Apple Inc. will pay at least $32.5 million in consumer refunds to settle Federal Trade Commission allegations that it wrongly billed parents millions of dollars for unauthorized charges incurred by their children in kids' mobile apps.
The company, which settled a private class action over the same conduct in October, likened the settlement to "double jeopardy," as Apple CEO Tim Cook put it in a letter to employees, and FTC Commissioner Joshua Wright dissented from the deal, arguing the FTC did not meet its burden of proof.
The FTC in an administrative complaint alleged Apple failed to tell parents that when they entered their passwords to authorize purchases of virtual items or currency in an app, their kids could continue to make unlimited additional app purchases for the next 15 minutes. According to the FTC, thousands of kids did so, racking up millions in charges on apps such as Dragon Story and Tiny Zoo Friends.
The agency charged Apple with violating Section 5 of the FTC Act, which bans unfair acts or practices. In addition to refunding a minimum of $32.5 million to consumers (if the claims are less, the FTC will keep the difference) Apple will change its billing practices to ensure it obtains consumers’ express, informed consent prior to billing them.
“This settlement is a victory for consumers harmed by Apple’s unfair billing and a signal to the business community: whether you’re doing business in the mobile arena or the mall down the street, fundamental consumer protections apply,” FTC Chairwoman Edith Ramirez said in a news release. “You cannot charge consumers for purchases they did not authorize.”
The FTC’s allegations are not new. In 2011, Apple was hit with a private class action filed in U.S. District Court for the Northern District of California over unauthorized app purchases by kids. U.S. District Judge Edward Davila in October approved a settlement that calls for class members to get a full refund of charges—either in cash or as an iTunes Stores credit. The deal also includes $1.3 million in attorney fees to plaintiffs counsel from firms including Saltz Mongeluzzi Barrett & Bendesky, Boni & Zack, Seeger Weiss, and Berman Devalerio.
Ramirez in a press conference defended the FTC’s settlement as “much more robust” than the class action resolution, which she said did not require Apple to change its billing practices.
Cook, the Apple chief executive, didn’t see much distinction. “It doesn’t feel right for the FTC to sue over a case that had already been settled,” Cook wrote in the Wednesday morning letter. “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.”
Apple was represented in the FTC matter by Gibson Dunn & Crutcher partner M. Sean Royall, who was deputy director of the FTC’s Bureau of Competition from 2001 to 2003.
FTC Commissioner Joshua Wright, a Republican, penned a 17-page dissent to the settlement.
“I believe the Commission should have conducted a much more robust analysis to determine whether the injury to this small group of consumers justifies the finding of unfairness and the imposition of a remedy,” he wrote. “I do not believe the Commission has met its burden to satisfy all three requirements in the unfairness analysis. In particular, although Apple’s allegedly unfair act or practice has harmed some consumers, I do not believe the Commission has demonstrated the injury is substantial.”