Neil Hughes
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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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]
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).
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.
Apple will have to go through their corporate couch cushions looking for the spare change to cover this.
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?