The Federal Trade Commission sued Amazon on Thursday, accusing it of allowing children to make purchases within mobile applications even though the company knew kids were doing so without parental permission.
The suit, filed in U.S. District Court in Seattle, alleges the online retail giant knowingly allowed kids to run up “millions of dollars” of charges buying virtual items within the gaming apps such as “coins,” “stars” and “acorns,” all without parental involvement.
“Companies need to get consumers’ consent before placing charges on their bills,” Jessica Rich, director of the agency’s consumer-protection bureau, said in a conference call with journalists.
Amazon declined to comment on the suit, except to reiterate what its lawyer, Andrew C. DeVore, said in a letter to FTC Chairwoman Edith Ramirez last week. Then, DeVore disputed the claims and described litigation as “an unfortunate misallocation of the commission’s resources.”
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The dispute stems from gaming apps Amazon sells from its Appstore to consumers, who then play them on mobile phones or tablets. The apps, which target kids, include such titles as “Pet Shop Story” and “Ice Age Village.” They aren’t made by Amazon, but Amazon receives 30 percent of all in-app purchases.
When Amazon introduced in-app purchases in November 2011, it didn’t require any passwords to make them. Just weeks later, an Amazon Appstore manager described the level of complaints about unauthorized purchases as “near house on fire,” according to the suit.
Amazon updated its policy in March 2012 to require authorization for in-app purchases above $20.
At the time, an Appstore manager wrote in an internal document obtained by the FTC that “it’s much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product.”
“Over time, Amazon changed its in-app charge process, but it did not fix the problem, and it was not transparent with consumers,” Rich said.
Moreover, Rich said the refund policy for parents who complained about unauthorized purchases was “not adequate.”
“The path to seeking a refund has been unclear and rife with deterrents, including statements that consumers cannot in fact get a refund for in-app charges,” Rich said.
In its suit, the agency is seeking refunds but not financial penalties. And even though the suit notes Amazon pursued its in-app strategy despite mounting complaints, Rich would not say Amazon executives did so to generate revenue.
“I’m not going to comment on their motivations,” Rich said.
The suit is part of the agency’s efforts to ensure that a “cardinal rule” of consumer protection, that buyers consent to purchases, applies in the virtual world, Rich said.
The FTC raised similar concerns over Apple’s policies regarding in-app purchases and reached a settlement with the company in January. Apple agreed to obtain express, informed consent for in-app purchases and to refund at least $32.5 million.
In his letter to the FTC, Amazon’s DeVore noted the company has refunded unauthorized purchases when customers complained. He noted that Amazon’s policy regarding in-app purchasing “already meets the requirements of the Apple consent order.”
The Center for Digital Democracy, a nonprofit group that promotes privacy rights, lauded the FTC suit for protecting consumers and children.
“Amazon’s refusal to deal fairly with people who purchased its devices and use its apps suggests it places making money over the interests of its customers,” the group’s legal director, Hudson B. Kingston, said in a statement.
But the Direct Marketing Association trade group said Amazon should be given credit for working to fix the problem.
“Amazon reportedly has already done the right thing by enhancing its app market and providing consumer refunds, so consumers have nothing to gain and plenty to lose from the Commission’s lawsuit,” Peggy Hudson, the group’s senior vice president of government affairs, said in a statement. “Nothing will discourage future innovation faster than punishing good deeds”
Jay Greene: 206-464-2231 or email@example.com. Twitter: @greene