Looks like Apple’s settlement last year of a lawsuit over the unauthorized use of in-app purchasing in games and apps sold through the App Store wasn’t enough for the Federal Trade Commission. Apple today signed a consent decree with the agency, addressing now two-year-old complaints that the company didn’t do enough to prevent children from buying currency or points inside apps and games without a clear understanding that they were spending real money.
Under the terms of the agreement, Apple must provide full refunds to consumers affected by confusion over in-app purchases, doling out a minimum of $32.5 million in redress. The company must also change its billing practices to ensure that it has obtained consumers’ express consent for in-app purchases before charging them.
In an all-hands memo sent to employees this morning and obtained by Re/code, CEO Tim Cook said Apple agreed to the deal because it felt it had no other choice.
“It doesn’t feel right for the FTC to sue over a case that had already been settled,” Cook wrote. “To us, it smacked of double jeopardy.”
But in the end, Apple agreed to the proposed decree anyway. Cook said the company was more willing to do so because it was hardly onerous. “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 legal fight,” Cook said.
In a Wednesday morning news conference, FTC chairwoman Edith Ramirez said the FTC feels that its decree better serves consumers who unwittingly racked up massive in-app charges because it requires full refunds. “We believe our agreement provides more robust relief,” she said.
Here’s the FTC’s announcement. Below, Cook’s memo in full.
From: Tim Cook
Date: January 15, 2014
Subject: FTC announcement
I want to let you know that Apple has entered into a consent decree with the U.S. Federal Trade Commission. We have been negotiating with the FTC for several months over disclosures about the in-app purchase feature of the App Store, because younger customers have sometimes been able to make purchases without their parents’ consent. I know this announcement will come as a surprise to many of you since Apple has led the industry by making the App Store a safe place for customers of all ages.
From the very beginning, protecting children has been a top priority for the App Store team and everyone at Apple. The store is thoughtfully curated, and we hold app developers to Apple’s own high standards of security, privacy, usefulness and decency, among others. The parental controls in iOS are strong, intuitive and customizable, and we’ve continued to add ways for parents to protect their children. These controls go far beyond the features of other mobile device and OS makers, most of whom don’t even review the apps they sell to children.
When we introduced in-app purchases in 2009, we proactively offered parents a way to disable the function with a single switch. When in-app purchases were enabled and a password was entered to download an app, the App Store allowed purchases for 15 minutes without requiring a password. The 15-minute window had been there since the launch of the App Store in 2008 and was aimed at making the App Store easy to use, but some younger customers discovered that it also allowed them to make in-app purchases without a parent’s approval.
We heard from some customers with children that it was too easy to make in-app purchases, so we moved quickly to make improvements. We even created additional steps in the purchasing process, because these steps are so helpful to parents.
Last year, we set out to refund any in-app purchase which may have been made without a parent’s permission. We wanted to reach every customer who might have been affected, so we sent emails to 28 million App Store customers — anyone who had made an in-app purchase in a game designed for kids. When some emails bounced, we mailed the parents postcards. In all, we received 37,000 claims and we will be reimbursing each one as promised.
A federal judge agreed with our actions as a full settlement and we felt we had made things right for everyone. Then, the FTC got involved and we faced the prospect of a second lawsuit over the very same issue.
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. 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 legal fight.
The App Store is one of Apple’s most important innovations, and it’s wildly popular with our customers around the world because they know they can trust Apple. You and your co-workers have helped Apple earn that trust, which we value and respect above all else.
Apple is a company full of disruptive ideas and innovative people, who are also committed to upholding the highest moral, legal and ethical standards in everything we do. As I’ve said before, we believe technology can serve humankind’s deepest values and highest aspirations. As Apple continues to grow, there will inevitably be scrutiny and criticism along our journey. We don’t shy away from these kinds of questions, because we are confident in the integrity of our company and our co-workers.
Thank you for the hard work you do to delight our customers, and for showing them at every turn that Apple is worthy of their trust.