Apple Sued Over In-App Purchasing

Apple's decision to require passwords for every in-app purchase transaction isn't enough to stave off litigation.

Attorneys representing Phoenixville, Pa., resident Garen Meguerian filed a lawsuit against Apple on Monday claiming that the company allowed minors to purchase virtual goods through iOS games without the authorization of their parents.

Meguerian let his 9-year-old daughter download several free games from the iTunes App Store, including "Zombie Cafe," "Treasure Story," and "City Story," the complaint said. Several weeks later, Meguerian discovered his daughter had purchased approximately $200 of virtual currency called "Zombie Toxin," "Gems," and "City Cash."

"These games are highly addictive, designed deliberately so, and tend to compel children playing them to purchase large quantities of Game Currency, amounting to as much as $100 per purchase or more," the complaint said.

The complaint blames Apple for allowing what is referred to as a "bait-and-switch business scheme."

At issue is Apple's former practice of allowing in-app purchases without a password for fifteen minutes after an initial authorization. With the release of its iOS 4.3 update in March, Apple began requiring passwords for every transaction, after news reports and state officials began questioning why the sale of $99 virtual items in games like Capcom's Smurf's Village were being bought by children.

The Federal Trade Commission began looking into the issue at the urging of Congressman Edward Markey (D-Mass.). The release of iOS 4.3 prompted a statement of approval from Markey, who applauded Apple's effort to help protect parents from unwanted in-app purchases.

The complaint also notes that Apple has added a warning that in-app currency costs real money to the iTunes App Store purchase page of Smurf's Village "either in response to the FTC's investigation, or as a result of a guilty conscience ..."

This assumption is probably incorrect: While Apple may have communicated displeasure to Capcom about the high-priced items sold in Smurf's Village, it is more likely that Capcom, as the game's developer, added the disclaimer. That's the way the App Store works: Developers, and not Apple, provide the text describing their apps. Apple merely approves such listings.

It remains to be seen whether increasing friction in in-app commerce will curb its appeal. In January, prior to Apple's changes, in-app payment and mobile messaging provider Urban Airship published a survey indicating that implementations of in-app purchasing will rise from 8% in 2010 to 31% in 2011.

Mobile research firm Distimo found that 34% of the revenue generated by the top 100 iOS apps in December, 2010, came from free applications featuring in-app purchasing. What makes this more remarkable is that when these figures were released, less than 2% of iOS apps utilized this freemium model. With so few apps bringing in a third of app revenue, it's not surprising this business model is attracting attention.