission Chairwoman Edith Ramirez that defied the FTC's demand that Amazon enter into a consent agree similar to Apple's to govern its handling of in-app transactions.

"The Commission's unwillingness to depart from the precedent it set with Apple despite our very different facts leaves us no choice but to defend ourselves in court," wrote Andrew DeVore, VP and Assistant General Counsel at Amazon.com.

The FTC has accepted Amazon's challenge. The agency on Thursday filed a complaint against the company in the Western District of Washington alleging unfair trade practices for Amazon's failure to prevent children from making unauthorized in-app purchases through Amazon Appstore apps.

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The agency claims that it has received complaints from thousands of parents about transactions amounting to millions of dollars.

"Amazon’s in-app system allowed children to incur unlimited charges on their parents' accounts without permission," said Ramirez in a statement. "Even Amazon's own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents' consent for in-app purchases."

The FTC complaint cites comments by an Amazon Appstore manager who said back in 2011 that "we’re clearly causing problems for a large percentage of our customers" and twice over the course of seven months likened the situation to a "house on fire." It also points to multiple complaints from parents about purchases made by their children and a reply from an Amazon customer service representative that acknowledges the problem: "It's not a hack, but nearly as bad: it's an in-game purchase. A user, such as a child, can easily misinterpret the option to spend actual money as just part of the game."

Though Amazon revised its in-app purchasing framework last month to ensure in-app purchases are made with informed consent, the FTC is seeking full refunds for all affected customers, disgorgement of ill-gotten gains, a court order ensuring permission is obtained before in-app transactions, and possible contractual changes.

The FTC notes that, while Amazon's policy states in-app sales are final and non-refundable, the company made exceptions for parents who sought refunds. DeVore mentioned such refunds in his letter. An FTC spokesman said courtroom negotiations will determine whether the agency seeks to make Amazon formalize a refund path through a policy revision.

On Wednesday, US Senator Deb Fischer (R-NE) sent a letter to the FTC questioning the agency's reported plan to take legal action against Amazon.com. "To pursue enforcement against [technology] companies for specific policies in place at the market's nascent state would constitute a de facto tax on innovation that threatens future growth and opportuntiy," Fischer wrote, echoing the increasingly frequent denunciations of regulatory meddling coming from Silicon Valley companies and technology groups such as the Direct Marketing Association (DMA).

In response to the lawsuit, the DMA issued a statement chiding the FTC for discouraging innovation by "punishing good deeds" -- presumably this is a reference to Amazon's benevolent flouting of its own refund policy when convenient.

"The FTC should be encouraging innovation in the growing mobile industry, which benefits consumers and competition," said Peggy Hudson, DMA SVP of government affairs. "Instead, the Commission seems focused on using novel legal theories and scarce enforcement resources to go after America's leading tech companies in court."

The law under which the FTC is seeking redress isn't all that novel: The FTC Act, which authorized the agency to curb unfair trade practices, dates back to 1914.

In January, Apple settled a similar claim with the FTC, at which point the company urged the agency to look into Google's in-app system.

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Thomas Claburn has been writing about business and technology since 1996, for publications such as New Architect, PC Computing, InformationWeek, Salon, Wired, and Ziff Davis Smart Business. Before that, he worked in film and television, having earned a not particularly useful ... View Full Bio

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SachinEE
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SachinEE,
User Rank: Ninja
7/29/2014 | 6:10:59 AM
Re: Too Easy
The technology industry, not only within the Silicon Valley but all over the world, is a relatively new industry and at the rate its growing, the industry will always be ahead of regulations- at least in the foreseeable future. As such, it would be unjustified for a tech company like Amazon, to stay rigid and try to fight off new regulations while arguing that the regulations are unfair because they have always done things a certain way. The more technology expands, the more regulations you are likely to expect as more issues and concerns continue to be uncovered. Every Tech enthusiast know this so I don't see why Amazon are fighting the FTC on this when even their own employees are concerned about it.
SachinEE
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SachinEE,
User Rank: Ninja
7/29/2014 | 6:07:32 AM
Re: Justified?
As a regular user of various Amazon products, I always appreciate the ease with which I can complete purchases using their apps. This is probably one of their strongest points and a definite contributing factor to the popularity that they have continued to enjoy over their closest competitors. There is no way of telling how any changes to their policies, in this regard, will affect their popularity and revenue and this is probably the main reason why Amazon is not very eager to agree to the FTC's terms. An easy way around the problem would be for the parents to simply explain to their children the dangers behind making any purchases, or in-app transactions without their consent just as you can teach your kids not to spend money left on the desk without asking you first.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
7/11/2014 | 4:04:25 PM
Re: Greed
In-app purchasing has hurt gaming. $49 or $99 for a set of virtual acorns or whatever? The whole system is just cynical. And yet developers have to do it because the platform owners have set impossibly low price expectations. $0.99 for an app? That's too much for most app users these days.
Alison_Diana
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Alison_Diana,
User Rank: Author
7/11/2014 | 2:27:12 PM
Re: Greed
I agree, @anon, that this goes beyond a slap on the wrist. Not sure about you, but I'm getting fed up of giant companies (allegedly Amazon, Apple, reportedly Google, allegedly T-Mobile... and others in the past) slipping in workarounds to jack up (already high) phone charges, hoping bill payers don't realize/don't have time/get stymied by "written policies" and they can bolster acceptable revenue via lots of $10, $25, $50 charges. I don't necessarily think jail time is the answer but very stiff fines the first time, and bigger consequences for any subsequent findings of guilt for the same complaint, should be on the table.

Kudos to the government for pursuing these issues. Perhaps it will cause any other businesses that do this to rethink their strategy and to proactively refund consumers' overages (doubtful but...!).
anon5645700195
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anon5645700195,
User Rank: Apprentice
7/11/2014 | 9:49:37 AM
Greed
Again Amazon shows pure greed. If it allowed children to make unauthorised payments using their parents' money  then the appropriate court for this to be sorted out is not a civil court but a criminal court. Aiding and abetting theft deserves jail time.
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