Like ringtones before them, smart phone apps that offer credits or other items for purchase have come under scrutiny for how they are marketed to children. In a story by Cecilia Kang earlier this month, The Washington Post reported that children had incurred up to $1,400 in game app charges. In response, Rep. Edward Markey and Sens. Amy Klobuchar and Mark Pryor wrote to FTC Chairman Jon Leibowitz asking the Commission to look into these practices. Chairman Leibowitz responded: “Let me assure you we will look closely at the current industry practice with respect to the marketing and delivery of these types of applications.” In addition to the FTC’s review, state AGs may also look into these practices.
From 2007-2010, the Florida AG entered into a series of settlement agreements with mobile content providers, Internet marketers, billing aggregators, and wireless service providers about how ringtones and other mobile content are marketed, including to children. (See here, here, here, here, here, here, here, and here.) The Florida AG collected over $8.5 million, required refunds to be given for unauthorized purchases, and imposed conditions on how mobile content is marketed. The key conditions imposed by these settlements may provide a guide to how the FTC or a state AG may approach issues with respect to in-app purchases.
- In determining who to hold responsible for any unfair or deceptive practices, regulators will look at who has a financial interest in the proceeds from in-app purchases and who is in the best position to police these practices. In the Florida settlements, each level in the mobile content distribution chain is responsible for ensuring that the ads and offers for mobile content are not deceptive and that the price and other material conditions are clearly and prominently disclosed, including adding appropriate contract provisions. In addition, billing aggregators are required to establish a system for identifying and addressing problematic content providers and to cease doing business with providers who violate disclosure requirements or don’t have adequate customer service. With scores of app makers, regulators may look to the device makers, app store operators, wireless carriers, or third-party billers to impose and enforce requirements.
- The Florida settlements require that the price and billing period for mobile content plans be clearly and conspicuously disclosed immediately adjacent to where the user signs up. In addition, information about whether additional charges apply, whether the plan automatically renews, how to cancel the plan, how the purchase would be billed, and a link to the full terms and conditions is required to be placed clearly and conspicuously on the same page. In the app context, regulators may look at whether ads for the app clearly and conspicuously disclose the price and material terms, whether the availability of in-app purchases is clearly and conspicuously disclosed before the app is downloaded, and whether it is clearly and conspicuously disclosed that charges are about to be incurred before the in-app purchase was made and the amount of the charges.
- How should the user indicate consent to the purchase? The Florida settlements require affirmative consent by forbidding the use of pre-checked boxes to indicate consent. In the app context, the user may have to affirmatively click or otherwise indicate consent for the purchase. If the consent to be billed is indicated through a password to the payment account, there may be an issue if the password remains active for some period of time after the first purchase.
- If the user is under 18, is parental permission required before purchase, or must the parent actually make the purchase? The Florida settlements require a clear and conspicuous disclosure that the purchaser must be 18 or older. In some of the settlements, this requirement was specific to the State of Florida. Thus, this age requirement may vary by state. This issue also raises questions about how parental consent can be confirmed. For example, is a password adequate to ensure parental consent?
- Who is responsible for handling consumer complaints and refunds? In addition to the content provider, the Florida settlements require the wireless service provider and the billing aggregator to investigate complaints and/or provide refunds.
- Are parents aware that purchases can be made through apps and that there are mechanisms for preventing them? The Florida settlements require wireless service providers to disclose in their service agreements and in a bill insert that such mobile content purchases could be made, that the account holder is responsible for charges, and that there are parental controls available to restrict such purchases.
- How should in-app purchases be disclosed? As a result of the Florida settlements, wireless service providers are required to have a separate section on their bills that clearly and conspicuously disclose each mobile content purchase and provide a phone number for challenging the purchase.