Apple Settles With FTC Over App Store In-App Purchases To Avoid “Distracting” Legal Fight

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Apple has settled with the FTC over concerns about its in-app purchase system in iOS applications, according to a letter from Tim Cook to employees obtained by 9to5Mac. The FTC announced earlier that it would later be issuing a full statement regarding a settlement with an unnamed tech giant, but the letter, also obtained by CNBC, spills the beans early on the nature of the agreement.

In the letter, pasted in full below, Tim Cook explains that while Apple viewed the FTC complaint as a sort of “double jeopardy” for lawsuits from private citizens settled previously when Apple agreed to refund parents who’d banded together to get funds reimbursed for purchases made by their kids via the in-app mechanism, the company in the end decided that fighting the FTC would be “long” and “distracting.” He also says that the FTC requirements ask Apple to do nothing more than what it had planned to do all along.

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

The terms of the arrangement with the FTC involve Apple paying out a minimum of $32.5 million in refunds to users who’ve complained about charges made by their kids via in-app purchase without the necessary approval of their parents, according to the WSJ.

The FTC also requires that Apple now inform parents of the 15-minute window that they incur wherein passwords are not required after their initial entry. So Apple now has to change the way their software works to make it immediately apparent that they are effectively unlocking the account for a 15-minute period when they first enter that password, the idea being that this will prevent the kind of massive accidental charges listed in the complaint.

Apple went the extra mile according to the FTC, agreeing to implement this new warning system for in-app purchases across all types of apps that contain them, even though the scope of the complaint only dealt with software aimed at children specifically, the FTC explained during its press conference.

As part of the settlement, Apple must send out emails to customers who might have been affected by unauthorized charges made by minors, with detailed instructions on how to obtain a refund. That means that if your toddler spent $200K on Smurfberries or whatever, it’s a good idea to start watching your inbox.

Regarding when we might expect to see these changes put in place, the FTC notes that the public has until February 14 to make any comments, at which point the FTC will go forward with delivering a final order to Apple as to compliance with all of the above. Already, there’s a deadline for implementing the notice of the 15-minute window, which must appear in iOS software by March of this year.