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Court clears up some in-app purchase uncertainty

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The Federal Trade Commission has long maintained that minors, who can’t agree to a legal contract, can’t be forced to pay for in-app purchases they make. But there are ambiguities within that policy. Do merchants overstep when they make it difficult to get reimbursed for such unauthorized purchases? And just what constitutes a “minor”?

Amazon has been especially aggressive in pursuing payments for in-app purchases, and last spring the FTC received a summary judgment in its suit against the online retailer, joining Apple and Google as companies that the FTC has successfully pursued regarding in-app sales to minors. Then, last month, a federal judge rejected the FTC’s proposal for a $26.5 million fine against Amazon, but made some interesting observations at the same time.

In the Nov. 10 ruling, U.S. District Court Judge John Coughenour wrestled with how to calculate intent, given the FTC’s attempt to connect password failures with intent. “The FTC requested approximately $26.5 million in monetary damages. The FTC generated this figure by calculating an ‘unauthorized charge rate’—the rate of password failures as a portion of total password prompts given—and applying it to the universe of relevant in-app purchase revenue. The Court held that the rate suggested by the FTC in its original briefing was too high, as it assumed every failed password attempt should be associated with an attempted in-app purchase by a child. Rather, as the Court discussed, ‘many password “failures” could have occurred because the user got distracted, changed his or her mind, or simply could not remember their password.'”

Then there’s the issue of what constitutes a minor. Any uncertaintly on this question can be traced to the Children’s Online Privacy Protection Act (COPPA), which sets out to protect the privacy of children under the age of 13. Amazon wanted the court to restrict its reimbursements to cases involving children younger than 13. The court rejected that argument.

“The Court is not persuaded by Amazon’s argument that purchases made by children age 13 and older are not part of the harm in this matter. As the FTC points out, the FTC never made any sort of concessions on the scope of liability by using search terms like ‘pre-teen’ and ‘under-13’ during discovery. The Court agrees. This case deals with all unauthorized in-app purchases made by children. Children between ages 13 and 17 are included in this definition because drawing a line at age 13 would be an arbitrary distinction for which the Court finds no basis under these facts. Therefore, all unauthorized in-app purchases by children, not just those age 12 and under, are included in the potentially eligible transactions.”

Amazon had also asked to exclude purchases made between 11 p.m. and 3 a.m. Pacific time, arguing that such a limit would exclude most children. The court agreed.

“The Court concludes that a reasonable way to account for the fact that not all failed password attempts would have been made by children is, in fact, to omit the purchases made in the late night hours. In so doing, the Court takes judicial notice of the fact that children are generally asleep between 11:00 p.m. and 3:00 a.m. Pacific Standard Time (2:00 a.m. – 6:00 a.m. Eastern Standard Time). Common sense dictates that the majority of people are asleep during these hours, particularly if they are children.”

The retailer also tried to limit the definition of “unauthorized.” If an adult shopper, for example, had already received a refund for an in-app payment by a child, Amazon argued “that those customers were fully informed about parental controls and the possibilities of in-app purchasing” because of the refund. The court disagreed.

“Amazon has not provided sufficient evidence that all consumers who received refunds were instructed about parental controls. In fact the evidence indicates that Amazon customer service agents did not always instruct or effectively educate customers about parental controls,” Coughenour wrote. “Accordingly, purchases made after receipt of a refund are still included in the potentially eligible transactions. The same is true for purchases made regardless of a customer’s use or awareness of parental controls or Kindle FreeTime. Amazon did not disclose that parental controls or FreeTime had to be activated to avoid unauthorized in-app charges.”

Amazon also tried to say that certain kinds of apps are unlikely to be of interest to children. “Amazon submits that additional apps’ potential refunds should be excluded: (1) those rated ‘adult’ or ‘mature,’ (2) those classified in categories that would not interest children, ‘such as personal finance or navigation’ and (3) thirty specific apps, including ‘Crime City’ and ‘Gun Zombie: Hell Gate,’ with violence or characteristics rendering them unlikely to have been played by children.”

 

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