Apple agrees to pay $32.5M in refunds, settling App Store in-app purchase lawsuit with US government

Posted:
in iPhone edited September 2014
Apple and the U.S. Federal Trade Commission announced on Wednesday that the two sides have reached a $32.5 million settlement, bringing to an end a lawsuit over the ease with which children could rack up costly bills through in-app purchases on the iOS App Store.



The FTC has agreed to drop its lawsuit against Apple in exchange for the company paying $32.5 million in refunds to consumers who were affected by the in-app purchase issues. Prior to the FTC's announcement a letter sent by Apple Chief Executive Tim Cook to company employees leaked to various media outlets, including CNBC, in which he criticized the FTC's pursuit, saying the case "smacked of double jeopardy."

However, Cook also said that the new consent decree that was proposed by the FTC does not require the company to do anything they weren't already planning in an effort to resolve the lawsuit. As a result, Cook said Apple would accept the proposal to avoid a "long and distracting legal fight."Apple will refund $32.5 million to customers whose children made unauthorized in-app purchases, and in return the FTC will drop its lawsuit.

Of course, a $32.5 million payout to customers is pocket change for Apple, a company that had a massive $148.6 billion in cash as of the end of last quarter.

The FTC first announced in early 2011 that it would investigate iTunes in-app purchases after receiving complaints from consumers. In particular, games geared toward children were scrutinized, as parents found that their kids were making unwanted purchases in various titles for iPhone and iPad.

In one high-profile incident, an 8-year-old racked up more than $6,000 in in-app purchases through iOS games. Apple ended up refunding the money to the parents of that child, who was playing games sucha s Smurfs' Village, Hay Day, My Horse and Campus Life.

For its part, the FTC teased Wednesday morning that it would announce a settlement with a "major technology company." Apple preempted the formal announcement, however, with the leaked e-mail from Cook.
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Comments

  • Reply 1 of 101
    gatorguygatorguy Posts: 23,304member
    Mr. Cook's letter in it's entirety as follows:

    [I]Team,
    I want to let you know that Apple has entered into a consent decree with the U.S. Federal Trade Commission. We have been negotiating with the FTC for several months over disclosures about the in-app purchase feature of the App Store, because younger customers have sometimes been able to make purchases without their parents’ consent. I know this announcement will come as a surprise to many of you since Apple has led the industry by making the App Store a safe place for customers of all ages.

    From the very beginning, protecting children has been a top priority for the App Store team and everyone at Apple. The store is thoughtfully curated, and we hold app developers to Apple’s own high standards of security, privacy, usefulness and decency, among others. The parental controls in iOS are strong, intuitive and customizable, and we’ve continued to add ways for parents to protect their children. These controls go far beyond the features of other mobile device and OS makers, most of whom don’t even review the apps they sell to children.

    When we introduced in-app purchases in 2009, we proactively offered parents a way to disable the function with a single switch. When in-app purchases were enabled and a password was entered to download an app, the App Store allowed purchases for 15 minutes without requiring a password. The 15-minute window had been there since the launch of the App Store in 2008 and was aimed at making the App Store easy to use, but some younger customers discovered that it also allowed them to make in-app purchases without a parent’s approval.

    We heard from some customers with children that it was too easy to make in-app purchases, so we moved quickly to make improvements. We even created additional steps in the purchasing process, because these steps are so helpful to parents.

    Last year, we set out to refund any in-app purchase which may have been made without a parent’s permission. We wanted to reach every customer who might have been affected, so we sent emails to 28 million App Store customers – anyone who had made an in-app purchase in a game designed for kids. When some emails bounced, we mailed the parents postcards. In all, we received 37,000 claims and we will be reimbursing each one as promised.

    A federal judge agreed with our actions as a full settlement and we felt we had made things right for everyone. Then, the FTC got involved and we faced the prospect of a second lawsuit over the very same issue.

    It doesn’t feel right for the FTC to sue over a case that had already been settled. To us, it smacked of double jeopardy. However, the consent decree the FTC proposed does not require us to do anything we weren’t already going to do, so we decided to accept it rather than take on a long and distracting legal fight.

    The App Store is one of Apple’s most important innovations, and it’s wildly popular with our customers around the world because they know they can trust Apple. You and your coworkers have helped Apple earn that trust, which we value and respect above all else.

    Apple is a company full of disruptive ideas and innovative people, who are also committed to upholding the highest moral, legal and ethical standards in everything we do. As I’ve said before, we believe technology can serve humankind’s deepest values and highest aspirations. As Apple continues to grow, there will inevitably be scrutiny and criticism along our journey. We don’t shy away from these kinds of questions, because we are confident in the integrity of our company and our coworkers.

    Thank you for the hard work you do to delight our customers, and for showing them at every turn that Apple is worthy of their trust.

    Tim[/I]
  • Reply 2 of 101
    Wow, an 8 year old racked up a bill for 6000 dollars!!

    How many games would that have bought me when I was 8 and was playing Atari 2600 console?

    Must be ridiculous amounts some of these developers are getting paid (mostly by advertisers I assume).
  • Reply 3 of 101
    All this said, in cases where the purchases were over a long period of time and where NOT within a few minutes downloading a new app! I say the parents are to blame. Pretty good sign that they told the kids the password. So let them hang.

    And I still say, or a variety of reasons, there should be managed Apple ID accounts so kids can have their own account and password for iCloud etc. And regardless of the device, the restrictions are there on the account level. They could run from the age allowed, turning off IAP. Limiting money spent in a time period even if gift cards/allowances are used and so on. WITHOUT needing a school involved, just a parent's Apple ID to manage it.
  • Reply 4 of 101

    Apple will have to go through their corporate couch cushions looking for the spare change to cover this.

  • Reply 5 of 101
    Default prompt to re-enter the pw is set to 15 minutes; they should change that. Other than that, it's the parents fault for not configuring your device before handing it over to your 8 year old.

    Also, 'doubling-down on security'. How's that going?
  • Reply 6 of 101
    lkrupplkrupp Posts: 9,638member
    So when does Google have to pay up for the same thing in the Google app store? Or, like the Chinese labor flaps, only Apple does this and gets sued?
  • Reply 7 of 101
    zoetmbzoetmb Posts: 2,602member

    Unless there's something that Apple isn't revealing, I don't understand why the FTC got involved.   Seems to me that Apple was already doing the right thing and the court agreed.   

     

    I'm not an Apple fanboy and I criticize Apple when I believe they're in the wrong, but how many other companies would have contacted everyone by email (instead of waiting for customer service complaints) who had made a purchase and then, when emails bounced back, notified people with postcards?

     

    Something "stinks" about the kid who ordered $thousands of dollars of in-app purchases.    The kid would of had to of made those purchases within 15 minutes AND with a password.   Hell...the app store makes you enter a password even for free applications (which drives me nuts).     So how did the kid make all those purchases without the parent knowing (and obviously without the parent properly setting up the device).      

  • Reply 8 of 101
    lkrupp wrote: »
    So when does Google have to pay up for the same thing in the Google app store?

    Haven't you heard? Google closed the open source thingy; Android is completely secure now.
  • Reply 9 of 101
    maestro64maestro64 Posts: 5,022member
    Quote:
    Originally Posted by zoetmb View Post

     

    Unless there's something that Apple isn't revealing, I don't understand why the FTC got involved.   Seems to me that Apple was already doing the right thing and the court agreed.   

     

    I'm not an Apple fanboy and I criticize Apple when I believe they're in the wrong, but how many other companies would have contacted everyone by email (instead of waiting for customer service complaints) who had made a purchase and then, when emails bounced back, notified people with postcards?

     

    Something "stinks" about the kid who ordered $thousands of dollars of in-app purchases.    The kid would of had to of made those purchases within 15 minutes AND with a password.   Hell...the app store makes you enter a password even for free applications (which drives me nuts).     So how did the kid make all those purchases without the parent knowing (and obviously without the parent properly setting up the device).      


     This fix was put in after it was found out parents failed to be a parent and watch over what their kids were doing with their phone. I suspect these same parent tried sueing apple when the kid deleted all their personal information and contact from the phone since apple did not prevent the kid from doing this without putting in a password.

     

    Yeah not to rehash the whole who's responsibility argument, but if your kid manages to rack up $6000 in fees than it is your own dumb fault, it is no different than you kids breaking someone window with a baseball and trying to claim the window should not have broken in the first place.

     

    It is the cost of having kids, they do things like this if you not diligent about watching them or at least teaching them what is right and wrong.

  • Reply 10 of 101
    gatorguygatorguy Posts: 23,304member
    lkrupp wrote: »
    So when does Google have to pay up for the same thing in the Google app store? Or, like the Chinese labor flaps, only Apple does this and gets sued?

    GooglePlay never offered a 15 minute open window for purchases AFAIK,. In addition I believe they offer much more control for parents wanting to restrict their children's purchases and downloads than Apple currently does. Parents can even set up specific accounts for their children with age-appropriate content restrictions and blocking of in-app purchases. That prevents those young users from even seeing what apps or content the parent has.

    With that out of the way I remember a story about the FTC investiging potential privacy issues in apps targeting children, and yes that included Google Play.

    EDIT: Thanks Maestro for remembering the 15 minute purchase window was Apple's initial response to the already problematic in-app purchases appearing in games targeting children.
  • Reply 11 of 101
    mazda 3smazda 3s Posts: 1,608member
    Quote:

    Originally Posted by Gatorguy View Post





    GooglePlay never offered a 15 minute open window for purchases AFAIK. In addition I believe they offer much more control for parents wanting to restrict their children's purchases and downloads than Apple currently does. Parents can even set up specific accounts for their children with age-appropriate content restrictions and blocking of in-app purchases. That prevents those young users from even seeing what apps or content the parent has.

     

    Yup, if Apple would allow separate user accounts on the iPod touch/iPad, this wouldn't even be an issue. You'd have the primary account for the parents, and the secondary (you're ass isn't buying anything account) for the kids. Why they haven't done this yet is puzzling to me.

  • Reply 12 of 101
    jungmarkjungmark Posts: 6,883member
    lkrupp wrote: »
    So when does Google have to pay up for the same thing in the Google app store? Or, like the Chinese labor flaps, only Apple does this and gets sued?

    Androiders don't pay for things.

    Dear parents, an idevice isn't a baby sitter.
  • Reply 13 of 101

    Xbox Live apparently allows for “indie games”, as they call them, to be put on their store for download, provided that a demo is available. These games are of worthless to fair quality and are basically the equivalent to any sort of “app store” in this ecosystem. If anyone has ever seen a video of demos of such games being played, you’ll remember seeing the incredibly evil ways the game creators have shoehorned in-game purchases into them.

     

    For example, if the game is meant to be played by rapidly pressing the ‘A’ button, at the end of a level in the demo the creator will often throw up an option to purchase the full game… by pressing the ‘A’ button.

     

    Microsoft has given no guidelines as to the creation or quality of these games, and thus they are filled with deceptive and underhanded attempts to divorce people from their money.

     

    Apple, on the other hand, has some of the strictest rules for in-app purchases of any ecosystem.

     

    In the case of Xbox Live indie games, the fault lies with Microsoft and the software creators. In the case of iOS in-app purchases, the fault lies, most generally, with the user. But in an age of no personal responsibility, Apple is to “blame”.

     

    You can’t force people to educate themselves. You can absolve yourself of responsibility for their actions, however, and Apple has already done just that.

  • Reply 14 of 101
    Apple has always sent an email notification of purchases a day or two after. Why didn't the parents catch on? I think any parent who doesn't track their kid's activities should be liable because they're stupid "here you go son, here is my password, have fun duh." I get notified for each and every download even for free apps. If the email provided bounces, why is that the vendor's fault? Even after a post card was sent. This administration and it's various arms is turning this country into a communist society. DOJ, FTC, activist jurists, FCC, etall.
  • Reply 15 of 101
    dasanman69dasanman69 Posts: 13,001member
    For example, if the game is meant to be played by rapidly pressing the ‘A’ button, at the end of a level in the demo the creator will often throw up an option to purchase the full game… by pressing the ‘A’ button.

    It's not that easy. Pressing 'A' would only initiate the process of purchasing the full game. A menu comes up where the purchase needs to be confirmed, and can be password protected.
  • Reply 16 of 101
    dasanman69dasanman69 Posts: 13,001member
    lkrupp wrote: »
    So when does Google have to pay up for the same thing in the Google app store? Or, like the Chinese labor flaps, only Apple does this and gets sued?

    How could Google have the same problem if all the games are laggy and buggy? Kids get frustrated and quit before they ever get a chance to make a IAP.
  • Reply 17 of 101

    I'm glad to see apple making a responsible choice.  Taking care of it's customers is the reason that so many have become die hard fans for life.  

  • Reply 18 of 101
    maestro64maestro64 Posts: 5,022member
    Quote:

    Originally Posted by Mazda 3s View Post

     

     

    Yup, if Apple would allow separate user accounts on the iPod touch/iPad, this wouldn't even be an issue. You'd have the primary account for the parents, and the secondary (you're ass isn't buying anything account) for the kids. Why they haven't done this yet is puzzling to me.


     Again kids should not have accounts of their own again be a parent it not like you give a kid a Credit Card and say go have fun. Until my kids can pay their own bills they only get what I buy for them or let them use. I have multiply iOS devices and one account and all apps are loaded onto the device, i never gave my kids free access to my accounts and never allow them free access to the itunes/app store. But then I never had $6000 bill.

     

    The only reason google gives kids an account is so they can track their habit from day one, do not think they did it to be good to kids. Google wanted the ability to separate ever person in your house from a analytics stand point. Keep in mind in most every state in the US kids are not allow to buy things especially when a contract is involved and since itunes requires an agreement between you and them (a contract) and requires a CC (another contract) they could not give kids an account even though things are free there or you could use a gift card to buy.

  • Reply 19 of 101
    maestro64maestro64 Posts: 5,022member
    Quote:

    Originally Posted by Tallest Skil View Post

     

    Xbox Live apparently allows for “indie games”, as they call them, to be put on their store for download, provided that a demo is available. These games are of worthless to fair quality and are basically the equivalent to any sort of “app store” in this ecosystem. If anyone has ever seen a video of demos of such games being played, you’ll remember seeing the incredibly evil ways the game creators have shoehorned in-game purchases into them.

     

    For example, if the game is meant to be played by rapidly pressing the ‘A’ button, at the end of a level in the demo the creator will often throw up an option to purchase the full game… by pressing the ‘A’ button.

     

    Microsoft has given no guidelines as to the creation or quality of these games, and thus they are filled with deceptive and underhanded attempts to divorce people from their money.

     

    Apple, on the other hand, has some of the strictest rules for in-app purchases of any ecosystem.

     

    In the case of Xbox Live indie games, the fault lies with Microsoft and the software creators. In the case of iOS in-app purchases, the fault lies, most generally, with the user. But in an age of no personal responsibility, Apple is to “blame”.

     

    You can’t force people to educate themselves. You can absolve yourself of responsibility for their actions, however, and Apple has already done just that.


    That is the exact problem, the FTC has forced Apple's hand (wonder what is real back story) they have now reinforce the idea that people do not need to be responsible for their actions.

  • Reply 20 of 101
    solipsismxsolipsismx Posts: 19,566member
    jungmark wrote: »
    Androiders don't pay for things.

    Dear parents, an idevice isn't a baby sitter.

    Google has more CC numbers on file than Apple does. Of course, people willingly gave their CC info over to Apple¡ :p
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