FTC Takes Legal Action Against Amazon For Unauthorized In-app Purchases

The Federal Trade Commission filed a complaint against Amazon Thursday, alleging the company billed parents for millions of dollars of in-app purchases that their children made without their consent.

The filing follows Amazon’s refusal to comply with the FTC’s request to implement a “consent” model similar to the one Apple conceded to earlier this year, according to a letter Amazon sent to the FTC last week. Amazon believes it already has implemented effective parental controls consistent with the model the FTC settled on with Apple, and it says it refunded customers who complained of children making in-app purchases without their permission.

But in the new filing today, the FTC accused the company, which keeps 30 percent of in-app charges, of allowing “children playing these kids’ games to spend unlimited amounts of money to pay for virtual items within the apps such as ‘coins,’ ‘stars,’ and ‘acorns’ without parental involvement.”

“Amazon’s in-app system allowed children to incur unlimited charges on their parents’ accounts without permission,” said FTC Chairwoman Edith Ramirez in a statement Thursday. “Even Amazon’s own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents’ consent for in-app purchases.”

Amazon first began in-app charges in November 2011, and at that time the FTC alleges there were no password protections against children making unauthorized purchases. The FTC says this left parents with large bills, and that Amazon employees were aware it was causing problems, according to internal emails included in the complaint. One email said this is “…clearly causing problems for a large percentage of our customers,” and added that the situation was a “near house on fire.”

The FTC says Amazon’s first protection against such purchases did not come until March 2012, when the company introduced a feature that required the account owner to enter a password for in-app purchases more than $20. Children continued to make unlimited purchases under this amount, the FTC says, until early 2013, when parents had to enter a password for a single in-app purchase.

However similar to Apple’s system that the FTC raised concerns about earlier this year, children were able to continue to make purchases for at least 15 minutes after the password was entered. The FTC alleges this loophole wasn’t closed until early 2014.

Earlier this year, the FTC settled a similar suit with Apple in January that required the company to refund $32.5 million to 37,000 customers whose children made purchases on their iPad or iPod without permission. It also changed its billing practices to ensure that customers give expressed, informed consent for purchases before they are charged in the mobile store.

But Amazon says it has already been refunding customers who complained of such purchases, and it refuses to settle and will take this case to court.

Amazon also maintains that it had safeguards in place to prevent such purchases. The company now gives parents the option of requiring a PIN for every in-app purchase. Amazon also offers Kindle FreeTime, an app that allows parents to disable web browsing and purchasing content.

Geoffrey Manne, executive director of the International Center for Law and Economics, says Amazon’s case is “very strong.” Manne recently testified before the House Commerce Committee on the recent Apple case.

He said in order for the FTC to win, they would have to prove that customers could not “reasonably avoid” making such purchases. He notes the FTC’s complaint fails to point out safeguards Amazon had in place for parents, such as FreeTime.

“There’s a chance that this gets thrown out on a motion to dismiss,” Manne said.

As the FTC targets Amazon, some have noted that Google could also get caught up in a similar complaint for in-app purchases. When the FTC first addressed this issue with Apple last year, the company’s general counsel pointed its finger at its competitor Google, saying its system also had flaws that allowed children to make these kinds of purchases. Google did not respond to multiple requests for comment.

Manne said the outcome of the Amazon case will likely determine whether the FTC pursues a complaint against Google.

“If they win this one, why wouldn’t they? It would be a no brainer,” Manne said. “ But as I said don’t think they’re going to win this one.”