App Store

Apple's kiddie app deal stirs controversy at the FTC

January 15, 2014: 6:12 PM ET

Sharp dissent among the commissioners who extracted a $32.5M settlement out of Apple.

One little girl spent $2,600 in Tap Street Hotel

One child spent $2,600 on pets in Tap Street Hotel.

FORTUNE -- There's fun to be had reading the documents that came with the Federal Trade Commission's announcement Wednesday that it had cut a $32.5 million deal with Apple (AAPL).

Apple was charged with letting kids spend millions on in-app purchases without their parents' consent. The company grudgingly agreed to settle.

The FTC's press release described the consent decree as a huge win for aggrieved parents.

"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," said FTC Chairwoman Edith Ramirez. "You cannot charge consumers for purchases they did not authorize."

Now the fun begins.

First, there's Tim Cook's memo to the staff, which several blogs obtained and which Fortune can confirm is genuine. In it Cook points out that the case in which Ramirez just declared victory had already been adjudicated before the FTC took it up.

"Last year," Cook writes to his staff, "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 had signed off on this settlement and Apple had begun mailing out reimbursement checks when the FTC, under newly-appointed Chairwoman Ramirez, decided to get involved.

To Cook this "smacked of double jeopardy" but he says he decided to sign rather than fight because, as he put it, "the consent decree the FTC proposed does not require us to do anything we weren't already going to do."

Not quite. There's still a little matter of $32.5 million. But we'll get to that later.

Meanwhile, the commissioners have issued a flurry of statements, mostly responding to a pointed dissent filed by commissioner Joshua Wright, a former George Mason professor of law. In it, Wright takes issue with the premise of the case, arguing that the FTC had never before charged a company with "unfair acts or practices" for this kind of marketing behavior.

"The test the Commission uses to evaluate whether an unfair act or practice is unfair used to be different," he writes. "[Those] cases invariably involve conduct where the defendant has intentionally obscured the fact that consumers would be billed. Many of these cases involve unauthorized billing or cramming – the outright fraudulent use of payment information. Other cases involve conduct just shy of complete fraud – the consumer may have agreed to one transaction but the defendant charges the consumer for additional, improperly disclosed items."

Furthermore, he writes, rather than a substantial victory, "this is a case involving a miniscule percentage of consumers – the parents of children who made purchases ostensibly without their authorization or knowledge... The injury in this case is limited to an extremely small – and arguably, diminishing – subset of consumers."

Which brings us to that $32.5 million. It's not clear from any of the documents how this figure was arrived at, nor whether the refunds Apple has already paid will be subtracted from it. By the terms of the consent agreement, Apple must pay out "a minimum" of $32.5 million -- or roughly $880 for each of Apple's complainants.

Any money that's not spent -- which could, in theory, be millions of dollars -- goes to ... wait for it ... the commission.

So, bottom line, the FTC has hit an Apple trifecta: 1) headlines that paint the government as protectors of parents and children in the digital age, 2) a story in which the FTC gets to play the giant killer, and 3) a novel way to extract millions out of Apple's coffers -- and maybe send some of it directly to the FTC's.

Fun fact: Before she was appointed to the FTC, Chairwoman Ramirez was a partner in the Los Angeles office of Quinn Emanuel Urquhart & Sullivan.

See also: Apple's controversial cash cow: Free apps that sell extras

  • Apple's App Store: 'The insidious march of a disruptor'

    Music downloads are down. Apps are through the roof. Should Hollywood be worried?

    FORTUNE -- Asymco's Horace Dediu, who created the attached chart from data Apple (AAPL) released Tuesday, doesn't buy the accepted wisdom about what's going on.

    To state the obvious: iTunes music downloads are down while downloads of apps are up sharply: 35% year over year and 50% in December alone.

    It's tempting to suggest, Dediu writes in a post called MORE

    - Jan 8, 2014 7:07 AM ET
  • Apple's app sales topped $1B in December, $10B in 2013 - updated

    The App Store has now generated $6 billion for Apple and $15 billion for developers.

    FORTUNE -- Downloads of iOS apps were off the charts in 2013, according to an Apple (AAPL) press release issued Tuesday morning. The key numbers:

    $10 billion: Sales in 2013
    $1 billion: Sales in December alone
    Almost 3 billion: Individual apps sold in December
    $15 billion: Payments to developers to date

    The company splits app sales with developers 70/30, which means the store has MORE

    - Jan 7, 2014 10:03 AM ET
  • Chart of the day: Google Play overtakes Apple's App Store

    Google registers 10% more downloads. Apple generates 2.3 times more revenue.

    FORTUNE -- App Annie, the mobile analytics site with the friendliest name, is the first to report that four years after it was launched as Android Market, Google's (GOOG) app store has overtaken Apple's (AAPL).

    Driven by Android's rapidly growing market share, 10% more of the world's population downloaded Google Play apps in the June quarter than App Store apps, according MORE

    - Jul 31, 2013 2:54 PM ET
  • Handicapping the Apple news at today's developers conference

    Munster puts iRadio at 80%, MacBook Air at 40%, iWallet at 20%, Apple TV apps at 10%.

    FORTUNE -- With the Tim Cook's keynote address at Apple's (AAPL) World Wide Developers Conference only hours away, there's no shortage of speculation from Apple bloggers and Apple analysts about what's in store. But only Piper Jaffray's Gene Munster has assigned percentages to the possible announcements.

    Excerpts from his Monday morning note to clients:

    90% Chance of MORE

    - Jun 10, 2013 7:03 AM ET
  • Apple expected to hit 50 billion app downloads by Wednesday

    But if downloads accelerate, the odometer could roll over before midnight Tuesday.

    FORTUNE --Apple (AAPL) loves those big numbers with a lot of zeros, and for the past week the company has been promoting -- with prizes, cool facts and a countdown odometer -- another fast-approaching milestone: The 50 billionth app download.

    Hard to believe it's been only 15 months since the last one.

    1 billion: April 2009
    10 billion: January 2011
    25 billion: February MORE

    - May 14, 2013 7:44 AM ET
    Posted in: , , ,
  • Apple's WWDC 2013: The hottest tickets in town

    Five years ago, Apple ran out of seats in two months. This year: 90 seconds.

    FORTUNE -- How badly do developers want to write software for Apple's (AAPL) iPhone and Mac App Stores? Here's one measure: In 2008 it took 61 days for the company's annual World Wide Developers Conference to sell out. On Thursday, roughly 5,000 tickets for WWDC 2013 went on sale at 1 p.m. EST. Ninety seconds later, MORE

    - Apr 25, 2013 2:55 PM ET
  • Apple's controversial cash cow: Free apps that sell extras

    In-app purchases set records in February: 76% of U.S. App Store revenue, 90% in Asia

    FORTUNE -- The floodgates officially opened on Thursday Oct. 15, 2009. That's when Apple (AAPL) sent a letter to iPhone developers telling them they could adopt a new business model: Give away their apps and make their money selling extras -- new characters, faster cars, better weapons, stronger magic, more gold, etc.

    The model was so successful MORE

    - Mar 29, 2013 8:25 AM ET
  • Apple's App Store vs. Google Play: Where they stand

    Both now boast more than 700,000 apps, but Apple's store generates 4.3 times more cash

    FORTUNE -- Manufacturers on Google's (GOOG) Android platform may be selling more devices, but Apple's (AAPL) App Store is still the best place to be for developers trying to make a living.

    That's the bottom line in the year-end review published Friday by Distimo, a Dutch analytics company:

    "On a typical day in November 2012, the revenues in the MORE

    - Dec 21, 2012 7:23 AM ET
  • Poll: Should Apple accept an app that tracks drone kills?

    Drone+ has been rejected three times -- now for "objectionable and crude" content

    FORTUNE -- Wired last week reported that for the third time in a month, Apple (AAPL) has rejected an app that would post a location on a map -- and alert users by push notification (with permission, of course) -- every time a U.S. drone is reported to have killed someone in Pakistan, Yeman or Somalia.

    The strike data come MORE

    - Sep 3, 2012 9:17 AM ET
    Posted in: , , , ,
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.