After Amazon refused to comply with the Federal Trade Commission's (FTC) request to revise its policy on in-app purchases, the agency filed a lawsuit seeking the court's order to prohibit the Internet retailer from billing parents whose children make in-app purchases on Amazon devices without their "informed consent."
The FTC, which filed the case in the U.S. District Court for the Western District of Washington, alleged Amazon of unlawfully billing "thousands" of customers with "tens of millions of dollars" with in-app purchases made by children without their parents notified of their purchases. These purchases can cost somewhere between $0.99 and $99 and can be made on an unlimited basis. Amazon does not make these apps, but the e-commerce company receives 30% of the proceeds of the revenue made by app developers.
"In total, parents and other Amazon account holders have suffered significant monetary injury, with thousands of consumers complaining about unauthorized in-app charges by their children, and many consumers reporting up to hundreds of dollars in such charges," says [pdf] the FTC in its lawsuit.
The FTC cites internal company communications in its lawsuit, saying one Amazon Appstore manager who said in December 2011, just a few months after Amazon introduced in-app purchases with no password requirements, that Amazon was "clearly causing problems for a large percentage of our customers" and described the situation as "near house on fire."
But Amazon, in a letter [pdf] written by its associate general counsel Andrew DeVore, insisted that the company's approach to in-app purchases was "responsible, customer-focused and lawful." DeVore also noted that Amazon has always agreed to refund purchases accidentally made by children who were not aware that they were buying digital goods with real money "even at launch."
The FTC, however, rebuts Amazon's statement. In a press conference Thursday, the FTC's Bureau of Consumer Protection director Jessica Rich insists that Amazon's refund process is "unclear and rife with deterrents." Rife also says Amazon's official policy on in-app purchases was that they did not give refunds.
In its lawsuit, the FTC further argues that Amazon only introduced password protection for in-app purchases sometime in the first quarter of 2012, but it was limited to purchases above $20. At that time, users could still make unauthorized purchases of items $20 and below. The FTC notes that it obtained Amazon documents where one Amazon Appstore employee said, "It's much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product."
Amazon again changed its in-app purchases policies in 2013, introducing password protection for other in-app charges, but the FTC alleges that the changes were implemented at different times and in different ways. Also, the agency notes that a single authorization still gives the child a period of time that varies from anywhere between 15 minutes to one hour to continue making unlimited purchases.
Earlier this year, the FTC accused of Apple of the same charges, but Apple decided to settle with the agency and pay its customers some $3.2 billion in refunds. In its letter to the FTC, DeVore blasted the agency for its "unwillingness to depart from the Apple precedent" and said the case with Amazon involves "very different facts."
Unlike Apple's iPhone and iPad, Amazon's Kindle devices feature Kindle FreeTime, a kid-friendly mode that parents can enable before they hand their devices to their children. FreeTime disables all in-app purchases and allows parents to choose which apps their children can use.
