Apple to pay up to US$100m to settle US kids’ apps suit

The Guardian

Thu, Feb 28, 2013 - Page 15

Parents who have been shocked to find that their children have run up massive bills — some of up to US$1,400 — by making in-app purchases (IAPs) on their Apple Inc iPhones or iPads will get cash or iTunes Store credit as part of a settlement that could cost the US company up to US$100 million.

The move would settle a lawsuit filed in 2011 by five parents in California who complained that Apple had not made it clear that “free” apps downloaded from the App Store could also include paid-for extras, which did not necessarily require the child to provide the parent’s iTunes Store password.

As many as 23 million people could receive compensation, the settlement document said.

The lawsuit alleged that “Apple failed to adequately disclose that third-party game apps, largely available for free and rated as containing content suitable for children, contained the ability to make in-app purchases.”

Now the company is offering a settlement — agreed by the plaintiffs — in which people who can show that a minor made an IAP can claim either iTunes Store credits or cash settlements in cases where parents say the cost of purchases exceeded US$30. The settlement is understood to apply only in the US.

In February 2011, the US Federal Trade Commission said it was launching an inquiry into IAPs because of concerns that children were playing games that were encouraging them to make the purchases and unwittingly run up bills.

One game that came under particularly criticism was Capcom’s game Smurfs’ Village, in which children were encouraged to buy US$99 barrels of Smurfberries — which really did cost US$99 to parents with the account.

IAPs and the protections around them have been controversial topics in the App Store since the capability was introduced to iOS, the mobile software that runs the iPhone and iPad, in 2009. App developers discovered that they could be used to dramatically raise the amount of money that could be raised from an app because rather than paying the full amount upfront, users would spread payments as they played the game by making small purchases that quickly added up.

Because the password was not required inside the game, parents were frequently unaware that their children were buying “items,” the cost of which was being added to their iTunes Store bill.

Later changes by Apple introduced a timeout function for the password, so that users would have to re-enter it during games to make purchases, and subsequently an absolute requirement as a preference to require a password for any IAP.

In a report published in December last year, the commission was critical of the lack of clear information about advertising and IAPs in games targeted at children.

“The report strongly urges all entities in the mobile app industry — including app stores, app developers and third parties providing services within the apps — to accelerate efforts to ensure that parents have the key information they need to make decisions about the apps they download for their children,” it said.

A US court has to approve the proposed settlement, which will be heard tomorrow.