Google Becomes Third Company to Face FTC Action Over In-App Purchases

The proposed settlement continued the FTC march through major app stores. The commission settled with Apple over similar charges in January (CD Jan 16 p12) and later sued Amazon with near-identical allegations. Ramirez said Thursday that Apple’s refund process was “ongoing” and she had no updates on the lawsuit against Amazon. As in those cases, industry representatives bristled at what they see as after-the-fact enforcement of minor problems, while consumer and children’s advocates applauded the FTC’s strong stance against deceitful practices. Lawyers told us the Google case didn’t break any new legal ground.

Since Google introduced in-app charges in 2011, the company has not consistently obtained proper consent, the FTC alleged in its complaint (http://1.usa.gov/1oIZAHj). “Google began billing for such charges without any password requirement or other method to ensure account holder authorization,” the FTC said. “Children could rack up charges simply by tapping on pop-up boxes,” Ramirez said. Within weeks, the company was receiving complaints about this practice, the FTC said. “Yet Google took no steps to require account holder involvement within an app prior to in-app charges being incurred by children until mid- to late 2012.”

Those changes weren’t sufficient, Ramirez said. “The system was still fundamentally flawed.” While the pop-up window now asked for an account holder password, it didn’t indicate “a charge was about to be incurred,” said Ramirez. It also opened a 30-minute window -- unknown to the user -- when children could make additional purchases without a password, the FTC said. “Many thousands of consumers filed complaints with Google,” Ramirez said. The unauthorized purchase window was also central to the FTC’s complaint against Amazon and Apple.

The proposed settlement requires Google to produce full refunds totaling at least $19 million and demonstrate to the FTC that its in-app purchase practices receive consumers’ “express informed consent” for any in-app charge (http://1.usa.gov/1unR32a). “We've already made product changes to ensure people have the best Google Play experience possible,” said a Google spokeswoman. “We're glad to put this matter behind us so we can focus on creating more ways for people to enjoy all the entertainment they love."

Responses were near verbatim to those following the Apple settlement and Amazon lawsuit. “FTC action was necessary to ensure that Google changed policies,” said Hudson Kingston, Center for Digital Democracy legal director. Industry representatives shook their head at the attention being given to a miniscule problem already being addressed. “The big deal here is that the practices have already changed,” Application Developers Alliance President Jon Potter told us. “So you could say, ‘Why is this even worthy of a press release?'"

Sen. Ed Markey, D-Mass., recognized Google had taken steps to address the situation, but didn’t think that eliminated the need for FTC action. “I appreciate Google taking concrete actions to address this issue,” he said. Markey -- a prominent voice on children’s privacy and online consumer protection -- originally pressed the FTC to investigate in-app purchase practices in 2011 (http://1.usa.gov/1unS0re). “Requiring informed, express consent prior to charging consumers means kids can’t drain their parents’ wallets because they don’t comprehend the consequences of an in-app purchase,” he said Thursday.

Upsetting But Overstated

The problem is real and “clearly upset some people,” but has been overstated, Potter said. “To compare 19 million as the amount for refunds with the extraordinary commerce that’s taking place in the apps stores, the problem is infinitesimal.” The settlement is not just about this specific problem, Kingston said. It also ensures companies like Google have responsible business practices as they expand their businesses targeting children, he said. “Advocates and parents are rightfully wondering, ‘How can this company be trusted as it turns its powerful online marketing apparatus towards kids?'” he said. “Google needs to reassess its plans and make sure that parents’ rights are respected and children are not aggressively profiled and targeted on its watch."

With long-term strategy in mind, Google was right to settle with the FTC, as Apple did, Kingston said. “Google is doing the smart thing by following Apple’s decision to settle with the FTC and not allowing itself to be associated with a profit model that relies on the vulnerabilities of children.” By fighting FTC charges in court, Amazon becomes “the outlier here, especially since it has a much smaller app store and therefore would seemingly have less to lose by complying with this common sense policy,” Kingston said.

Settling has its downside -- it restricts desirable future business models, said Daniel Castro, head of the Information Technology and Innovation Foundation’s Center for Data Innovation. “The FTC’s action forces the app stores to tighten the reigns of how developers use their platform.” The Apple settlement has had limiting ramifications, he said, pointing the company’s announcement of a mobile health monitoring function called HealthKit. “While this does mean that consumers are less likely to see abusive apps, it also might mean that the app stores err on the side of caution and consumers might lose out on some interesting apps,” he said. “In an ideal world, the FTC would encourage app stores to develop best practices and limit their enforcement actions to app developers who cross the line."

Four commissioners voted in favor of the settlement, with Commissioner Josh Wright recusing himself. During his confirmation hearing Dec 4, 2012, Wright told the Senate Commerce Committee he would recuse himself from all FTC cases involving Google for two years because of past research grant connections to the company (http://1.usa.gov/1lD5O0f).