Under the terms of the settlement, announced on Wednesday by the
U.S. Federal Trade Commission, Apple also will be required to change
its billing practices to ensure it obtains consent from parents
before charging for such in-app spending.
"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."
She estimated that children spent millions of dollars without their
parents' knowledge, with one mother telling the agency that her
daughter spent $2,600 while playing the game "Tap Pet Hotel."
Ramirez said the commission had received "tens of thousands of
complaints" from consumers over the unauthorized purchases through
apps such as Dragon Story and Tiny Zoo Friends.
In a memo to employees, Apple CEO Tim Cook referred to a class
action settlement reached in June which required the company to pay
around $100 million to parents whose children made unauthorized
"It doesn't feel right for the FTC to sue over a case that had
already been settled. To us, it smacked of double jeopardy," Cook
wrote. "However, the consent decree the FTC proposed does not
require us to do anything we weren't already going to do, so we
decided to accept it rather than take on a long and distracting
The FTC complaint alleges that Apple does not inform account holders
that entering their password in the company's App Store opens a
15-minute window in which children can incur unlimited charges with
no further action from the account holder.
While the refunds will be available for purchases through apps aimed
at children, all Apple apps will get new disclosures, the wording of
which has not yet been finalized.
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"To be clear, the issue is not that Apple opens a 15-minute window
for in-app purchases," Ramirez said. "What we challenge is the fact
that Apple does not inform users of the existence of the window.
When parents enter a password, they do not know the full scope of
charges they could incur."
Apple shares showed little response to the news and in midafternoon
trading were up 2.1 percent at $558.03, holding onto gains posted
"Protecting children has been a top priority for the App Store from
the very beginning, and Apple is proud to have set the gold standard
for online stores by making the App Store a safe place for customers
of all ages," said Apple spokesman Steve Dowling.
The commission vote to accept the consent agreement package was 3-1,
with Commissioner Joshua Wright, a Republican, voting no. In a
statement, Wright argued that the FTC failed to show that the
"extremely small" group of consumers who were injured justified a
finding that Apple was unfair.
(Reporting by Diane Bartz and Alina
Selyukh.; Additional reporting by Poornima Gupta in San Francisco; writing by Ros Krasny;
editing by Andre Grenon and Cynthia Osterman)
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