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In Competition

15 minutes of fame: keeping “in-app” purchases in-check

28 March 2014

Days are well and truly numbered for unauthorised in-app purchases, following a spate of private and regulatory enforcement action in the United States, and the issue being firmly on the agenda of regulators in the UK, EU and Australia.

Google “in-app” purchase class action commenced this month

On 7 March 2014 a class action was commenced against Google in the US in relation to free or low cost apps which it is alleged are designed to induce in-app purchases of virtual supplies, ammunition, fruits and vegetables or virtual currency inside game apps.  The complaint alleges that although Google requires users to authenticate their account by entering a password prior to purchasing and/or downloading an app or buying in-app purchases, purchases can then be made for up to 30 minutes without the need to re-enter the password, enabling minors to make unauthorised purchases.  This occurs in circumstances where no indication is given when entering the password that anything more than a single transaction is being authorised.

The action claims that:

  • the contracts are voidable in return for restitution as they were entered into by minors;
  • Google breached a number of Californian consumer protection provisions by marketing and promoting certain gaming apps as “free” with the intent to induce minors to purchase game currency;
  • Google breached the Californian Unfair Competition Law by engaging in unlawful, unfair, fraudulent and/or deceptive business acts and practices;
  • Google was unjustly enriched by receiving payment for game currency purchased by minors without their parents’ knowledge or permission; and
  • Google breached an implied duty of good faith and fair dealing.

This follows a similar class action against another device manufacturer settled last year

The action against Google follows a similar class action brought against another device manufacturer in April 2011.  Those proceedings alleged that minors charged in-app purchases inside third-party game apps without the account-holders’ knowledge or permission, on phones, tablets and music devices.  Similar to the Google class action, that action alleged breaches of California’s Consumer Legal Remedies Act and Unfair Competition Law, the implied duty of good faith and fair dealing, and that the manufacturer had been unjustly enriched.  These allegations related to “free” apps which did not disclose the embedding of in-app purchases, nor that those purchases could be conducted for up to 15 minutes without requiring a password to be re-entered.  This action was settled in February 2013 for up to US$100 million, including payment of either a US$5 credit, or the total of all unauthorised charges within 45 days of the first unauthorised charge which had not previously been refunded.

The FTC also took follow-up action against that device manufacturer earlier this year

After the class action had been settled, the FTC filed a regulatory complaint alleging that the device manufacturer violated the FTC Act by failing to tell parents that by entering a password they were approving a single in-app purchase and also 15 minutes of additional unlimited purchases their children could make without further action by the parent.  This followed its announcement in February 2011 that it would review the marketing and delivery of mobile applications that charge users for products and services.

Although a change in 2011 stopped children making in-app purchases within 15 minutes of their parents authorising the purchase and/or download of an app in the App Store, they still permitted subsequent in-app purchases within 15 minutes of an in-app purchase being authorised.  The FTC said that the device manufacturer needed to be clearer about this 15 minute window, and that they must give consumers a choice when they buy an app about whether to accept the 15-minute window for in-app purchases, as well as the ability to withdraw their approval.

In a settlement with the FTC, the device manufacturer agreed to provide full refunds to consumers, paying a minimum of $32.5 million to consumers who were billed for in-app charges that were incurred by children and were either accidental or not authorised by the consumer, as well as to change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for items sold in mobile apps.

“In-app” purchases are in the spotlight worldwide…

The European Commission announced plans in February 2014 to hold talks with the industry, as well as policymakers and consumer protection authorities in seven European countries in relation to games on tablets and mobile phones that allow adults and children to rack up vast credit card bills by making in-app purchases.

…including in Australia

Back home, the ACCC has also indicated its intention to crack-down on in-app purchases on mobile and tablet devices via new guidelines.  In September 2013 it conducted a review of the 300 most popular apps among children and consulted with consumers.  In December 2013, the ACCC backed the local implementation of proposed principles for the online and app-based game industry that have been released for discussion in the UK by the UK Office of Fair Trading (OFT).  Those principles have since been released in final form by the OFT in January 2014, with games producers required to implement the principles by 1 April 2014.

It remains to be seen what action the ACCC will take in the in-app purchases space, but it is clear that it is taking the issue very seriously, and as recently as December 2013 was still considering whether or not to take enforcement action for misleading and deceptive conduct.  In the meantime, the ACCC’s website provides guidance on how to restrict in-app purchases and apply for refunds for unauthorised purchases.


For more on the latest media issues, head on over to our sister blog, IP Whiteboard’s Media section.

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